“pardon the ignorance, Why is it essential to substantiate statements for investors?”

Andreas Ortmann
2 min readJun 16, 2024

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My LinkedIn correspondent reacted to this post of mine:

The view espoused here is that of ASIC (The Australian Securities & Investments Commission). Good on them.

On the off-chance that the question by my LinkedIn correspondent was not rhetorical, let’s briefly answer her.

At the most general level truth is important because it reduces transaction costs and hence increases efficiency. Honesty, and honest reporting, is a common good that gets depleted quickly if too many take advantage of it. Those free-riding on it impose externalities on third parties.

Take the case of science. Not using questionable research practices, and fraud for that matter, increases the soundness of science and our ability to rely on it. Of course, we have learned over the last dozen + years that questionable research practices can have considerable payoffs, until they don’t. Meanwhile fraudsters and shady characters of all kinds have made well-paying careers out of their machinations which is bad enough. Unfortunately, they also have prevented many promising young things to make deserving careers in science. All of this to the detriment of society and us all. Externalities galore. ECON 101 stuff.

Take the case of politics. Where to even start. Maybe with that shithole that the US of A has become. We certainly can argue when the drift in the current malaise started but surely there can be little dispute that the current state of affairs is sub-optimal. If the candidate of one of the two major parties is notorious for just making shit up as he goes (and often does so quite intentionally), all the fact-checkers in the world can do little about it. As the famous adage goes, “The amount of energy needed to refute bullshit is an order of magnitude larger than to produce it.” (Brandolini’s Law, aka the bullshit asymmetry principle). Externalities galore. ECON 101 stuff.

Take, finally, the case of financial markets which after all brought us here in the first place. Sure, investors should do their due diligence (which I assume is the point that Daisy tried to make) but doing that becomes quickly quite costly if investment targets engage in the equivalent of questionable research practices (accounting tricks) and outright deception (such as greenwashing claims or worse). Externalities galore again. Did I mention that this is ECON 101 stuff?

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Andreas Ortmann

EconProf: I post occasionally on whatever tickles my fancy: Science, evidence production, the Econ tribe, Oz politics, etc. Y’all r entitled to my opinions …