June 23rd, 2008
Free markets are the best available system of allocating resources and we’re all blessed to live in one and blah blah blah. I like the free market. I certainly like it a lot better than all of the alternatives. But I am driven to distraction by free market androids who insist that markets are perfect and that any result a free market produces is, by definition, a correct result.
You know the type. This is the guy who insists that the Worldcom CEO was absolutely worth $120 million a year–because if he wasn’t then nobody would have been willing to pay him at that salary!
Instead, I would content that while free markets are great and all that (see above), they produce failures at a much higher rate than most Americans would probably suspect. These matters normally hinge on something subjective, but today we have an example that seems pretty cut and dry, courtesy of Santino.
Betting markets are a pretty pure distillation of a free market. But Sonny notices that at least one casino in Vegas was (earlier this year) giving Tiger Woods 4-1 odds on winning exactly three majors–but 3-1 odds on winning the Grand Slam. That’s right: The betting public thought that there was a better chance of Tiger winning all four majors (something which has never been done) than there was of him winning three of the four.
I’m not sure there’s a way to dress up this result as anything other than a market reaching an objectively irrational result.
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