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Keynes on ignorance and longterm investment - Input Junkie
April 30th, 2009
11:09 am


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Keynes on ignorance and longterm investment
The prose is a bit of a trudge, but I think he was on to something.

From Marginal Revolution:
For if there exist organised investment markets and if we can rely on the maintenance of the convention, an investor can legitimately encourage himself with the idea that the only risk he runs is that of a genuine change in the news over the near future, as to the likelihood of which he can attempt to form his own judgment, and which is unlikely to be very large. For, assuming that the convention holds good, it is only these changes which can affect the value of his investment, and he need not lose his sleep merely because he has not any notion what his investment will be worth ten years hence. Thus investment becomes reasonably “safe” for the individual investor over short periods, and hence over a succession of short periods however many, if he can fairly rely on there being no breakdown in the convention and on his therefore having an opportunity to revise his judgment and change his investment, before there has been time for much to happen. Investments which are “fixed” for the community are thus made “liquid” for the individual.

It has been, I am sure, on the basis of some such procedure as this that our leading investment markets have been developed. But it is not surprising that a convention, in an absolute view of things so arbitrary, should have its weak points. It is its precariousness which creates no small part of our contemporary problem of securing sufficient investment.

(4 comments | Leave a comment)

[User Picture]
Date:April 30th, 2009 03:48 pm (UTC)
The deal with any 'game of chance' is that there always to be a steady stream of suckers who think they have a system or enough luck or both that they can break the Big Casino.

This is why I know better than to gamble for money or in the stock market.
[User Picture]
Date:April 30th, 2009 04:36 pm (UTC)
That's a special case of the observation that people are not very good at assessing low-probability, long-term risk. As such, it's related to the fact that many people overestimate the risk of terrorism, overlook the risk in increasing the driving they do, and in general either exaggerate or underestimate such risks.
[User Picture]
Date:May 1st, 2009 03:25 am (UTC)
I didn't use the black swan icon by accident.
[User Picture]
Date:April 30th, 2009 06:24 pm (UTC)
Aw, I misread the name as "Keyes" and for a moment thought I was in for a bit of amusing lunacy.
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