Risk, Uncertainty, and Heuristics

Risk = space of outcomes and probabilities are known. Uncertainty = probabilities not known, and even space of possibilities may not be known. Heuristic rules are contrasted with algorithms like maximization of expected utility. See also Bounded Cognition and Risk, Ambiguity, and Decision (Ellsberg). Here’s a well-known 2007 paper by Gigerenzer et al. Helping Doctors and …

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Jonathan Haidt and Tyler Cowen

Highly recommended: a great conversation (transcript) between Tyler Cowen and NYU psychology professor Johnathan Haidt. More Haidt. The transformation of the Academy and the two universities: COWEN: But is it at least possibly the case that we’re seeing the greatest threat to intellectual diversity in some of the areas which matter least, and when the …

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Who’s on the other side of the trade?

A great conversation between Tyler Cowen and fund manager Cliff Asness, who has appeared many times on this blog. See, e.g., this 2004 post on his analysis of the well known Fed Model for equity valuation, also discussed in the interview. Hedge-fund manager Cliff Asness, one of the most influential—and outspoken—financial thinkers, will join Tyler Cowen …

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Merger Fever–the patient is sick

The Federal Reserve has gone to great lengths to keep interest rates low.  So what have American firms been doing?  Borrowing to build new plants and employ more people?  Wrong! They are using retained earnings and borrowing to buy their own stock and other companies. Prof. Richard Roll of the University of California has formulated …

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