Hi Jason,
You (and Tom) distinguish between "adjustments to new information" and "short-term emotions." I don't think they're different, and I think it's a cognitive mistake to dismiss volatility as merely the result of short-term emotions.
The value of any asset can be modeled as the present-discounted value of the future stream of cash flows generated by that asset. Of course nobody can know the future, so the value of any asset is determined by each market participants current expectations regarding both the future stream of cash flows that will be produced by that asset (under that market participant's ownership, if the cash flows are owner-dependent) and the future stream of discount rates that will apply to that owner. Market participants are constantly re-evaluating their current expectations regarding both of those streams of future values. "Emotion" is simply a dismissive way of describing how market participants revise their expectations in response to the arrival of new information. For example, if something increases uncertainty, then market participants will tend to revise downward their expectations regarding future cash flows (because of risk aversion) and similarly will tend to revise upward their expectations regarding future discount rates--resulting in a downward revision of their estimate of the asset's value. Volatility, then, is simply a real-time revelation of the market's process of incorporating new information--not a false signal generated by mere "emotion."