Thursday, October 16, 2008

The Master Speaks

Ken Arrow, with the long view (h/t tyler cowen)

Two things to "add", if that is possible, not presumptuous.

1. Is there information asymmetry when the "less informed" (a.k.a. the trusting) and the "less less informed" (a.k.a. the self-deceived) compete for price? Or, is there another name for that?

2. How high can uncertainty rise, theoretically, yet there still be a 'meaningful' equilibrium or even willingness to risk-share?

Update / More Thoughts: It's fairly clear to most that the issues in securitization and derivatives are not related to the concepts/instruments themselves, but to how the sales processes and risk management processes get abused.

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