It is All About Information: Six Common Fallacies in Financial Economics

Based on the results of a simple Agent Based Model (ABM) six common and widely affirmed statements in financial economics are discussed: (1) The better an investor is informed, the higher his performance is expected to be, (2) There is a well-defined state of art how to make sound financial decisions, (3) High standards of public information create private as well as public value, (4) Highly skilled financial analysts usually decide better than their lousy colleagues, (5) The market loses informational efficiency if traders abstain from information, (6) To use Bayes’ updating rule means to make rational financial decisions. Financial markets are complex adaptive systems, in order to understand them, the interaction of autonomous agents has to be brought into the focus. As the ABM methodology allows to do this better than neoclassical methods, this simple technique is adopted and allows to evidence that all these beliefs, even if they may be deeply rooted in the profession, are probably false.