Economist Eugene Fama: 'Efficient markets is a hypothesis. It's not reality

Scope and Meaning of the Efficient Market Hypothesis (EMH)

• Several comments stress EMH is narrowly about financial asset pricing, not “markets” or “society” in general.
• EMH is framed as a model/hypothesis: prices rapidly incorporate available information, not that markets are perfectly efficient or “right.”
• Some note the original proponent has always treated it as a model that’s never 100% true.

Information, Prices, and Quality

• Markets are described as information-compression systems: huge complexity → single price.
• Critics say prices are one-way encodings; you can’t decode quality, labor conditions, or externalities from price alone.
• This creates “lemon market” dynamics and pushes quality down when buyers can’t assess it.
• Online reviews and ratings are seen as a crude, easily gamed substitute for objective quality signals; detailed proposals for audit-based rating systems are discussed.

Externalities, Ethics, and Inequality

• One side argues pollution, forced labor, and low quality are “priced in” via consumers’ (often low) willingness to care.
• Others counter that harms fall on people who don’t participate in the relevant transactions and can’t “opt out,” so they’re not truly priced in.
• Ethical options often appear only as high-end niche products; information opacity and lack of regulation mean consumers rarely even get a realistic ethical choice.

Entrepreneurship, Innovation, and EMH

• Several argue perfectly efficient markets would leave no room for entrepreneurs or active investors; EMH would make funding innovation irrational.
• Others reply EMH applies mainly to public markets; private startups and changing conditions still create opportunities and uncertainty.

How Efficient, and For Whom?

• Consensus: markets are not perfectly efficient but not trivially beatable either.
• Some see “markets trend toward efficiency”; critics note there’s no bound on how long that takes and “in the long run” may be irrelevant.
• Distinction is drawn between markets being hard to beat and inefficiencies being structurally unexploitable or dominated by noise.

Economics, Ideology, and Models

• Multiple comments accuse EMH and related ideas of being treated as ideological dogma or political cover, especially in macro policy.
• Others defend economics as increasingly empirical, emphasizing that models are abstractions, not literal reality.