Competitive Markets: Beauty or Beast?
In the aftermath of the financial meltdown, the virtue of competitive markets is being questioned. It is little appreciated, however, that the economic concept of “competitive markets” is abstract—just as a “vacuum” is an idealized environment for physicists—and that the theory rarely spells out how to implement markets in practical terms. Peter Bossaerts, professor of finance at the California Institute of Technology, explains what economists mean by the term “competitive markets,” what the markets are theoretically supposed to do, and where they fail. He’ll also evaluate whether or not eBay, the New York Stock Exchange, the real estate market, the Over-the-Counter credit derivative markets, and other institutions are really instances of “competitive markets.” Audience members participate in hands-on demos of market behavior, so laptops are encouraged.
is the William D. Hacker Professor of Economics and Management, as well as professor of finance, at the California Institute of Technology (Caltech). He received a licentiate and doctorandus degree in applied economics from the University of Antwerp in Belgium. After coursework towards a master’s degree in statistics at the Free University Brussels, he completed a Ph.D. in management (finance) at the University of California, Los Angeles, under Richard Roll. He then became an assistant professor at Carnegie Mellon University’s Graduate School of Industrial Administration, and, in 1990, returned to Caltech, where he also served as executive officer for the social sciences and chair of the Division of Humanities and Social Sciences. Until June 2009, Bossaerts was also on the faculty at the Swiss Federal Institute of Technology (EPFL), as Swiss Finance Institute Professor. He continues to run their Laboratory for Decision Making under Uncertainty on a temporary basis.
While Bossaerts’s research and publications have encompassed many areas of theoretical and empirical finance, his present work focuses on experimental finance, which borrows tools from many fields, including decision theory, general equilibrium theory, game theory, cognitive psychology, and decision neuroscience. His work has been published in top journals in finance, economics, econometrics, science, and neuroscience. He’s been on the board of many academic journals, including the Review of Finance, the Review of Financial Studies, and Mathematical Finance.
Photo: Myleen Hollero