Your analogy is pretty good, but the part about the telescope is critically flawed. You assume that there is very little (zero?) variance in the future once the man with the telescope sees the incoming ship. In the scenario you described, that may be the case.
Unfortunately, in the stock market, there is no where near that level of certainty about the future. There is great risk to posting prices that may in fact be terribly wrong in the future. That is the risk that market makers have to grapple with and quantify when they post or take liquidity.
Suppose that every time you spotted a ship through the telescope, it would magically explode 2 minutes later. This happened roughly 50% of the time, as observed over 1 million ship sightings for the past few years. This is a lot closer to what the stock market is like. The other difference is that every serious player in the stock market also has a telescope :(
So is mine. I develop HFT trading algorithms using statistical analysis. Placing limit orders on the other side is as dangerous as anything else. Are you on the strategy side or pure development side? If you are developing strategies, then you know what you said in no way mitigates most of the risk that we talked about.
Pure development. So yeah, there's some handwaving there.
Let's say Galileo had had to climb a rickety ladder to the top of a tower at significant risk of falling and breaking his legs. Would that in any way have altered the social utility of his end product?
re: "every serious player in the stock market also has a telescope," see my comments on the Chicago fiber installation elsewhere in this thread.
Unfortunately, in the stock market, there is no where near that level of certainty about the future. There is great risk to posting prices that may in fact be terribly wrong in the future. That is the risk that market makers have to grapple with and quantify when they post or take liquidity.
Suppose that every time you spotted a ship through the telescope, it would magically explode 2 minutes later. This happened roughly 50% of the time, as observed over 1 million ship sightings for the past few years. This is a lot closer to what the stock market is like. The other difference is that every serious player in the stock market also has a telescope :(