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Or if prices diverge in different parts of the world, inventory can be shipped to the more profitable market.
But many are too scared to pounce, in case prices diverge even more.The dilemma of whether to pile in or stay put is perplexing hedge funds.
When private prices diverge from their true values, private decision makers do not properly internalize social benefits and costs of their actions.
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At first, when prices diverged in unexpected ways, JPMorgan raised its bet.
The economist Dean Baker was showing me graphs of home prices diverging from rental prices in a novel and scary pattern back in 2002!
As the accompanying charts indicate, never in the two decades that natural gas and oil futures have traded have their prices diverged as much as they have now.
So why have their stock prices diverged so much when both companies appear to be at the top of their game?
As a consequence, internal relative prices diverged from international market prices, thus generating a sharp differential (which put the agricultural sector at a disadvantage) between the internal and external terms of trade (see Díaz-Alejandro 1970; Mallon and Sourrouille 1975).
Or traders could be betting on speculation – buying up Mr. Romney's stock, for example, in the hope of selling it at a higher price later, even if that price diverged from their estimate of the "fundamentals" in the race.
The question is whether false prices are causing big economic mistakes and, if so, what might be done about that.Many market prices do diverge from the corresponding "shadow prices" that would direct resources to their socially best uses.
But prices often diverge from cost and value and, in those cases, taxes can actually help steer resources toward more highly valued uses.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com