The term "independent deviations from rationality" implies that:
A)irrational investors are absent from an efficient market.
B)arbitrage traders act independent of each other.
C)markets must be inefficient.
D)irrational investors behave differently from one another.
E)arbitrage traders act together to offset the actions of rational investors.

Question

Quizplus · Accepted Answer

The term "independent deviations from rationality" refers to the idea that irrational investors, who are not behaving rationally in the market, are not all behaving in the same way. They are independent of each other in their irrationality, leading to deviations from rational market behavior. Therefore, choice D is the most accurate answer. Choices A, B, and E are incorrect because they do not accurately represent the meaning of the term. Choice C is also incorrect because the presence of independent deviations from rationality does not necessarily mean that markets must be inefficient.

The Term "Independent Deviations from Rationality" Implies That