Keynesian beauty contest, Greater fool theory and MBA degree

“It’s important to choose not who you think is the prettiest girl, but who the judges think is the prettiest girl.”

–          John Maynard Keynes, British Economist

By 2015 India will have 19 Indian Institutes of Management. Getting degree from IIM has never been so easy, in addition to regular two year courses you have various options like one year course, online courses, short terms course, long term courses etc. In addition to IIMs there are 10-15 prestigious management institutes in India and hundreds of no so prestigious institutes. Management degree costs a lot (unless you are lucky enough to get admission in FMS, Delhi), so is it worth spending lakhs of rupees on it – mind you, even online course from IIMs is not cheap.

Why do we go for management degree? Either we find management science fascinating or it is viewed favourably by corporate world.

Game theory has two explanations- one is Keynesian beauty contest and other is Greater fool theory. Both relate to how people think during trading of stock.

Keynes compares trading of stocks with beauty contest. If a person is asked to choose a prettiest face from bunch of photographs, a person will not choose a lady who he feels is prettiest but he will choose face which he feels others think is prettiest. So if you want to spot winner go for face that you feel other will find pretty and not one whom you find pretty. Many times we go for management degree because we feel other will view it favourably and not because we are keen to go for it.

beauty contest

Other is Greater fool theory. This theory states that if you were foolish enough to buy bad stock, try to find a greater fool who will find this stock valuable and pay you a higher price.

greater fool theory

At times we may feel that we have wasted money by going for management degree i.e. you could have been equally successful without management degree. But since you have already spent money on getting degree, next step is to find greater fool who will find your degree valuable and offer you a good job.




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