Finance and Folly

Freud, finance and folly Jan 22nd 2004 From The Economist print edition Human erudition is a disadvantageously guide to exitling risk PEOPLE nonplus barmy decisions about the future day. The evidence is all around, from their investments in the stockmarkets to the air their run their businesses. In fact, people are consistently bad at dealing with uncertainty, underestimating some kinds of risk and overestimating others. Surely thither must be a better way than employ intuition? In the 1950s and 60s, a group of look intoers at American universities set out to find a more(prenominal) scientific method. They created a discipline called decision science which aimed to put on the human element out of risk analysis. It would offer a way of making soundly based decisions for a future fraught with uncertainties. This would involve using computer models for forecasting, estimating the probabilities of possible outcomes and determine the best course of action, thus avoiding the various biases that humans brought to decision-making. such models, the researchers thought, would provide rational answers to questions such as whether to build a factory, how to combat disease and how to manage investments. Business schools soon adopt their teachings, and even some policymakers were persuaded.

Decision sciences heyday may have been the Vietnam war when Robert McNamara, then Americas defence secretary, utilise such techniques to forecast the outcome of the conflict (though, as it saturnine out, without much success). But mostly the approach did not kind of catch on. Decision-makers, whether in business or politics, were loth to hand over their power to a computer. They preferred to go with their intestine instincts. Think like a machine Daniel Kahneman, now a prof at Princeton, noticed as a young research psychologist in the 1960s that the logic of decision science was arduous for people to accept. That launched him on a career to show just how irrationally people behave in practice. When Mr Kahneman and his... If you want to get a full essay, order it on our website: Orderessay

Order your essay at Orderessay and get a 100% original and high-quality custom paper within the required time frame.