Are markets really efficient..?

There has been long debates about the efficiency of markets. The markets ensure proper allocation of resources through signals like prices. But, they are far from perfect and have many shortcomings. Information asymmetry among market participants plays an important role in the so called perceived inefficiency of markets and as a result, people may attribute different values to some stuff. Secondly, the markets depend heavily on the laws of demand and supply that we often come across products with exaggerated prices due to mismatch in demand and supply.

The idea that prices tend to rise during conditions of short supply promotes hoarding and black marketing of essential stuff. Thirdly, people have different reactions to events in markets depending upon their risk appetite.For example, a fall in price can be a signal to buy for one investor but it may also lead to selling spree by other investors. Finally, the presence of herd mentality tends to exaggerate a given market signal and the tendency to move in herds causes huge volatility in stock markets. But, inspite of all these shortcomings, markets are the best tool to generate wealth as they provide incentive for hard work and allocate resources to sectors where returns are maximum. They offer least resistance path for mankind for conducting economic activities.