Keynes wrote in The General Theory: “If we speak frankly, we have to admit that our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory … amounts to little and sometimes to nothing”. Keynes was not talking about periods of economic turmoil or crisis like that we are experiencing now, when confusion about what happens next is obvious to all. In Keynes’ view, a state of “near ignorance” was the normal state of affairs.
Please discuss Keynes’ concept of “uncertain” knowledge and what it may imply for our ability to (a) measure risk in portfolios of financial assets and to (b) make “rational” investment decisions.
Given our inability to accurately “do the math” when we are making decisions about future events with uncertain outcomes, please describe how people {like you and me} actually make those decisions? What implications may this “decision making reality” have for the way financial markets actually function?
Please cite specific passages from John Cassidy’s book and Jim Crotty’s paper to support your arguments in this essay.
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