Re: more uncertainty

[Ted Winslow <winslow@xxxxxxxx>]

Mat wrote:

> We have determined that agents
> experience uncertainty subjectively, but that such a state is rooted in
> ontology, i.e., in the world around us, including other people, the social and
> natural environment.

Do you mean by "agents experience uncertainty subjectively" that agents are
consciously aware that they face true uncertainty?  As I've said before, I
don't think this is what Keynes assumes.

He claims that, for psychological reasons, most people are subjectively
unable to face the objective fact of true uncertainty.  They deny its
existence and "substitute for the knowledge which is unattainable certain
conventions, the chief of which is to assume, contrary to all likelihood,
that the future will resemble the past."

"the need for action and for decision compels us as practical men to
overlook this awkward fact [that 'we simply do not know']" because "peace
and comfort of mind require that we should hide from ourselves how little we
foresee.  Yet we must be guided by some hypothesis.  We tend, therefore, to
substitute for the knowledge which is unattainable certain conventions, the
chief of which is to assume, contrary to all likelihood, that the future
will resemble the past.  This is how we act in practice." (XIV, 114 and 124)

On Keynes's premises, these conventional forecasting practices generate
beliefs about the future knowable practically with certainty to be false.
The "chief" convention, for instance, contradicts the fact that "the future
never resembles the past - as we well know." (XIV, p. 124)  Not only will
the future be different from the past, "it will be different from anything
we could predict."  "We do not know what the [long run] future will bring,
except that it will be quite different from anything we could predict."
(Keynes, quoted in the just published third vol. of Skidelsky's biography,
p. 33)

In my judgment, it is this psychology rather than true uncertainty by itself
that creates the problem.  The conventional basis of expectations is
unstable, and for psychological reasons this is associated in an
unfortunately reinforcing way with changes in the psychological propensities
to save and hoard i.e. a collapse into pessimism about the future is
associated with increased propensities to save and hoard. (VII, pp. 315-19)

>
> is there any difference between "the farther forward in time is the  future in
> question" and "the farther into the future are the consequences to be
> predicted"
> or are these two ways of saying more or less the same thing?

They are two ways of saying the same thing.

>
> But there is another issue that I have been wondering about. While Keynes in
> both _The General Theory_ and the 1937 paper does indicate that the longer the
> time horizon the greater the uncertainty, elsewhere he also talks about the
> speed of asset revaluation as contributing to instability.  In this case, it
> is
> not the longer the period that increases uncertainty but the shorter (faster).
> So it depends on what we are talking about whether uncertainty and associated
> volatility are increased?
>

Again the instability of "conventional valuations" in financial markets is a
product of the psychology underpinning them rather than of true uncertainty
itself.

A "conventional valuation" is the outcome of "the mass psychology of a large
number of ignorant individuals". (VII,154)  Among other things, this has the
result that it is influenced by changes "in the news or in the atmosphere"
"which are in no way relevant to the prospective yield", by "factors which
do not really make much difference to the prospective yield" (VII, 152 and
155).  If financial market participants were sufficiently strong
psychologically to be able to face the fact of true uncertainty asset
valuations would not be subject to influence by irrelevant factors; they
would be more stable.

> Mat
>
> p.s. Ted, do you make this point in a paper (length of time horizon increasing
> uncertainty), if so which one?? Thanks!

The paper you mention in a later post is the main one.

Best,

Ted
--
Ted Winslow                            E-MAIL: WINSLOW@xxxxxxxx
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