[timr]

"That is not a requirement for efficiency. Unknowns are factored into the price as "risk"."

If someone is lying to you and you have no way of knowing it, there's no way to price the risk. Dishonesty can never be eliminated (that's software engineer pedantry) but it's always a drag on efficiency. People who don't trust each other don't engage in trade.

"Risk is a perfectly normal characteristic of efficient markets, perfect or equal information is not required at all."

Risk is a normal characteristic; there are always things you can't measure. Deception is not normal. It's why "capitalism" as practiced in countries where there are no stable legal systems tends to have lower levels of growth.

[starbeast]

>People who don't trust each other don't engage in trade.

You are going to need one hell of a citation for that claim, or you are using some new definition of 'trust' that I have not previously encountered.

[timr]

Saying "citation needed" doesn't work when it's one of the fundamentals of the field. But hey, Hackernews, I'll google it for you:

https://www.jstor.org/stable/41638856?seq=1#page_scan_tab_co...

http://econ.sciences-po.fr/sites/default/files/file/yann%20a...

https://voxeu.org/article/trust-and-economic-development

https://pdfs.semanticscholar.org/f7e3/e958b4b7387707a5ae32fa...

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2906280

http://www.oecd.org/innovation/research/1825662.pdf

https://www.parisschoolofeconomics.eu/IMG/pdf/Huck2.pdf

I stopped midway down the first page. But this quote is great, so I'll include it:

"Conjoint action is possible just in proportion as human beings can rely on each other. There are countries in Europe, of first-rate industrial capabilities, where the most serious impediment to conducting business concerns on a large scale, is the rarity of persons who are supposed fit to be trusted with the receipt and expenditure of large sums of money."

- John Stuart Mill, Principles of Political Economy, 1848

[starbeast]

Caveat Emptor - Chandelor v Lopus (1603)

edit - there is a core difference in definitions of trust going on here and it is basically the difference between the list of people you would lend money to vs the list of people you would buy something from. For certain trades, these lists are essentially the same, but for other trades they are very, very different.

[redial]

> People who don't trust each other don't engage in trade.

Yes, that is why banks don't require any collateral for anything, after all if you are doing trade you are trustworthy right?

[WalterBright]

> People who don't trust each other don't engage in trade.

They do all the time. It's just that the level of distrust is factored into the price. For example, you'll pay more money to buy a used car from a dealer than from a random person, and you'll pay more to buy from a reputable dealer. And it's why there are such things as cashier's checks, wire transfers, and escrow services.

> Deception is not normal.

It is normal, and it is factored into the price as "risk".

> It's why "capitalism" as practiced in countries where there are no stable legal systems tends to have lower levels of growth.

Of course. An unstable legal system means high risk, high risk means adverse prices, and as such lower levels of growth.

[timr]

"It's just that the level of distrust is factored into the price."

Right. That's called "reduced economic efficiency".

[zozbot123]

> It's why "capitalism" as practiced in countries where there are no stable legal systems tends to suck.

Indeed, countries without stable legal systems don't practice "capitalism", as defined e.g. by Adam Smith's work. At their best, they practice crony capitalism-- but that's not quite the same thing!