Consilient Observer
Who Is On the Other Side? A Framework for Understanding Market (In)Efficiency
Jan 21, 2026
We explain the factors that determine market efficiency and offer a taxonomy of the sources of inefficiency. Markets cannot be fully efficient because there is a cost to gather information and reflect it in prices. We encourage active investors to ask and answer the question, “Who is on the other side?” The key is participating where there is differential skill and you are among the most skilled. We categorize inefficiencies into four areas: behavioral, analytical, informational, and technical.