This paper examines the impact on market efficiency of traders who are behaving conservatively in their trading activities to avoid potential losses. To date, the consensus in the literature has been that the presence of well informed traders is necessary for achieving market efficiency. In...

Even when participants know very little about their environment, the market, itself, by serving as a selection process of information, promotes an efficient aggregate outcome. To emphasize the role of the market and the importance of natural selection, rather than the strategic actions of...