The financial market, in the end, what kind of a market

The world-famous Yale University has a course called “game theory” (now put online for free study, please search for “Yale Open Course”), in the first class of the university in 2010, in order to show the complexity of people playing each other. As a result, the teacher announced a little game and its rules to the class.

First, the teacher brought out $5 in real money as a “prize” for the winner of the game.

The teacher asked each student in the class to write down a number from 1 to 100 on a piece of paper, and then the assistant teacher would count the numbers and calculate the average of the numbers – the so-called “winner” was the one who wrote down the number closest to 2/3 of the average. If more than one student writes numbers close to the average, then everyone shares the prize equally.

Okay, now let’s do some mental math and figure out which number is most likely to be close to 2/3 of the average, so you can get the big $5.

First, tell me the range of numbers you might choose (you are free to participate in the following multiple-choice questions, which are considered participation games).

You may ask why I didn’t give a number greater than 67 in the options.

You are very irrational when you inquire like that.

You know, even if all the people in the class write down the number 100, the average number of students in the class will be 100, and 2/3 of 100 is 67, if you choose a number between 68-100, we suggest you do not follow the “wealthy family surplus” We Chat public number, because we will have some difficulties in communication.

Ok, now we assume that everyone is rational, no one will be stupid enough to choose a number above 67.


In the second class, the teacher began to reveal the answers and riddles, first asked the students what numbers they had filled in, and a group of students stood up and said that they had filled in the numbers 33-34.

Why 33-34?

Simple, if everyone fills in the numbers between 1 and 100 randomly (which is conceivable), then the average of the class will be 50-51, 2/3 of 50 is 33, and 2/3 of 51 is 34.

Ouch, this part of the class is very clever oh!

Seeing these students, justified to answer why the teacher chose 33 or 34, I immediately remembered the financial market countless always think they are naturally correct those people……

These people, most of their time and intelligence, are consumed in the question of whether to choose 33 or 34, but they forget that in a clear goal premise (the goal of this game is to win $5, the goal of people in the financial market transactions is to win money in other people’s pockets), regardless of the game or the real financial market, all people, are not random Number generators.

In the game, except for a very few real idiots and morons (let’s say the person who chose the number 67 or more in this game), everyone else’s choices are not random, they must have a purpose, the goal is to make money and fill in the numbers (in the specific financial market is to buy or sell an asset at a certain price).

There are also some students who think more deeply, they choose a number like 22 or so.


They estimated that others might choose a number like 33-34, and if everyone chose 33-34, they chose a number like 22, which is closest to 2/3 of the average.


And the fun part is just beginning!

Regardless of the numbers chosen by the Yale students (which are among the top smart students in the world), let’s start using rational logic and assume that all of them are perfectly rational people.

That means: students who choose a number greater than 45 are also very stupid.

Because even if everyone chooses 67, 2/3 of 67 is just 45, and the person who chooses a number between 45-67 is at the same level as the person who just chose a number between 68 or 100……

Next, it is easy to deduce that the person who chose the number between 30or45 is also silly.

The number for the fourth round is 20,

The fifth round, the sixth round,

Everyone can deduce for themselves

If the class is rational, round after round of logical reasoning, the correct number option in this game should actually be “1”.

That’s right, in this game; the most rational answer choice is 1.


When the teacher asked which student wrote down the number “1”, a number of students in the class raised their hands – if they had not heard of the principle of the game, then it must be said that these students are really smart and rational students.

The question is, is true rationality, it must be useful?

We all know that the world of purely rational reasoning is often far removed from the reality of society.


If you’ve seen the video of the Yale Open Class, then you should know that the class ended up coming out with an average of 13.3 for the class, and the number closest to 2/3 of that number was 9 – I can’t quite remember if 6 or 5 students ended up writing down the number 9 and sharing the $5 prize.

However, 4 students chose numbers above 67, and 4 others chose numbers between 45 and 67.

At the end of the lesson, the teacher asked everyone to write down a number on the paper again, and all the students started laughing.

The teacher asked them, “Do you mean that the teacher can’t play the same game again?

The teacher emphasized that some games are played constantly, even if you know what most of the others think, but as long as you do not know what all the others think, the outcome of the game is not what you think.

He also told the students that the game of guessing the closest 2/3 of the mean had been played in Yale classes for several years.

That the first time the game was done, the class average was about 28.

The second time it was done, the average was about 23

When it was done last year, the average was about 17

When we did it this year, the result was 13.3……

After reading this story, I don’t need to say more, you should understand, the financial market is a kind of market in the end.

The financial market itself is a mixture of rational and emotional two factors of people playing each other, they are assuming the market how to make their own decision to buy or sell, in the hope of winning money.

The so-called “market” is a question of what everyone else thinks except me.


If at some point there are too many idiots, or if the government forces the average financially illiterate citizen to speculate in the capital markets by severely devaluing the currency, then it will push the market to incredible heights, as in the case of our big A-shares, the bull market of 2007 and the bull market of 2015 were, in the end, the result of too many people who didn’t know anything about the stock market. The result of “white” into the market

So, in the end, which people can win the financial market this big game of “bonus”?

The answer is.

They themselves are rational, but can roughly estimate the degree of irrationality of the market people!

In other words, the financial market, there are indeed some people are stupid, but the vast majority of people are not dumber than you, you have to consider the vast majority of people are not dumber than you, and then consider that there are indeed some people are dumber, and then you can win money!

In this game of guessing the average 2/3, it is possible for the vast majority of people to get over 67 numbers to be excluded, while being able to consider that numbers over 45 should be excluded is the second level, and numbers over 30 should be excluded is the third level. In the actual financial market, those who can reach these three rounds of thinking have been few and far between……

The most important thing is –

The logical reasoning in this game round after round is the same principle, while the depth of thinking in the financial market round after round is not necessarily the same principle, which is a better test of the depth of a person considering the market.

It is conceivable that if each round of the game is played by people who have played the game and newcomers to play the game together, as more and more people either understand it themselves, or under the teaching of others to understand the truth, then overall the number will be closer and closer to the most rational answer “1”

As in the financial markets after a big bubble burst, it is often difficult to come back to a big bubble in a short period of time, because the parties involved in the game have understood the essence of the game, and thus become smarter and more rational (which is usually the experience of losing money out of real money), and the new investors do not have enough money to drive the market to another bubble……

But, regardless of the game or financial markets, the nature of the game itself will not change, it is human nature!



Leave a Reply

Your email address will not be published. Required fields are marked *