by
Mervyn King
120
Radical Uncertainty: The Purpose of Financial Markets
0
terms
2
notes
134
What does it mean to be rational in a world of radical uncertainty? Once we are liberated from the view that there is a single optimising solution, rules of thumb--technically known as heuristics--are better seen as rational ways to cope with an unknowable future. A heuristic is a decision rule that deliberately ignores information. It does so not just because humans are not computers, but because it is rational to ignore information when we do not understand how the world works. [...] Heuristics are not deviations from the true optimal solution but essential parts of a toolkit to cope with the unknown.
What does it mean to be rational in a world of radical uncertainty? Once we are liberated from the view that there is a single optimising solution, rules of thumb--technically known as heuristics--are better seen as rational ways to cope with an unknowable future. A heuristic is a decision rule that deliberately ignores information. It does so not just because humans are not computers, but because it is rational to ignore information when we do not understand how the world works. [...] Heuristics are not deviations from the true optimal solution but essential parts of a toolkit to cope with the unknown.
148
Everyone on the island felt let down. The cult of finance had led to the contraction of a successful fishing industry. Too many talented people had been sucked into trading which, with the benefit of hindsight, was little more than a zero-sum activity generating little or not output. How could so many people have been taken in by the new world of finance?
a cute little parable about a fishing island in which everyone gets drawn into finance (betting on the fishing industry) and thus no one is left to actually fish
thought: is financialisation inevitable, because of the feedback loop? is it like a recessive gene that offers no fitness advantages and thus will eventually be selected out randomly if you wait long enough?
Everyone on the island felt let down. The cult of finance had led to the contraction of a successful fishing industry. Too many talented people had been sucked into trading which, with the benefit of hindsight, was little more than a zero-sum activity generating little or not output. How could so many people have been taken in by the new world of finance?
a cute little parable about a fishing island in which everyone gets drawn into finance (betting on the fishing industry) and thus no one is left to actually fish
thought: is financialisation inevitable, because of the feedback loop? is it like a recessive gene that offers no fitness advantages and thus will eventually be selected out randomly if you wait long enough?