Posted by: Nicholas Davis | March 24, 2009

Readings 24/3/09

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  1. The NYT article is a long excursus on the human attribute of imagination failure, which we’ve just recently discussed. We are programmed not to imagine the worst so as to survive – which raises the question: what on earth are we doing relying on instinctive (trading) wisdom to construct our wealth? Reflection, pace and learned wisdom have their place in forming judgement, which the journalist quite rightly pointed out has been lost in a governance society that often turns to risk assessment in the face of complexity.

    Thanks for blog – very enjoyable read.

  2. Eloise, thanks for your comment. Nassim has made the point that we should avoid putting any of our essential wealth into the hands of traders (or the markets in general). I agree, as it is clear that practitioners of the art of trading are drunkenly wearing blindfolds while flying and unstable, poorly-designed aircraft in a tornado zone.

    But then where do we put our money (now that we realise house prices go down occasionally? And how do we save for retirement if the bulk of our returns are at the risk-free rate (and hence low)?

    I think we CAN reconstruct a financial system that is more conscious and less oblivious to distortion (the primary usefulness of efficient market theory seems to be to hide gross inefficiencies and thereby make traders rich until they blow up and other people pay).

    Designing and implementing that system is tough, though. First, we need to get people past the cognitive biases that are denying that there are both structural and cognitive weakness as the system is currently constructed.

    Then, we need clever, self-aware decision-makers from business, government and academia to start the shift that will look to “robustify” the system and keen it enlightened as to its complexity and the dangers of a shift back to fragility as we come out of this crisis.

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