The Rawls Factor on Not Fighting the Tape

I met John Rawls once; he seemed like the nicest man you could imagine. But one reason I have never been too crazy about John Rawls the philosopher is that he seemed to good at comforting the comfortable: reassuirng cosseted young Harvard students that their all-you-can eat smorgy of privilege came with a complimentary side dish of entitlement.

You see a lot of that sort of thing in academic writing: results that cast a gratifying warm glow on the inquirer. My friend Ignoto offers up a compelling example in the abstract of a new paper by an economist:

A theory is developed that explains how stocks can crash without fundamental news and why crashes are more common than frenzies. A crash occurs via the interaction of rational and naive investors. Naive traders believe that prices follow a random walk with serially correlated volatility. Their expectations of future volatility are formed adaptively. When the market crashes, naive traders sell stock in response to the apparent increase in volatility. Since rational traders are risk averse as well, a lower price is needed to clear the market: The crash is a self-fulfilling prophecy.

I think this means: don't blame us smart guys when we lose all your money by following the stupid guys down.

He adds, "frenzies cannot occur in this model," though what that has to do with anything is not obvious from this abstract.