Democracy is a form of government in which political decisions are ultimately governed by the bulk of the adult population, though, of course, usuall… - Kenneth Arrow

The incompleteness of property rights in general creates well-known problems in welfare economics, being in fact the basic component of externalities. In particular, markets for future commitments are relatively under-developed compared with those for the present or immediate future. Individuals have to supply for themselves expectations as to future developments in order to make decisions with consequences extending into the future, e.g., investments. These expectations, for example of prices or of supply availabilities, are not "property," but they influence the use of property and are taken into account in the present legal system. For example, an obligation to sell a product for the next few years at a given price is understood in the law to hold only if conditions do not change in a strongly unexpected way; this understanding does not require explicit statement.

Any argument seeking to establish the presence of irrational economic behavior always meets a standard counterargument: if most agents are irrational, then a rational individual can make a lot of money; eventually, therefore, the rational individuals will take over all the wealth. Hence, rational behavior will be the effective norm. There are two rebuttals to the counterargument. (1) Not all arbitrage possibilities exist. For example, corporate profits, even though they may be down, are very distinctly positive in real terms after all necessary adjustments, including taxes. Yet there seems no way by which the average investor in corporate securities can get a positive real rate of return. (2) More important, if everyone else is “irrational,” it by no means follows that one can make money by being rational, at least in the short run. With discounting, even eventual success may not be worthwhile. Consider, for example, a firm that engages in research and development which depresses the current profit and loss statement. Irrational investors look only at this information, and therefore the price of the stock is below the expected value of future dividends based on the profitable outcomes of the research and development. In a perfectly working market with rational individuals, stock prices would gradually rise as the realization date approached, but prices in the actual market would be constant. A rational investor would understand the future value of the stocks, but he or she could not realize any part of this gain during the gestation period. Although the rational investor may get rewarded eventually if the stock is held long enough, he or she is losing liquidity during an intervening period which may be long. Hence, the demand for the stock even by the rational buyers will be depressed. As Keynes argued long ago, the value of a security depends in good measure on other people’s opinions.

Finding out the prices of a large range of commodities is itself a costly enterprise, and knowledge of this fact by price setters is itself enough to create incentives for inefficient market behavior. If one individual has more information about the quality of a good than the second, the first may exploit the situation, and the second, distrusting him, may not take advantage of what is in fact a desirable trade.