It seems likely that a very important part of the trading on securities, investment, and derivative markets is completely driven by imperfect information, by information asymmetries or at minimum believe asymmetries.
Sure. Most people involved in the financial markets reasonably closely approximate utility-maximizing agents with utility defined in money. So with the exception of when someone has to raise cash to pay for some external expense, every trade in the financial markets is one where the seller thinks what he has is worth less than what he’s selling it for, and the buyer thinks it’s worth more than what he’s paying. (A trade itself has various transaction costs, so if you think it’s really an even swap, it’s automatically a loss of to trade.) So the vast majority of trading activity is directly a matter of belief asymmetries.
(One way Warren Buffet makes his money, by the way? Berkshire Hathaway has a pattern and practice of watching for profitable small businesses that have to be sold by the heirs to cover the external expense of estate taxes. This exploits the fact that small business heirs, unlike heirs of diversified stock portfolios, do not generally have access to efficient, highly-competitive markets for their inherited assets. It’s one of the few ways to make money on the financial markets without having to have consistently more-accurate beliefs about future prices than the other participants in the market; you instead buy assets for a price lower than both parties think they’re worth, but which the selling party cannot practically refuse to sell.)
Sure. Most people involved in the financial markets reasonably closely approximate utility-maximizing agents with utility defined in money. So with the exception of when someone has to raise cash to pay for some external expense, every trade in the financial markets is one where the seller thinks what he has is worth less than what he’s selling it for, and the buyer thinks it’s worth more than what he’s paying. (A trade itself has various transaction costs, so if you think it’s really an even swap, it’s automatically a loss of to trade.) So the vast majority of trading activity is directly a matter of belief asymmetries.
(One way Warren Buffet makes his money, by the way? Berkshire Hathaway has a pattern and practice of watching for profitable small businesses that have to be sold by the heirs to cover the external expense of estate taxes. This exploits the fact that small business heirs, unlike heirs of diversified stock portfolios, do not generally have access to efficient, highly-competitive markets for their inherited assets. It’s one of the few ways to make money on the financial markets without having to have consistently more-accurate beliefs about future prices than the other participants in the market; you instead buy assets for a price lower than both parties think they’re worth, but which the selling party cannot practically refuse to sell.)