Transcript Hope and Fear

HOPE and FEAR
The future tenses of
“pleasure” and “pain.”
Pleasure and pain in
the planning stage.
Definitions from an Irish
potato farmer
Probability
HOPE
Qsub QM
FEAR
Subsistence. If you have
less than this, something
very bad will happen to
you.
Next year’s
production
Probability
THE ROLE OF SAVINGS
Qsub’ Qsub
Saving
reduces
fear
QM
Next year’s
production
Probability
THE ROLE OF INVESTMENT
Qsub QM
QM’
FEAR
LESS
FEAR
HOPE
Next year’s
production
MORE
HOPE
BUT …
Income (Y) = C + S + I
Yeah, I know …
Just play along
or pretend for a moment
that you’re not an economist
If you must be an economist we could say Y = C + Sp + Ss,
dividing Saving into precautionary and speculative motives
Setting aside the economics definitions, the usual use of
the words “savings” and “investment” are derived from
separate psychological impulses
We Save from Fear
We Invest from Hope
We Invest to get ahead
We Save to keep from falling behind
But … Holding Consumption constant,
increases of Saving require deceases of
Investment and vice versa
At some point, Investing more will
increase fear by reducing Savings.
The farmer’s problem is to maximize
a utility function whose arguments are
Consumption, Fear and Hope, subject
to Y = C + S + I
I’m ready to sing now