Economic noise, or simply noise, describes a theory of pricing developed by Fischer Black. Black describes noise as the opposite of information: hype, inaccurate ideas, and inaccurate data. His theory states that noise is everywhere in the economy and we can rarely tell the difference between it and information. Noise has two broad implications.
* It allows speculative trading to occur (see below).
* It is indicative of market inefficiency.
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| - Economic noise, or simply noise, describes a theory of pricing developed by Fischer Black. Black describes noise as the opposite of information: hype, inaccurate ideas, and inaccurate data. His theory states that noise is everywhere in the economy and we can rarely tell the difference between it and information. Noise has two broad implications.
* It allows speculative trading to occur (see below).
* It is indicative of market inefficiency. (en)
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| - Economic noise, or simply noise, describes a theory of pricing developed by Fischer Black. Black describes noise as the opposite of information: hype, inaccurate ideas, and inaccurate data. His theory states that noise is everywhere in the economy and we can rarely tell the difference between it and information. Noise has two broad implications.
* It allows speculative trading to occur (see below).
* It is indicative of market inefficiency. Loudon and Della Bitta (1988) refer to noise as “a type of disruption in the communication process” and go further stating that "each state of the communication process is susceptible to (this) message distortion." (As cited in Wu & Newell, 2003). Therefore, we can say that noise is a disruption within the communication process and can be found in all forms within the communication process. Some examples of noise could be distortion of a television advertisement or interference of a radio broadcast. This therefore would mean that your reception of the information could be misunderstood as your reception of the information has been interfered with, meaning you may not receive the message in the way the sender is implying. Another, and probably more likely, example of noise is whilst an ad break is occurring on television, the reception of the ad has been interrupted by your mobile phone, meaning you do not fully and clearly receive and decode the information the advertisement is trying to deliver. What also must be considered when looking at the idea of noise is the understanding that the more the sender and receiver have in common, the less likely it will be for noise to have an effect on the encoding of the message. For example, if the receiver did not understand a symbol or the symbol had a different meaning to the receiver then it did to the sender, this would mean the receiver could encode the message in a different way to how the sender had intended. (en)
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