Given a finite amount of resources (you may notice you have <=10 fingers and ⇐ 2 eyes and a brain that computes at a finite speed) you cannot compute a better answer than the (information you have, cognitive resources you have to consider those resources, a rational algorithm)
The best opportunity to become rich recently was cryptocurrency. But it’s price is completely irrational! There was no way to predict this opportunity was real. Not only is every coin backed by nothing but scarcity, each could potentially be banned by governments, any given crypto may have a latent security flaw that allows it to be robbed, there are thousands of competing crypto and ultimately the winner may be no current coin, and so on.
Any rational analysis (which starts with priors from the last century of financial history!) would have concluded the natural value of crypto is close to zero as it’s basically a pyramid scheme.
Apparently that analysis is wrong.
Being rational means you have to accept the fact and update your theory, but it doesn’t mean your original guess will be the right one! In fact, as I said, a true rational agent weights in all the data it can, which means it will consider all prior financial history including every previous valueless commodity like tulips, e-gold, shares with Bernie Madoff, and so on, and factor in the fact that they all went ultimately to their true value of zero!
Given a finite amount of resources (you may notice you have <=10 fingers and ⇐ 2 eyes and a brain that computes at a finite speed) you cannot compute a better answer than the (information you have, cognitive resources you have to consider those resources, a rational algorithm)
The best opportunity to become rich recently was cryptocurrency. But it’s price is completely irrational! There was no way to predict this opportunity was real. Not only is every coin backed by nothing but scarcity, each could potentially be banned by governments, any given crypto may have a latent security flaw that allows it to be robbed, there are thousands of competing crypto and ultimately the winner may be no current coin, and so on.
Any rational analysis (which starts with priors from the last century of financial history!) would have concluded the natural value of crypto is close to zero as it’s basically a pyramid scheme.
Apparently that analysis is wrong.
Being rational means you have to accept the fact and update your theory, but it doesn’t mean your original guess will be the right one! In fact, as I said, a true rational agent weights in all the data it can, which means it will consider all prior financial history including every previous valueless commodity like tulips, e-gold, shares with Bernie Madoff, and so on, and factor in the fact that they all went ultimately to their true value of zero!