The Discovering Markets Hypothesis - Worth a close look to add to our thinking of market dynamics

There are alternative views on how markets operate that are different from the efficient markets hypothesis which has taken a beating since the development in behavioral finance. Andrew Lo came up with the concept of Adaptive markets, but Tom Mayer and Marius Kleinheyer have developed an alternative called the Discovering Markets Hypothesis (DMH) which is based on three key points. Information held or learned by investors should be viewed as subjective not objective knowledge and this knowledge is adjusted when it compared against the behavior of others. Investors will communicate with others to cross-check their subjective knowledge. The communication of knowledge is through narrative. Narratives compete through their influence on prices. 

Facts influence subjective knowledge which is then shared with others through narratives. These narratives compete with others through their influence on prices. Prices, of course, will then provide feedback on the quality of the narrative. As subjective knowledge changes, there will be an impact on prices. Facts or new information will drive the changes in subjective knowledge. Because subjective knowledge cannot be counted or measured with certainty, there will be inherent uncertainty in markets which will cause prices to change in ways that are not always expected.