Sunday, May 30, 2010

Greed is good

What determines utility? Eric Falkenstein argues that envy is more important that greed. This is consistent with some of the findings of behavioural experiments. This can provide a better understanding of bubbles as it would indicate that keeping up with other bubble followers is one reason that many people are sucked in. It also suggests that the best investment strategy is one that is individualistic and greedy. An example would be Warren Buffett and the technology boom. It also suggests that hedge funds that follow an independent strategy and do not worry about relative performance will be better in the long run.

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