Friday, April 10, 2015

So much focus on expectation, so little on evidence at hand

Came upon this by Jonathan Finegold:

Keynes’ point is that expectations are not past-oriented thoughts, but future-oriented thoughts. As such, past expectations are largely irrelevant...

In the same post, Finegold writes

The current stock of equipment, of course, embodies past expectations.

So the current stock of equipment is largely irrelevant? Finegold makes my head spin.

Here's Keynes:
The considerations upon which expectations of prospective yields are based are partly existing facts which we can assume to be known more or less for certain, and partly future events which can only be forecasted with more or less confidence.

It would be foolish, in forming our expectations, to attach great weight to matters which are very uncertain. It is reasonable, therefore, to be guided to a considerable degree by the facts about which we feel somewhat confident, even though they may be less decisively relevant to the issue than other facts about which our knowledge is vague and scanty. For this reason the facts of the existing situation enter, in a sense disproportionately, into the formation of our long-term expectations; our usual practice being to take the existing situation and to project it into the future, modified only to the extent that we have more or less definite reasons for expecting a change.

In practice we have tacitly agreed, as a rule, to fall back on what is, in truth, a convention. The essence of this convention — though it does not, of course, work out quite so simply — lies in assuming that the existing state of affairs will continue indefinitely, except in so far as we have specific reasons to expect a change.

No comments: