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Pandora's Risk: Uncertainty at the Core of Finance

Online ISBN:
9780231525411
Print ISBN:
9780231151733
Publisher:
Columbia University Press
Book

Pandora's Risk: Uncertainty at the Core of Finance

Published:
16 December 2014
Online ISBN:
9780231525411
Print ISBN:
9780231151733
Publisher:
Columbia University Press

Abstract

This text argues that uncertainty is central rather than marginal to finance. Markets don't trade mainly on changes in risk. They trade on changes in beliefs about risk, and in the process, markets unite, stretch, and occasionally defy beliefs. Recognizing this truth would make a world of difference in investing. Belittling uncertainty has created a rift between financial theory and practice and within finance theory itself, misguiding regulation and stoking huge financial imbalances. Sparking a revolution in the mindset of the investment professional, this text recasts the market as a learning machine rather than a knowledge machine. The market continually errs, corrects itself, and makes new errors. Respecting that process, without idolizing it, will promote wiser investment, trading, and regulation. With uncertainty embedded at its core, the book's rational approach points to a finance theory worthy of twenty-first-century investing.

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