I like the way he puts it:
But of course there are a lot of delusional investors. Why not? For decades everyone has been feeding their delusions. They have been telling them that skill, enough skill to beat the market, is pretty easy to come by, no harder than learning how to snowboard or cook a pineapple upside-down cake. The advisor in your bank's Funds-R-Us cubicle has it. Any competent fund manager has it. You can get it yourself just by watching Jim Cramer and spending a few hours a week researching five stocks. As a passionate consumer, your expert knowledge of the best hosiery brands will enable you to beat the street by investing in what you know...In a perfectly efficient market... everyone has the same expected return, before fees, for any given level of risk assumed. The winners are the ones who give up the least amount of market returns to frictional costs. In a perfectly inefficient market, everyone's expected return is purely a function of their skill...
If you're unskilled, you'd rather play in the efficient market.... The situation becomes dangerous if you're unskilled and the market is inefficient. Any deviation from market-cap-weighting is likely to hurt you badly, because someone skilled is going to buy what you're selling and sell what you're buying. In this case, the optimal strategy is to not play the game and passively own the entire market, guaranteeing that you will at least be above-average after fees.
I can think of two reasons why unskilled investors would voluntarily play in an inefficient market: 1) they are delusional, unaware of their own incompetence, or 2) they are willing to lose money for the thrill of playing. Most investors who play do not do so with the expectation of losing, so there must be lots of delusional investors.