Information Availability to Market Participants

The Illusion of Perfect Information

In theory (EMH), all information is available to everyone instantly. In reality, information availability is asymmetric and filtered by cognitive biases.

Cognitive Filters on Availability

1. Availability Heuristic: We judge the frequency of events by how easily they come to mind.

   • Vivid news (crashes) is "available".
   • Gradual improvements are "unavailable".

2. Information Overload:

   • Too much data leads to worse decisions (Analysis Paralysis).
   • We default to simple narratives (stories) when data is overwhelming.

3. Selective Exposure:

   • We intentionally consume media that agrees with us (Echo Chambers).
   • This restricts the "availability" of contradictory facts.

The Role of Media

• Sensationalism: Media highlights extreme events to get views.
• Impact: Makes extreme events seem common.
• Example: "Market Crash" makes font page. "Market up 0.1%" makes page 10.

Impact on Market Efficiency

If information is technically "public" but psychologically "unavailable" (ignored due to bias), markets remains inefficient.

• Neglected Stocks: Boring stocks with good fundamentals are ignored.
• Glamour Stocks: High-media stocks are overpriced.

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