Saturday, January 31, 2009

An Indefinite Condition

“Even when traders get things ‘right,’ markets can hardly be expected to oscillate with the precision of sine waves. Prices and spreads vary with the uncertain progress of companies, governments, and even civilizations. They are no more certain than the societies whose economic activity they reflect. Dice are predictable down to the decimal point; Russia is not; how traders will respond to Russia is less predictable still. Unlike dice, markets are subject not merely to risk, an arithmetic concept, but also to the broader uncertainty that shadows the future generally. Unfortunately, uncertainty, as opposed to risk, is an indefinite condition, one that does not conform to numerical straitjackets.” (Lowenstein, pg. 235)

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