Comment by cortesoft
19 hours ago
It doesn't matter if a vast majority of people are not rational economic actors. It only takes 1 rational actor with enough capital to take the other side of all the bad bets, and the market will be priced correctly even if the other 99 people are irrational.
'Enough' [capital] is doing a lot of work in that sentence. In the limit of a one-sided irrational market, the 'rational actor' would need to take the other side of every open transaction.
Yeah, but in the limit of a one-sided irrational market, the rational actor is going to be given as much capital as he can take.
In the long run. In the short run, our rational actor will be constrained by the Kelly criterion, well and whatever outside funding she can raise.