New Contr Invstmt Str

Professor Fema said "no markets are risk averse because markets are efficient". Academics supported the theory of assumption of risk as necessary to bind investment theory to economics. This is a hole that efficient markets researchers have dug for themselves. Paul Samuelson, of MIT, introduced differential equations to study virtually any economic problem. The key assumption was rationality and economics could be converted into a precise physical science. Paul Slovic's, psychology of risk, challenges the assumptions of rationality. Slovic introduced psychological factors that shape judgement of risk. People tend to respond to hazards they perceive. Financial persuasion fluctuates because credibility is hard too acquire but easy to lose. For investors, when it comes to winning, the playing field is tilited towards distrust. The perception of risk exposure from a minor problem can increase dramatically into a signficant correction, as distrust escalates.

This book is easy reading and presents a healthy perspective on how to think before investing. I think this book and Johnson's "A Random Walk and Beyond" are very helpful resources, especially compared to Lynch's pablum.