Sunday, September 4, 2011

The Stock Market As a Beauty Contest

Robert Shiller tells us why there is volatility in stock prices and why uncertainty about the future cannot be overcome by mathematical analysis of events. Keynes described the market as a beauty contest. The goal is not to select the most beautiful candidate but to guess who others will regard as the most beautiful. Our economy, and the direction of our governments, is determined by guesses just like that. What do other people think? What will they do next? Polls are used to overcome some of this uncertainty, but its hard to predict what might happen that will change the way that people look at things.

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