TEXT

THE THIRD DEGREE

(Edward Chancellor. The devil take the hindmost: a history of

financial speculation. New York: Plume Books, 1999: 345-349.)

John Maynard Keynes’s personal and successful experience of speculation led him to the conclusion that markets were fundamentally inefficient. In his General Theory, Keynes defined speculation as the attempt to forecast changes in the psychology of the market. He likened speculation to a newspaper competition in which the competitors have to pick out six prettiest faces from hundreds of photographs,

“so that each has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view... We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be.”

According to the text, Keynes

Item 4 - reached the conclusion that markets were inefficient through his own personal experience.