Subjectivism and Economic Analysis: Essays in memory of Ludwig ...

10EXPECTATIONS ANDSTOCK MARKET PRICESJochen Runde and jörg BibowA familiar theme in Ludwig Lachmann’s writings is the notion of‘divergent’ expectations in stock markets. The following passage isfairly typical:The Stock Exchange consists of a series of markets for assets,i.e., future yield streams. In each market supply and demandare brought into equality every day. Demand and supplyreflect the divergent expectations of buyers and sellersconcerning future yields. Transactions take place betweenthose whose expectations diverge from the current marketprice. Since as much must be bought as is sold, we may saythat the equilibrium price in an asset market reflects the‘balance of expectations’. As without divergence ofexpectations there can be no market at all, we can say thatthis divergence provides the substrate upon which the marketprice rests.(Lachmann 1977:161)The many similar passages on the nature and role of expectations instock markets that appear in Lachmann’s writings are invariablyinsightful and instructive. His commitment to subjectivism, toanalysing economic phenomena from the viewpoint of theinterpreting economic actor, moreover, provides an importantperspective that is denied on more conventional assumptions aboutexpectations. Yet it seems to us that Lachmann is seldomparticularly explicit about what he takes the term ‘expectation’ torefer to or express and, accordingly, that his distinctive and highlysuggestive writings on expectations in stock markets invite both183