July 9, 2009

$20 bill lying on the sidewalk

Jeffrey Pfeffer, professor of organizational behavior at Stanford’s Graduate School of Business and author of What Were They Thinking?: Unconventional Wisdom About Management has written a new article:

'Efficient Market' Thinking Is Inefficient
You know the joke about two economists walking down the street and seeing a $20 bill lying on the sidewalk. The first economist says, “Look at that $20 bill.” The second says, “That can’t really be a $20 bill lying there, because if it were, someone would have picked it up already.” So they walk on, leaving the $20 bill undisturbed. The logic — that there are no opportunities for achieving exceptional returns because if such opportunities existed, they would be quickly discovered and implemented by almost everyone — underlies not only the efficient market theory in the world of finance but is incredibly pervasive in management decisions about all sorts of topics. I have had people tell me that downsizing must be effective — notwithstanding lots of empirical evidence to the contrary — because if it weren’t, companies wouldn’t be doing it. Read the article here.

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