Eliezer does a good job of explaining a mechanism by which two investments with negatively correlated returns can switch to having positively correlated returns. But he doesn’t do a good job of convincing me that a stock’s price has a tendency to go down when it has just gone up, and vice versa.
I can think of an argument against this position. It seems plausible that stock traders see the past movement of a stock as an indicator of it’s future movement. If a majority of traders share this belief, this will compel them to buy the stock from those who don’t, inflating it’s value and reinforcing the cycle. This would indicate that markets are inductive, which is the opposite of what the title suggests.
How are you and Robin going to decide whether a post is more appropriate for Less Wrong or Overcoming Bias?