Re: [tlug] Open-source Japan

["Stephen J. Turnbull" <stephen@example.com>]

Curt Sampson writes:

 > So the best outcome for the group is to be absolutely honest. However,
 > in a classic game theory problem, being absolutely honest will not
 > necessarially lead to the best outcome for the individual.

No, we *know* it will not.  The used car market is an obvious case.
If you've got a lemon, you want to pass it on to somebody.

 > This is essentially an argument for regulation.

Sure.  The market that economists analyze is an abstraction; it
doesn't exist by itself in the real world.  For example, the issue of
"announcing a price is a commitment to trade at that price".  All the
theorems depend on that.  But to make that stick in the real world,
there *must* be regulation.  Essentially, by definition.  (This is
perfectly analogous to implementation of ADTs in a real language, I
think.)

The question is, does that need to be done by an external agency (==
government or industry cooperative), or can the market be left "free"
to do it itself?  As you say, the NYSE does a lot of self-regulation
and is very successful because of it.  In general, the global
financial markets self-regulate and mostly nobody is the worse for it.

It's at the level of personal credit, insurance, etc that problems
come in.

 > > Deliberate fraud is another matter.  I don't think that's what Shawn
 > > was referring to.
 > 
 > Ah. Well, that's what I was referring to.

No question, that needs to be regulated, and it's most effective if
violations are backed up by jail time, especially when perpetrated
against people who participate in the market as non-expert consumers.

 > > [Off-topic: I also suspect that the VSE has a lot of inherently
 > > volatile small-cap issues, making it more risky in general.  It's not
 > > obvious to me that it's the risk of scam per se that makes people
 > > reluctant to buy there.]
 > 
 > Not to you, no. I'm familiar with what goes on in the VSE (or what was
 > going on there in the '90s), and I saw quite a lot of things that would
 > not be anywhere near acceptable for companies listed on the NYSE, and
 > which in my opinion were certainly misleading investors.

Sure.  My point is that causality may run in the other direction:
inherent risk + fraud risk -> small market -> few resources for
self-regulation -> rampant fraud, with my suggestion being that fraud
risk may be almost negligible next to inherent risk.