The model I like—to sort of simplify the notion of what goes on in a market for common stocks—is the pari mutuel system22 at the racetrack. If you stop to think about it, a pari mutuel system is a market. Everybody goes there and bets, and the odds change based on what’s bet. That’s what happens in the stock market. Any damn fool can see that a horse carrying a light weight with a wonderful win rate and a good post position, etc., etc., is way more likely to win than a horse with a terrible record and extra weight and so on and so on. But if you look at the damn odds, the bad horse pays 100 to
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