Tuesday, November 06, 2012

Knight, Risk, Uncertainty, and Profit, Part III, Chapter X | Library of Economics and Liberty

Knight, Risk, Uncertainty, and Profit, Part III, Chapter X   Profit is the return for having belief in the ability to forecast the future.  Of course this is self-fulfilling if luck ensures success and increased profits increase confidence.

 "The receipt of profit in a particular case may be argued to be the result of superior judgment. But it is judgment of judgment, especially one's own judgment, and in an individual case there is no way of telling good judgment from good luck, and a succession of cases sufficient to evaluate the judgment or determine its probable value transforms the profit into a wage."

However, the build up of confidence, profits and positions that are based on luck rather than ability to forececast the future could increase risk, particularly if risk is identified as a risk of reversal or crash.