4 ms·
> When the rate of return is high, savers can achieve their goals by buying, holding, and harvesting the resulting cash flow. When it is low, they must turn to
by twawaaay 4y ago
> When the rate of return is high, savers can achieve their goals by buying, holding, and harvesting the resulting cash flow. When it is low, they must turn to other strategies: leverage, arbitrage, momentum trading, more sophisticated quant trading, and “beauty contest trading“: betting on what others will find popular, for (arguably) extra-economic reasons.
I don't think this is how people behave.
I think collective behaviour can be better explained by people discounting the painful lessons of previous downturns the more the longer prosperity lasts. Our brains are wired this way, unfortunately and it requires a conscious effort to objectively (if it can be done at all) take into account risks of serious and long lasting financial winter.
Most people don't have the self discipline to do this. They kinda know about it but then they see other people making shitload of money in risky "investments" and our greedy primate brains take over.
- s1artibartfast 4y agoI don't think either take is correct but the former is closer to the truth. It is all risk reward trade-off. If bonds have the same yield as other Investments with no risk, of course Savers and investors would select them over riskier strategies. This has less to do with discounting painful lessons and more to do with the spread on the return rate.
- readthenotes1 4y agokids eat tide. Call me crazy, but I don't think assuming people make rational decisions is a good starting point for economics
- s1artibartfast 4y agoI'm not saying everything's rational either, but you can't deny a difference in return rates make a difference. More people will opt for a risky investment if it's paying substantially more then their safe one. If there is little difference in return, few people will opt for the risky bets
- fleischhauf 4y agoare there any alternatives being explored actually?
- s1artibartfast 4y agoTo eating tide pods?
- s1artibartfast 4y agoAlso, how many kids and the United States have eaten tied pods? Is it anywhere approaching a meaningful proportion?
- nly 4y agoBonds have a have huge amount of risk though Read this: https://monevator.com/bond-market-crash/ https://monevator.com/bond-market-crash/