Our Vast Social Primate Brains Evolved to Pursue One Central Goal: ‘to look good in the eyes of others. ‘
I tried to ask myself how likely a person’s best forecast turned out to be quite wrong? I was asking people to come up with a statistic about the question. Unexceptionally every person I talked tried to categorize the context of the subject. In other words, people were prone to form their expectations according to the degree of knowledge and facts they have on whatever issue it is. It was a manner of confidence. Basically, they were identifying a context in which they feel confident for their expectations.
I asked myself: Why people invest? Statistics suggest that actual results of an investment frequently do not meet with the initial expectations even in the periods of prosperity. Thus, having a profit aside, there must be a temptation -a satisfaction- about taking the chance in investing. You might consider gambling instinct of people as an example. I believe in the times when management and ownership were not separated, it was purely about that. On the other hand we are living in times which an individual’s investment made as ‘liquid’. In other words with the occurrence of more complex investment markets, instability in the system increased. I do myself strictly prefer to rely on outcomes of existing market valuations since my existing knowledge cannot beat the calculated mathematical expectations. Yet I am aware and accept once Keynes wrote ‘..the assumption of arithmetically equal probabilities based on a state of ignorance leads to absurdities.’ Our markets have weak points. First factor that characterizes the insufficient markets has already explained by the seasonal changes of ice companies’ shares. As stated, day-to-day changes in the value of an investment have pivotal impact on market overall.
We already know that some students in class are trading in stock market. Most people who sits next to you on a street do not resist to buy ‘kazı kazan’ as it was offered. My father who is a real-estate agent or my former desk mate from high school who is currently a doctor always buy lottery tickets in New Year’s Eve. People are impulse buyers. They are tempted. These same people are also ones who participate in aggregate investment. Yet none has special knowledge of the circumstances. Therefore, real knowledge is not attaining the value of an investment can be stated as the second factor.
Thirdly, even though there is not any ground for anticipating a change, noisiness of a possible change affects massive psychology –even though it does not make difference to prospective yield at the bottom. So that, constituted sudden fluctuation affects conventional valuation. In other words, for example ‘If policy changes, expectation structure might change.’ as stated by Robert Schiller in his interview with John Campbell. (2013)
The essence of John Maynard Keynes’s ‘Beauty Contest’ studies the degree of rationality of people. In that sense, Keynes’s intelligent investor is concerned about the value of the market under the influence of mass psychology in order to defeat the ignorance and judgment heuristics of general public for future prospects. In order to accentuate the precariousness of being able to accomplish such perspective we need to remember what Keynes stated: ‘Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.’