[lbo-talk] Risk and Keynesian Uncertainty

Doug Henwood dhenwood at panix.com
Fri Jul 29 11:21:42 PDT 2005


Miles Jackson wrote:


>Whatever "buffering" role the state plays, I think Keynes' point is
>a good one: what faces investors and workers in a free-market
>society is not risk in the sense of outcomes with known probability
>distributions but rather uncertainty. --Contrast rolling a die with
>the chance that the job market will improve in the U. S. in the next
>10 years: on any one roll of a die, I don't know for sure what I'll
>get, but I can be confident that I'll get a 3 one-sixth of the time.
>In contrast, the job market could get better, worse, or tread water,
>depending on a wide variety of unforeseeable events; the probability
>of a specific outcome cannot be ascertained, even in "the long run".
>(As with most economic concepts, probabilistic "risk" is more or
>less useless in making sense of actual human behavior.)

Most investors don't act as if the future is radically uncertain. The whole investment industry is mostly based on the assumption of normal growth and business cycles. You might try to trade against anomalies, but I bet if you polled most money managers and advisors, they'd think that the job market will grow over the next 10 years at pretty much the same rate it grew in the last 10 years. And most of the time, they'd be right.

Doug



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