Skip to main content
SpringerLink
Log in

Market epistemology

  • Published:
Synthese Aims and scope Submit manuscript

Abstract

According to Margaret Gilbert’s collective epistemology, we should take attributions of beliefs to groups seriously, rather than metaphorically or as reducible to individual belief. I argue that, similarly, attributions of belief to markets ought to be taken seriously and not merely as reports of the average beliefs of market participants. While many of Gilbert’s purported examples of group belief are better thought of as instances of acceptance, some collectives, such as courts and markets, genuinely believe. Such collectives enact truth-aimed processes that are beyond the control of any single individual. These processes produce beliefs that are distinct from any individual belief and do not merely report the “average” or “majority” view of the group. In the case of markets, beliefs are indicated by prices, though it is often difficult to infer beliefs from prices and those inferences are almost always uncertain. Reliabilism is the best available standard of justification for market beliefs. In some cases market beliefs are reliable and prove to be true. Thus, in some cases markets can know.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Notes

  1. I first learned of this example from Surowiecki (2005).

  2. Gilbert and those following her follow the convention of using imagined, though plausible, ascriptions of collective belief to inform their arguments. Because statements ascribing beliefs to markets are less ubiquitous than those ascribing beliefs to other collectives, throughout this paper I will be appealing to concrete examples. I believe the danger of appealing to examples that may eventually feel outdated is more than compensated for by the benefit of being able to examine language as it is actually used.

  3. I am aware of one other attempt to interpret statements of market belief as collective belief: Orléan (2004). However, Orléan is an economist and his account of collective belief is unconnected to any discussions in collective epistemology. Remarkably, he seems to have independently arrived at a summative /non-summative distinction just as Gilbert did, but has defined it in an entirely different way. He defines a collective belief to be “what the majority of the group thinks the collective belief is.”

  4. Tuomela (2000), for instance, distinguishes between pragmatic acceptance (accepting a proposition because it is useful to do so) and “acceptance as true,” which is accepting for purely epistemic reasons. Meijers (2003) distinguishes between acceptance “for the sake of argument” and committal acceptance that has the binding nature of Gilbert’s group belief.

  5. However, Pettit’s view of group belief does not fall neatly into either the believer or rejectionist position. He classifies courts and similar groups as “intentional subjects,” but claims that such a group “is incapable of forming degrees of belief and desire in the ordinary fashion of animal subjects” (Pettit 2011, p. 256).

  6. There is a third type of order, the “stop order,” where a trader can place an order to sell or buy only when the market price reaches a certain point. It is unimportant for the present discussion.

  7. Though as Sect. 6 discusses, this does not mean that market prices always, or even often, imply true beliefs. Perhaps, as suggested by Hayek (1937), the best that can be said is that there is a “tendency” for market beliefs to become more correct.

  8. Purchasing a security on the stock market entitles the purchaser to an income stream proportionate to the underlying company’s profits. Expected returns are the expected magnitude of that income stream. Risk measures the variability of that income stream. The CAPM assumes investors are “risk averse”: they require extra compensation for assuming increased risk.

  9. Economists generally agree that the CAPM is not an accurate model of stock market prices; factors beyond risk and expected returns, such as firm size, price-earnings ratios, and levels of debt all appear to have a significant influence on market prices (Fama and French 2004, p. 50). Further, past volatility might not be a good indicator of present risk. Nevertheless, the CAPM offers a good first approximation for connecting market prices to underlying beliefs.

  10. Thank you to an anonymous reviewer for pointing me to Dennett’s discussion of belief attribution.

  11. Fama (1970) defines an efficient market differently: “a market in which prices always “fully reflect” available information” (p. 383). This subsequent definition is the one that Fama and most others have adopted. However, it is easier to see the connection to belief in the 1965 version and they share the same essential view of markets.

References

  • Ano. (2016). Who said Brexit was a surprise? http://www.economist.com/blogs/graphicdetail/2016/06/polls-versus-prediction-markets.

  • Arvas, T. M. (2015). Financial markets predict return to stability despite terror attack. Daily Sabah. https://www.dailysabah.com/columns/taha-meli-arvas/2015/10/13/financial-markets-predict-return-to-stability-despite-terror-attack.

  • Brown, M. J. (2015). A Critical appreciation of Ronald N. Giere’s distributed cognition without distributed knowing. Social Epistemology Review and Reply Collective, 4(6), 1–7.

    Google Scholar 

  • Commins, P., & Meyer, J. (2014). Markets live: Gold dives, TPG shines. In The Sidney Morning Herald (pp. 1–17). http://www.smh.com.au/business/markets-live/markets-live-gold-dives-tpg-shines-20140324-35ew4.html.

