The Smart vs. Dumb Paradox demonstrates what economic principle?

The Smart vs. Dumb Paradox illustrates the idea that, in a market characterized by efficiency, the presence of knowledgeable, or "smart," investors does not necessarily lead to consistent outperformance compared to less knowledgeable, or "dumb," investors. This paradox arises from the concept of market efficiency, particularly the Efficient Market Hypothesis (EMH), which posits that all available information is already reflected in asset prices.

In such an efficient market, knowledgeable investors may have better access to research and analyses, but since the information they rely on is also available to all other investors, their ability to outperform the market is limited. Therefore, they might not achieve superior returns compared to less informed investors who are making decisions based on the same information that has already factored into pricing. The implication is that an investor's expertise does not guarantee an advantage in a truly efficient market.

The other options do not accurately represent the principles demonstrated by this paradox. For example, the notion that all investors have equal information access overlooks the reality that some investors, such as institutional players, may have resources that allow for better data analysis and decision-making. Similarly, claiming that knowledgeable investors always outperform is inconsistent with the ideas of market efficiency, which suggests that superior knowledge does not automatically