Surowiecki: That Uncertain Feeling

Lynne Kiesling

James Surowiecki’s Financial Page column in the new New Yorker is an interesting muse on uncertainty. Or, more precisely, on volatility, because his focus is on fluctuations in stock prices, oil prices, other commodity prices, and currency valuations over the past couple of months, and on trying to discern the underlying causes of these fluctuations.

Precipitous falls in the market have frequently been followed immediately by sharp rallies, and vice versa. And, while some of these moves have been occasioned by real news, more often it’s been impossible to tell just what made investors so damn exuberant or so gloomy.

He invokes “uncertainty” as one of the underlying causes of volatility, because traders form expectations of future valuations but do not have perfect foresight. Interestingly, their expectations are not borne out ex post, but are unusually optimistic, and in bear markets this optimism is reinforced by “chasing losses” and taking big, risky positions to try to recoup losses on other trades.

An interesting read.