ABSTRACT
A familiar theme in Ludwig Lachmann’s writings is the notion of ‘divergent’ expectations in stock markets. The following passage is fairly typical:
The Stock Exchange consists of a series of markets for assets, i.e., future yield streams. In each market supply and demand are brought into equality every day. Demand and supply reflect the divergent expectations of buyers and sellers concerning future yields. Transactions take place between those whose expectations diverge from the current market price. Since as much must be bought as is sold, we may say that the equilibrium price in an asset market reflects the ‘balance of expectations’. As without divergence of expectations there can be no market at all, we can say that this divergence provides the substrate upon which the market price rests.
