(7–4) In this chapter and elsewhere we have argued that a stock’s market price can deviate from its intrinsic value. Discuss the following question: If all investors attempt to behave in an entirely rational manner, could these differences still exist? In answering this question, think about information that’s available to insiders versus outsiders, the fact that historical probabilities of financial events are “fuzzier” than probabilities related to physical items, and the validity of the concepts of animal spirits, herding, and anchoring.

Self-Test Problems Solutions Appear in Appendix A