Although Markowitz never mentions game theory, there is a close resemblance between diversification and von Neumann's games of strategy. In this case, one player is the investor and the other player is the stock market-a powerful opponent indeed and secretive about its intentions. Playing to win against such an opponent is likely to be a sure recipe for losing. By making the best of a bad bargain-by diversifying instead of striving to make a killing-the investor at least maximizes the probability of survival. (查看原文)
The word "risk" derives from the early Italian risicare, whjicjh means "to dare." In this sense, risk is a choice rather than a fate. The actions we dare to take, which depend on how free we are to make choices, are what the story of risk is all about. And that story helps define what it means to be a human being. (查看原文)
Yet once we act, we forfeit the option of waiting until new information comes along. As a result, not-acting has value. The more uncertain the outcome, the greater may be the value of procrastination. Hamlet is wrong: he who hesitates is halfway home. (查看原文)
He postulates a game that ends at an infinite distance in time. At that moment, a coin is tossed. Which way would you bet--heads (God is) or tails (God is not)? (查看原文)
Pascal explained that belief in God is not a decision. You cannot awaken one morning and declare, "Today I think I will decide to believe in God." You believe or you do not believe. The decision, therefore, is whether to choose to act in a manner that will lead to believing in God, like living with pious people and following a life of "holy water and sacraments." The person who follows there precepts is wagering that God is. The person who cannot be bothered with that kind of thing is wagering that God is not. (查看原文)
Venturesome people place high utility on the small probability of huge gains and low utility on the larger probability of loss. Other place little utility on the probability of gain because their paramount goal is to preserve their capital. (查看原文)
Under conditions of uncertainty, the choice is not between rejecting a hypothesis and accepting it, but between reject and not-reject. You can decide that the probability that you are wrong is so small that you should not reject the hypothesis. You can decide that the probability that you are wrong is so large that you should reject the hypothesis. But with any probability short of zero that you are wrong--certainty rather than uncertainty--you cannot accept a hypothesis. (查看原文)
These investment managers defined the risk in the NiftyFifty, not as the risk of overpaying, but as the risk of not owning them: the growth prospects seemed so certain that the future level of earnings and dividends would, in God's good time, always justify whatever price they paid. (查看原文)
The logical consequence of Bernoulli's insight leads to a new and powerful intuition about taking risk. If the satisfaction to be derived from each successive increase in wealth is smaller than the satisfaction derived from the previous increase in wealth, then the disutility caused by a loss will always exceed the positive utility provided by a gain of equal size. (查看原文)
Regression to the mean motivates almost every variety of risk-taking and forecasting. It is at the root of homilies like "What goes up must come down," "Pride goeth before a fall," and "From shirtsleeves to shirtsleeves in three generations." Joseph had this preordained sequence of events in mind when he predicted to Pharaoh that seven years of famine would follow seven years of plenty. It is what J.P. Morgan meant when he observed that "the market will fluctuate." It is the credo to which so-called contrarian investors pay obeisance: when they say that a certain stock is "overvalued" or "undervalued," they mean that fear or greed has encouraged the crowd to drive the stock's price away from an intrinsic value to which it is certain to return. It is what motivates the gambler's dream that ... (查看原文)
The simplest answer is that the forces at work in nature are not the same as the forces at work in the human psyche. The accuracy of most forecasts depends on decisions being made by people rather than by Mother Nature. Mother Nature, with all her vagaries, is a lot more dependable than a group of human beings trying to make up their minds about something. (查看原文)
Consider those investors who had the temerity to buy stocks in early 1930, right after the Great Crash, when prices had fallen about 50% from their previous highs. Prices proceeded to fall another 80% before they finally hit bottom in the fall of 1932. Or consider the cautious investors who sold out in early 1955, when the Dow Jones Industrials had finally regained their old 1929 highs and had tripled over the preceding six years. Just nine years later, prices were double both their 1929 and their 1955 highs. In both cases, the anticipated return to "normal" failed to take place: normal had shifted to a new location. (查看原文)
