Who’s the ugliest in the beauty contest?

Years ago I read a book called “A Mathematician Plays the Stockmarket” by John Allen Paulos. It’s a sterling read; I recommend it. In it, Paulos explains the complicated psychological calculations behind picking a good investment.

“John Maynard Keynes, arguably the greatest economist of the twentieth century, likened the position of short-term investors in a stock market to that of readers in a newspaper beauty contest (popular in his day). The ostensible task of the reader is to pick the five prettiest out of, say, one hundred contestants, but their real job is more complicated. The reason is that the newspaper rewards them with small prizes only if they pick the five contestants who receive the most votes from readers. That is, they must pick the contestants that they think are most likely to be picked by the other readers, and the other readers must try to do the same. They’re not to become enamoured of any of the contestants or otherwise give undue weight to their own taste. Rather they must, in Keynes’ words, anticipate “what average opinion expects the average opinion to be”.

By this analysis, fossil fuel stocks could be about to turn into the ugliest beauty contestants in the paper….

Read more: http://www.abc.net.au/environment/articles/2013/06/13/3780344.htm