c b wrote: > I still have a problem with the basic way in which risk is discussed > in relation to financial speculation. In terms of their combined > probabilities, if we take the speculation of all the bigtime financial > speculators, they would not make big net gains if there was a greater > chance of loss than gain. So, most of the "speculation" must not be > _risking_ money, but rather putting it on a "sure thing". Well, up > until the latest big losses.
a lot -- if not almost all -- of financial speculators follow the advice given to many Vegas visitors: don't bet all of your money, only that which you can afford to lose. They have nice & safe accounts that promise to pay a normal rate of return (as long as the entire economy doesn't go to hell). Then they put "what they can afford to lose" into some paper that might provide a gigantic "killing" but it also might evaporate. Of course, sometimes it happens that the killing is delayed but still seems possible, and just requires some more cash, so the speculator dips into the safe fund. So when the killing doesn't occur, the speculator (peculator?) goes broke. There are two important additional points here: 1) the chance of making a killing depends on a financial environment that the speculator has no control over. At one point, given a bull market, it looks like a killing can be made, but when the economy turns down and/or expectations turn sour, suddenly the conditions that made the killing possible go away. Most of these folks are individualists who don't think in terms of the big picture. They take the "big picture" as given and then speculate, even if the collective result of their individual activities undermine the persistence of that "picture." That's the nature of a bubble. 2) a lot of speculation is done with other people's money, so that the calculus of cost and benefit is different. What's important is the rustling up of fees and the like, along with the potential gains from embezzlement and other Madoff-type activities. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
