On May 27, 2008, at 10:18 PM, raghu wrote:
I have seen this passage from Keynes before, and I'd still argue that
the categories of risk and uncertainty are not at all sharp. Just to
take one of Keynes' examples:
"the price of copper and the rate of interest twenty years hence": if
I look back at the historical copper prices over the last 200 years, I
can most certainly obtain a probability distribution for copper price
which if necessary can be combined with the expected statistics of
copper supply and demand (similarly obtained from historical data) to
project 20 years into the future.
Indeed I'd expect quant hedge funds that invest in futures probably do
something like this today (maybe not 20 years).
There may be one somewhere but not many.
But you don't know what could happen between now and then. Cooper
supplies could be shut off, or technological change could render
copper more or less obsolete. Or, to add a variable Keynes never
thought of, ecological crisis could throw all your projections into
the dumper. Probability projections for the price of copper even five
years out are pretty dodgy.
Doug
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