<p>Of course markets can be shortsighted. The same problem can apply to any institution though. In order to correct a market failure using government it's necessary to appeal to the self interest of various interest groups, which may end up putting you back in square one.</p>

CC BY-SA 3.0
2016-01-04T07:39:21.237Z
2016-01-04T07:39:21.237Z
D J Sims
<p>Market are fundamentally not short sighted.  One of the most basic concept in finance is the <strong>NPV</strong>,  or net present value which is obtained by discounting future cash flow. </p>

<p>So yes,  investors prefer to see the returns of their investments today rather than tomorrow, just like any rational individual, but they inherently account for future events, both costs and profits </p>

CC BY-SA 3.0
2016-01-04T10:51:47.280Z
It is certainly relevant that market participants often have regard to net present value.  However, a fuller answer would also consider whether and to what extent the discount rates they use may differ from an appropriate social discount rate which has regard to the needs of future generations.
Adam Bailey
CC BY-SA 3.0
2016-01-04T22:01:11.423Z
You are right and I do not have any evidence about discount rates to support my case. I would therefore reduce my assumption and say that investors are a minima equally or less short sighted than other economic agents, as they do the calculation in a very explicit way.
Hector
CC BY-SA 3.0
2016-01-05T01:25:06.710Z
So, in the context of, say, global warming, the current system of capitalism is basically broken?
Hexatonic
CC BY-SA 3.0
2016-01-05T07:22:53.733Z
That is not a conclusion that can be drawn from my answer. I assert that financial markets are at least equaly or less short-sighted than the other economic agents. Therefore the problem (if any) could be attributed to our values, but not to the structure and organizations of markets, nor to the markets themselves.
Hector
CC BY-SA 3.0
2016-01-04T08:44:25.387Z
2016-01-04T08:44:25.387Z
Hector
<p>In short, yes markets are short sighted because they only price goods and services in the here and now. They lack the mechanisms to measure the lifecycle costs of the goods, the degradation of wildlife that we obtain through hunting and fishing, the loss of soil depletion via farming and the opportunity cost of what could have been done with money squandered on consumption and so on.</p>

<p>The decline of the coral reef or the wild Salmon population does not make it into price discovery.</p>

CC BY-SA 4.0
2019-03-28T01:59:57.473Z
2019-03-28T01:59:57.473Z
Daniel
<p>If markets are types of "information systems", how do they assist in the attainment of a future common objective that is beneficial or even necessary to a society?  Since markets are driven by individual needs and wants, are such future planning objectives beyond the scope of markets?  So, if markets are inherently short sighted, does that mean we are at the mercy of fate when it comes to large scale global problems that evolve over decades?  </p>

CC BY-SA 3.0
2016-01-04T05:17:33.847Z
The short answer is that if markets are "shortsighted", it's only because people participating in it are shortsighted. Markets are still useful because they are a reflection of aggregated preferences. They give us very tangible and intuitive information. Large scale global problems require market correction.
Kitsune Cavalry
CC BY-SA 3.0
2016-01-04T06:52:07.853Z
@KitsuneCavalry "Large scale global problems require market correction?" For example?
Thorst
CC BY-SA 3.0
2016-01-04T07:55:22.937Z
Pollution is a global problem. Given any individual country's policies to deal with it, other countries' pollution is then a negative externality.
Kitsune Cavalry
CC BY-SA 3.0
2016-01-04T11:15:12.623Z
But how would a global free market correct this?
Thorst
CC BY-SA 3.0
2016-01-04T11:45:55.780Z
Quick answer: Markets *can* be short sighted. Markets are **not** *inherently* short sighted. A free market cannot correct everything, that's why we have regulation, e.g. environmental regulation.
BB King
CC BY-SA 3.0
2016-01-05T15:03:47.660Z
@BB King so what's the relationship between market forces, and the realization of the public that they must pressure governments for more regulation? Currently, markets are to drive conspicuous consumption for the present, but with  no clear considerations for future impacts/benefits.
Hexatonic
<international-economics>
Are markets inherently short sighted?
Hexatonic
# Are markets inherently short sighted?

(Asked by: username_0 on 2016-01-04)

If markets are types of "information systems", how do they assist in the attainment of a future common objective that is beneficial or even necessary to a society? Since markets are driven by individual needs and wants, are such future planning objectives beyond the scope of markets? So, if markets are inherently short sighted, does that mean we are at the mercy of fate when it comes to large scale global problems that evolve over decades?

**Tags:** international-economics

> **Comments:**
> **username_1**: The short answer is that if markets are "shortsighted", it's only because people participating in it are shortsighted. Markets are still useful because they are a reflection of aggregated preferences. They give us very tangible and intuitive information. Large scale global problems require market correction.  
> **username_2**: @KitsuneCavalry "Large scale global problems require market correction?" For example?  
> **username_1**: Pollution is a global problem. Given any individual country's policies to deal with it, other countries' pollution is then a negative externality.  
> **username_2**: But how would a global free market correct this?  
> **username_3**: Quick answer: Markets *can* be short sighted. Markets are **not** *inherently* short sighted. A free market cannot correct everything, that's why we have regulation, e.g. environmental regulation.  
> **username_0**: @username_3 so what's the relationship between market forces, and the realization of the public that they must pressure governments for more regulation? Currently, markets are to drive conspicuous consumption for the present, but with  no clear considerations for future impacts/benefits.  

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## 3 answers

### Answer by username_4 on 2016-01-04. Score: 1

Of course markets can be shortsighted. The same problem can apply to any institution though. In order to correct a market failure using government it's necessary to appeal to the self interest of various interest groups, which may end up putting you back in square one.


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### Answer by username_5 on 2016-01-04. Score: 1

Market are fundamentally not short sighted. One of the most basic concept in finance is the **NPV**, or net present value which is obtained by discounting future cash flow.

So yes, investors prefer to see the returns of their investments today rather than tomorrow, just like any rational individual, but they inherently account for future events, both costs and profits

> **Comments:**
> **username_6**: It is certainly relevant that market participants often have regard to net present value.  However, a fuller answer would also consider whether and to what extent the discount rates they use may differ from an appropriate social discount rate which has regard to the needs of future generations.  
> **username_5**: You are right and I do not have any evidence about discount rates to support my case. I would therefore reduce my assumption and say that investors are a minima equally or less short sighted than other economic agents, as they do the calculation in a very explicit way.  
> **username_0**: So, in the context of, say, global warming, the current system of capitalism is basically broken?  
> **username_5**: That is not a conclusion that can be drawn from my answer. I assert that financial markets are at least equaly or less short-sighted than the other economic agents. Therefore the problem (if any) could be attributed to our values, but not to the structure and organizations of markets, nor to the markets themselves.  

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### Answer by username_7 on 2019-03-28. Score: -1

In short, yes markets are short sighted because they only price goods and services in the here and now. They lack the mechanisms to measure the lifecycle costs of the goods, the degradation of wildlife that we obtain through hunting and fishing, the loss of soil depletion via farming and the opportunity cost of what could have been done with money squandered on consumption and so on.

The decline of the coral reef or the wild Salmon population does not make it into price discovery.


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