In Adam’s last post he proposed an Efficient Market Hypothesis (EMH) for philosophical debate. As a rule of thumb, it states that if you have heard a good argument for X, someone from camp Y has probably already thought of a good response. In turn, X has probably thought of an equally compelling rejoinder to the rejoinder, and so on down the line.

A “Strong EMH” of debate might say that, in a world with a lot of smart people with diverse views, the “spread” between a good reply and “the best possible reply” narrows considerably. Bad arguments get pushed to the side and the debates that remain are, on the margin, genuine stalemates. In contrast, a “Weak EMH” of debate might resemble Tyler Cowen’s “First Law” which simply asserts that there is a literature on everything. More pithily, there are no million dollar dissertations left lying on the ground.

Under either reality, we should expect intellectual controversies to be really challenging to budge in any direction, at least in aggregate. Philosophy know-it-alls in their freshmen year are thus a lot like hot-head Finance graduates who think their 4-year degree is all it takes to beat the market. The moral of the story is to be humble. If you’re really confident in your philosophy (or portfolio) you probably haven’t read enough.

It’s a compelling analogy, but there is an important and immediately apparent difference between the two: binding feedback. For the most part, finance grads lose their conceit once they get into the real world and see how hard the search for alpha truly is. The Philosophy (or Journalism, Economics, Poli-sci, etc) student doesn’t have the same opportunity (or obligation) to bet their beliefs. Indeed, I can hold completely ignorant — if not downright medieval — theories of modality and not be a penny poorer.

The currency that drives dialectic within professional philosophy is academic prestige, so making an overtly fallacious argument can be quite costly. But not only is academia a highly segmented market (especially if we include English or Sociology as philosophy), it is a hell of a lot easier to get a securities license than a faculty position.

The Efficient Market Hypothesis means different things to different people. But a point that is often lost is the fine distinction between claiming “there are no arbitrage opportunities left” and “the market price converges to fundamental value.”

I am happy to endorse a version of EMH in finance and otherwise that says, “You will go bankrupt betting against the market long before you’re proven right” (a no arbitrage condition), but I would not endorse the corollary that the “efficient market” price is thus necessarily “correct”. Many bubbles can be both impossible to effectively short sell and still far from “fundamental value” in the medium term, in terms of discounted cash flow or any other metric.

Even within the more “liquid” markets for ideas, how you think about the information efficiency of intellectual debate depends on which structural process you think underlies the dialectic. In practice I see two broad possibilities. Philosophical debate could follow either:

1. a Piercean kind of convergence, where lots of back and forth experimentation eats up profit opportunities (the pragmatic notion of “success” ) and settles on a fundamental value — truth; or,

2. Hegelian dialectic, where back and forth yields concepts that always portend a greater potential through synthesis, and the unmeasurable possibility to take random walks far away from “truth” into an ideological bubble.

I tend to think of the scientific literature as closer to 1. Over time literatures do eventually solidify, and the remaining arbitrage opportunities exist only over meagre, specialized debates, or are really, really expensive (CERN). Paradigm shifts occur but they are rare, and at any rate are more akin to a jump between multiple equilibria than a bursting bubble.

Historically, the philosophical literature has been closer to 2. with instances of drifting far off into a bubble that suddenly collapses in on itself (Cartesianism, theology, logical positivism, post-structuralism). Is it any surprise that so many literary theorists endorse sociological theories of knowledge given that their own discipline is a perfect example of self-referential social construction? In short, there is a greater danger in assuming a type 1 EMH onto philosophy because the mere lack of apparent arbitrage opportunities is not sufficient to deem the “literature” as a whole as healthy.

Ideology, like the atmosphere we breathe, is hard to appreciate from within. Bull markets are no different. Even if there was a Case-Shiller Index for philosophical circle-jerks, by the time the ponzi scheme becomes obvious one is already [ intellectually ] bankrupt. So between a scientist and a philosopher, the latter always stands a better chance at being the greater fool.

This is my tentative case for philosophy as a discipline to reallocate its portfolio even more toward experiments. Under any version of an EMH, one is able to “beat the market” given a level of insider information. So if all the low hanging fruit has been plucked from the a prioristic discourse, experiments have the chance at discovering new frontiers. Some of the most interesting work in recent years has been stimulated by discoveries in neuroscience, decision theory and experimental psychology, for example. But even the margins in these new-ish fields are beginning to look thin.

So what will be the next frontier? If I could tell you that, someone would have already written a paper on it.