  • Conee, E., & Feldman, R. (1998). The generality problem for reliabilism. Philosophical Studies, 89(1), 1–29.

    Article  Google Scholar 

  • De Bondt, W. F., & Thaler, R. (1985). Does the stock market overreact? The Journal of Finance, XL(3), 793–805.

    Article  Google Scholar 

  • De Finetti, B. (1964). Foresight: Its logical laws in subjective sources. In H. E. Kyburg & H. E. Smokler (Eds.), Studies in subjective probability (pp. 93–158). New York: Wiley.

    Google Scholar 

  • Dennett, D. C. (1998). The intentional stance. Cambridge: MIT Press.

    Google Scholar 

  • Douven, I. (2011). Abduction. Mexico: Stanford Encyclopedia of Philosophy.

    Google Scholar 

  • Fama, E. F. (1965). The behavior of stock-market prices. The Journal of Business, 38(1), 34–105.

    Article  Google Scholar 

  • Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. Journal of Finance, 25, 383–417.

    Article  Google Scholar 

  • Fama, E. F., & French, K. R. (2004). The capital asset pricing model: Theory and evidence. The Journal of Economic Perspectives, 18(3), 25–46.

    Article  Google Scholar 

  • Fama, E. F., Fisher, L., Jensen, M. C., & Roll, R. (1969). The adjustment of stock prices to new information. International Economic Review, 10(1), 1–21.

    Article  Google Scholar 

  • Feldman, R., & Conee, E. (1985). Evidentialism. Philosophical Studies, 48(1), 15–34.

    Article  Google Scholar 

  • FN Arena (2014). Australian Corporate Bond Price Tables. 9 News. https://www.fnarena.com/index.php/2017/02/16/australian-corporate-bond-price-tables-150/.

  • Gilbert, M. (2002). Belief and acceptance as features of groups. Proto Sociology, 16, 35–69.

    Google Scholar 

  • Gilbert, M. (2004). Collective epistemology. Episteme, 1(2), 95–107. doi:10.3366/epi.2004.1.2.95.

    Article  Google Scholar 

  • Goldman, A.I. (1979). What is justified belief? In: Pappas GS (ed), Justification and knowledge (pp. 1–24). Springer Netherlands. https://link.springer.combook/10.1007/978-94-009-9493-5.

  • Goldman, A. I. (2014). Social process reliabilism. In J. Lackey (Ed.), Essays in collective epistemology (pp. 13–41). Oxford: Oxford University Press.

    Google Scholar 

  • Hausman, D. M. (1992). The inexact and separate science of economics. New York: Cambridge University Press.

    Book  Google Scholar 

  • Howson, C., & Urbach, P. (2006). Scientific reasoning: The bayesian approach (3rd ed.). Chicago: Open Court.

    Google Scholar 

  • Hsu, S. L. (2011). A prediction market for climate outcomes. University of Colorado Law Review, 83(1), 179–256.

    Google Scholar 

  • Jensen, M. C. (1978). Some anomalous evidence regarding market efficiency. Journal of Financial Economics, 6, 95–101.

    Article  Google Scholar 

  • Knorr-Cetina, K. (1999). Epistemic cultures : How the sciences make knowledge. Cambridge: Harvard University Press.

    Google Scholar 

  • Levy, H., Levy, M., & Benita, G. (2006). Capital asset prices with heterogeneous beliefs. The Journal of Business, 79(3), 1317–1353.

    Article  Google Scholar 

  • Lipton, P. (2004). Inference to the best explanation (second ed.). London: Routledge.

    Google Scholar 

  • List, C., & Pettit, P. (2002). Aggregating sets of judgments: An impossibility result. Economics and Philosophy, 18(1), 89–110.

    Article  Google Scholar 

  • Lyon, A., & Pacuit, E. (2013). The Wisdom of crowds: Methods of human judgement aggregation. Handbook of human computation (pp. 599–614). New York: Springer.

    Chapter  Google Scholar 

  • MacKenzie, D. A. (2006). An engine, not a camera : How financial models shape markets. Cambridge: MIT Press.

    Book  Google Scholar 

  • Maloney, M., & Mulherin, J. (2003). The complexity of price discovery in an efficient market: The stock market reaction to the challenger crash* 1. Journal of Corporate Finance, 9(4), 453–479.

    Article  Google Scholar 

  • Markowitz, H. M. (1959). Portfolio selection. Efficient diversification of investments. New York: Wiley.

    Google Scholar 

  • Meijers, A. (2002). Collective agents and cognitive attitudes. Proto Sociology, 16, 70–85.

    Google Scholar 

  • Meijers, A. (2003). Why accept collective beliefs? Reply to Gilbert. Proto Sociology, 18–19, 377–388.

