tag:blogger.com,1999:blog-8702840202604739302.post9103549551364770133..comments2024-03-28T03:38:53.734-07:00Comments on MacroMania: Larry Summers on Fear and GreedDavid Andolfattohttp://www.blogger.com/profile/12138572028306561024noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-8702840202604739302.post-4719276945098228322009-03-27T09:52:00.000-07:002009-03-27T09:52:00.000-07:00Pani Pani:We have many examples from history that ...Pani Pani:<BR/><BR/>We have many examples from history that show how willing some people appear to be to listen to the arguments put forth by self-proclaimed messiahs; frequently, to their ultimate doom. There appears to be a large demand for "religion" and "religious leaders." People who are confident that they KNOW THE TRUTH. People like Summers who KNOW that "fear" and "greed" explains everything. They are so much more attractive to listen to than (say) a Socrates; whose wisdom resides in the recognition that his knowledge is limited. <BR/><BR/>In any case, I thought that the idea you were developing sounds interesting (you would have made a good economist). The book in question is called "Passions Within Reason" by Robert H. Frank. Let me know what you think of it (I read it long ago).David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-86005747624715616992009-03-27T09:33:00.000-07:002009-03-27T09:33:00.000-07:00Keeping in mind that this is wild-ass conjecture c...Keeping in mind that this is wild-ass conjecture coming from a layperson, my feeling (haha) is that emotions can be "rational" in the utility sense if it helps one to decide among alternatives. Like for example if I assess the likelihood of various opportunities and its outcome, my assessment can be based on emotion to derive a probability let's say. <BR/><BR/>That is, emotion is information and can provide signals like prices do, particularly if we seek out how others feel about certain things in order to make decisions. So in that sense information is compressed as emotional signals though the informational content may be noisy. But the tradeoff of emotions with non-emotion based information might be less costly for individuals with constraints such as time or information processing costs like learning specialized terminology. I think that might be consistent with what you're saying about information sets. Or am I missing something?<BR/><BR/>So in that sense Larry Summers may be providing noisy information. Perhaps it is because I am not an economist that at least viscerally, upon seeing his statements it "feels like it makes sense" and gives me the feeling he understands the crisis. Perhaps that's the intention. But as you make clear in your post, it's clearly contradictory.<BR/><BR/>Anyways I'm going to see if I can find the book you mention.Pani Panihttps://www.blogger.com/profile/02518606285629758795noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-11414314514364128782009-03-27T01:46:00.000-07:002009-03-27T01:46:00.000-07:00Chris, I appreciate your post, but...[1] Re-read w...Chris, I appreciate your post, but...<BR/><BR/>[1] Re-read what Summers says; it is logically incoherent;<BR/><BR/>[2] Risk premia may fluctuate for many different reasons, not the least of which has to do with the way people assess risk. New information can change this assessment. What is the evidence supporting the notion that "fear" or "greed" influences risk premia? (indeed, how does one even measure these objects?)<BR/><BR/>[3] By "real" experts, are you referring to those whose opinions are alligned with your own preconceived notions? Who are these "real" experts; please provide references. <BR/><BR/>[4] If you believe that there are "real" experts who "already know" the truth, you are sadly misguided. All we have are theories; all theories are tentative hypotheses.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-73023374277536604322009-03-27T01:27:00.000-07:002009-03-27T01:27:00.000-07:00Not only is what Summers says sensible, it is perf...Not only is what Summers says sensible, it is perfectly consistent with the evidence from academic finance over the past 30 years, which finds that the main driver in asset prices is fluctuations in the "risk premium." He's just using layman's terms to try to give an interpretation of what the REAL experts (using much more sophisticated models than the one above) already know.<BR/><BR/>I don't think that coming up with an intuitive layman's interpretation of the cutting edge of academic finance qualifies as "brain rot."Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-33693574157307024642009-03-27T00:49:00.000-07:002009-03-27T00:49:00.000-07:00Pani Pani: I think that emotions can certainly be ...Pani Pani: <BR/><BR/>I think that emotions can certainly be the byproduct of changes in the environment. And I believe that emotions can influence decision-making. But exactly how this works, I am not sure (that is, I have no way of formalizing the link between emotions and their influence on decision-making). <BR/><BR/>Perhaps one way to model this is to imagine that an uncontrolled emotion temporarily suspends the ability to make a calculated decision. Or perhaps, one is still able to make a calculated decision, but on the basis of a temporarily smaller information set (i.e., the emotion blinds one to the larger information set, leading one to focus on less information).<BR/><BR/>I once read a book entitled "Passion within Reason" that explained emotions as an evolutionary stable strategy. An uncontrollable urge to become angry and act foolishly may seem irrational at the individual level, but if the trait is developed in a population, the population can be made better off (e.g., no one wants to pick a fight with a drunk little Irishman). <BR/><BR/>What did you have in mind?David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-74063084463253597422009-03-25T23:25:00.000-07:002009-03-25T23:25:00.000-07:00.. on the other hand, what do you think about the ..... on the other hand, what do you think about the role of emotions in decision-making?Pani Panihttps://www.blogger.com/profile/02518606285629758795noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-70744989537583694592009-03-25T22:57:00.000-07:002009-03-25T22:57:00.000-07:00Maybe the government could put something in the wa...Maybe the government could put something in the water to stimulate us all into having optimal moods conducive to a better economy?Pani Panihttps://www.blogger.com/profile/02518606285629758795noreply@blogger.com