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MENTAL MODEL · M4572

Grossman-Stiglitz Paradox

Grossman-Stiglitz Paradox
BusinessHigh supportEconomics
Included
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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

If markets were perfectly efficient (prices fully reflect all information), then no one would collect information (because it would be unprofitable). But if no one collects information, prices contain no information, and markets become inefficient. Therefore, markets must be inefficient to maintain equilibrium.

SCAFFOLDING EFFECT

psychology

Reduce cognitive load

Demonstrates the inevitable existence of arbitrage opportunities. A healthy system must retain some 'ignorance' or 'mispricing' as a reward for those who diligently gather information. A fully transparent and efficient world is logically self-defeating.

anchor

Anchor fast decisions

If markets were perfectly efficient, no one would pay to gather information (since there would be no excess returns), but if no one gathers information, markets cannot be efficient. Efficient markets and information production are contradictory.

MINIMUM ACTION

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Source support: Explicit

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    en.wikipedia.orghttps://en.wikipedia.org/wiki/Grossman%E2%80%93Stiglitz_paradoxZH · Explicit
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