    Google Scholar 

  • Miller, B. (2012). When is consensus knowledge based? Distinguishing shared knowledge from mere agreement. Synthese, 190(7), 1293–1316.

    Article  Google Scholar 

  • Orléan, A. (2004). What is a collective belief. In P. Bourgine & J.-P. Nadal (Eds.), Cognitive economics (pp. 199–212). Berlin, Heidelberg: Springer. doi:10.1007/978-3-540-24708-1_12.

  • Pettit, P. (2011). Groups with minds of their own. In A. I. Goldman & D. Whitcomb (Eds.), Social epistemology: Essential readings. Oxford: Oxford University Press. https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2013/shiller-lecture.pdf

  • Rolin, K. (2010). Group justification in science. Episteme, 7(3), 215–231. doi:10.3366/E174236001000095X.

    Article  Google Scholar 

  • Rothschild, D. (2009). Forecasting elections: Comparing prediction markets, polls, and their biases. Public Opinion Quarterly, 73(5), 895–916.

    Article  Google Scholar 

  • Shih, Y. C., Chen, S. S., Lee, C. F., & Chen, P. J. (2013). The evolution of capital asset pricing models. Review of Quantitative Finance and Accounting, 42(3), 415–448.

    Article  Google Scholar 

  • Shiller, R. J. (2014). Speculative Asset Prices. https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2013/shiller-lecture.pdf.

  • Shiller, R. J., Fischer, S., & Friedman, B. M. (1984). Stock prices and social dynamics. Brookings Papers on Economic Activity, 1984(2), 457–510.

    Article  Google Scholar 

  • Solomon, M. (2001). Social empiricism. Cambridge: MIT Press.

    Google Scholar 

  • Sunstein, C. R. (2006). Infotopia: How many minds produce knowledge. Oxford: Oxford University Press.

    Google Scholar 

  • Supreme court of the United States. (2015). Obergefell et al. Hodges, v. Director, Ohio Department of Health.

  • Surowiecki, J. (2005). The wisdom of crowds. New York: Random House LLC.

    Google Scholar 

  • Tollefsen, D. (2003). Rejecting rejectionism. Proto Sociology, 18–19, 389–405.

  • Tuomela, R. (2000). Belief versus acceptance. Philosophical Explorations, 3(2), 122–137.

    Article  Google Scholar 

  • Tuomela, R. (2012). Group knowledge analyzed. Episteme, 1(02), 108–127.

    Google Scholar 

  • von Hayek, F. A. (1937). Economics and knowledge. Economica, 4(13), 33.

    Article  Google Scholar 

  • von Hayek, F. A. (2002). Competition as a discovery procedure. The Quarterly Journal of Austrian Economics, 5(3), 9–23.

    Article  Google Scholar 

  • Williams, H. (2015). Amazon.com, Inc. (AMZN): Will AWS Help In Topping forecasts again? Business finance news.

  • Williams, J. T. (1977). Capital asset prices with heterogeneous beliefs. Journal of Financial Economics, 5(2), 219–239.

    Article  Google Scholar 

  • Wolfers, J. (2016). Debate night message: The markets are afraid of Donald Trump. New York: New York Times.

    Google Scholar 

  • Wolfers, J., & Zitzewitz, E. (2004). Prediction markets. Journal of Economic Perspectives, 18(2), 107–126.

    Article  Google Scholar 

  • Wray, K. B. (2001). Collective belief and acceptance. Synthese, 129(3), 319–333.

    Article  Google Scholar 

  • Wray, K. B. (2003). What really divides Gilbert and the rejectionists?. Proto Sociology, 363–376.

  • Wray, K. B. (2007). Who has Scientific Knowledge? Social Epistemology, 21(3), 337–347.

    Article  Google Scholar 

Download references

Acknowledgements

I am grateful to Michelle Hoffman for feedback on and editing of several versions of this paper, and to Joseph Berkovitz and Ori Werdiger for their constructive comments. Thank you to Mark Peacock, Marion Blute, Torsten Wilholt, and James Robert Brown for input on an earlier version of this work. Finally, I am very grateful for the excellent suggestions and critiques from two anonymous referees.

Author information

Authors and Affiliations

  1. Bard Prison Initiative, Bard College, PO Box 5000, Annandale-on-Hudson, NY, 12504-5000, USA

    Michael Thicke

Authors
  1. Michael Thicke
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Michael Thicke.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Thicke, M. Market epistemology. Synthese 195, 5571–5594 (2018). https://doi.org/10.1007/s11229-017-1464-2

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11229-017-1464-2

Keywords

Search

Navigation