Robin Hanson:

EMH (at least the interesting version) says prices are our best estimates, so to deny EMH is to assert that prices are predictably wrong. And for EHM violations to be relevant for regulatory policy, price errors must be so systematic as to allow a government agency to follow some bureaucratic process to identify when prices are too high, vs. too low, and act on that info.

So the clearest way for EMH skeptics to show they are right is to collect a track record showing that they can predict, ahead of time, when prices are too high, vs. too low. There’s little point in picking out some year old event, and saying, “see that price drop was too big.” Monday morning quarterbacking is way too easy.

But if just before a price drop you’d been on record saying the price was too high, or if just after you’d said the price was too low, well then we could include your purported error in a EMH-skeptic track record. And with enough skeptics identifying enough purported price errors, it wouldn’t take long to collect enough data to see if EMH skeptics really do have a system for identifying price errors. (Of course some would do well just by chance, so we’d need to look at the whole set.)

With a proven skeptic track record, we could then begin a conversation about whether their system was the sort that regulators should embody in some official government process, in order to improve our financial system. (Or whether skeptics should just post their errors, and let speculators fix prices.)

But all this continual harping year after year on how EMH is obviously wrong, based on selective stories of past prices you say were obviously wrong, sounds awful suspicious when you don’t bother to publicly flag price errors at the time, much less to collect and publicize a track record of such error flags. (E.g., care to declare which prices are wrong today?) What’s up with that?