When rumors began circulating that Vladimir Vladimirovich Putin had issued another ultimatum to Poroshenko, the author of these lines dictated a reminder into his recorder not to forget to check whether Vladimir Vladimirovich would invade the Chernihiv region on schedule. I did this because after hearing about the ultimatum, I found no panic about it on the internet. And yet literally just yesterday people here were hotly discussing every word… um… of Vladimir Vladimirovich and interpreting every sneeze of his in terms of the prospects for bombing Kyiv and nuclear strikes on Voronezh. And so I decided to conduct such an experiment—to check how well the collective opinion of Ukrainians would correspond to reality, put simply, how effectively the market had worked. It turned out that it worked as expected: no one attacked Chernihiv. The Ukrainian public has written off Vladimir Vladimirovich, and the rather weak discussion of his latest historic speech is additional confirmation of this. This does not mean that Voronezh will not be bombed. This means that, in the opinion of market participants, this will most likely not happen. At the same time, each market participant has their own unique detailed opinion on this matter (just ask, yeah), but the “market opinion” is expressed not through words but through deeds or their absence. In our case—through the absence of panic in a situation where literally a month ago it would have definitely arisen. And so, one might say, from the point of view of participants in the Ukrainian market, Vladimir Vladimirovich is done.
Actually, this column was undertaken precisely to demonstrate, using the example of writing off Vladimir Vladimirovich, how the market works, including in its most mysterious and “magical” part—the accumulator and distributor of information, when people unfamiliar with each other, without “prior collusion” and without even understanding it themselves, transmit valuable knowledge to each other.
Let me give another example of “market magic.” It became a textbook case due to the tragic circumstances in which it occurred. These circumstances drew attention to it. In 1986, the American spacecraft Challenger exploded. After the explosion, literally within a few minutes, the stock prices of the companies that participated in its production fell. But here’s what’s interesting. All stocks recovered within a few hours, except for the shares of the company Thiokol. Moreover, by the end of the day they had fallen by 12%. Essentially, the market “accused” Thiokol of the accident, and six months later a government commission established that its cause was the sealing rings that this company produced. This story attracted the attention of researchers who decided to check all the circumstances. It turned out that on the day of the catastrophe, no statements were made against the company Thiokol. Representatives of this company did not dump their shares; they did not even know about the problem with the rings. There were no insider leaks either, for the same reason. Essentially, the “accusation” was the result of investors’ opinions, each of whom made a decision based on their own considerations and guesses, and the aggregate “market decision” turned out to be correct.
The work of this mechanism is not fully understood; in general, analogies can be found in self-organizing orders studied by cybernetics. What is important here is to understand that we do not know and apparently will never learn the details at the micro-level of “Vasya told Petya.” Many erroneously believe that only knowledge of such details allows us to be confident that we know that the system exists and works, but this is not the case. Hayek gives the example of a school experiment with a magnet and iron filings. We do not know what specific position each filing will take, but we know the shape of the pattern they will form.
Generally speaking, our habit of understanding only a detailed instruction manual as reliable information is, to put it mildly, harmful. Let me give another example. When the Indians gifted corn to the pale-faced brothers, the pale-faced brothers asked when it should be planted. To which they received a comprehensive answer: “when the oak leaves become the size of a squirrel’s ear.” This information is far more accurate than soil temperature measurements, precipitation statistics, and all that sort of thing used by modern agronomists.
Of course, all this does not mean that one can approach the market with questions like “when will the power of the Bolsheviks end.” The market does not answer questions; its decisions, or rather, the decisions that people make, can be interpreted as answers to certain questions. And therefore, if Voronezh is indeed bombed, then I was wrong, not the market.