Monday, September 26, 2011

The evolution of overconfidence

A paper in Nature makes the case for the positive aspect of over-confidence: it encourages action and decisive response; it is generally successful or adaptive; when it goes wrong, it goes very wrong.

The evolution of overconfidence : Nature : Nature Publishing Group:

This would be consistent with the behaviour that is mirrored in financial markets. The carry trade is such a confident trait. There is the belief that the exit can be achieved before the shock. This is generally successful, certainly more successful than the alternative strategy that would hold back and worry about the risk of a funding currency appreciation. Those who embark on the strategy make years of gains. Those who stay on the sidelines, lose out. When the hit happens, it is a shock that is explained away by specific circumstances. The over-confident are not blamed and the cautious and not proved 'right' in most cases.

Tuesday, September 13, 2011

The price of protection -

The price of protection - "However, most banks expect the biggest impact to be felt by corporate customers, particularly mid-sized companies that rely heavily on bank debt. Analysts believe these businesses will sit outside the ringfence, alongside the investment bank activities – the part most at risk of a sharp rise in wholesale funding costs. Creditors generally give higher ratings to banks with retail and investment banking under one roof as they believe they are more stable. Remove that benefit and ratings are likely to fall, making it harder and more expensive to access funds."

'via Blog this'

Wednesday, September 07, 2011

The Social Responsibility of Business is to Increase its Profits, by Milton Friedman

The Social Responsibility of Business is to Increase its Profits, by Milton Friedman: "The New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company.

When I hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free en­terprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing em­ployment, eliminating discrimination, avoid­ing pollution and whatever else may be the catchwords of the contemporary crop of re­formers. In fact they are–or would be if they or anyone else took them seriously–preach­ing pure and unadulterated socialism. Busi­nessmen who talk this way are unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society these past decades."

'via Blog this'