Differentiating Financial Products
Even the smartest amongst us can be fooled by the pricing structures of relatively simple financial products. In any normal industry we would expect the law of one price would be prominent – in efficient markets all identical goods must have only one price.
Now whether or not the market for financial services is efficient or not is a moot point but the industry’s ability to create a vast swathe of differentiated products could almost have been designed to prevent the law of one price from operating. With the documentation for even simple financial products running into several pages of hieroglyphics in a convoluted and slightly sinister attempt to promote “clarity” the chances of anyone actually recognising that any two products are identical is minimal. In such a situation efficiency is a pipe dream...
More from Tim Richards at the excellent Psy-Fi Blog.
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