
Economic
markets are not perfectly predictable as history has shown that even some of
the best analysis has failed at one time or another. Mathematical explanations
alone are not yet sufficient for the overall understanding and prediction of
markets. Keynes observed that even though mathematics is helpful many economic
choices are made on the micro level based upon alternatives. Sometimes people
may rely only on wishful thinking.
If we
think of a large economic system we might be surprised that it is really made up
of the people, individual dollars, businesses, governmental systems, culture as
it influences choice, and many other small components. At its most basic level,
people use their options to make hundreds and thousands of small choices every
day that impact the market. For example,
a person buying a toaster from China or one from the U.S. has made an
evaluation and determination. The more people make a determination one way or another
more the economic system is impacted and pushed down certain paths.
The psychological factors have been
discussed by economists for some time. For example John Galbraith stated “it can be said with some assurance that in
economic, social and political matters, if the controlling circumstances are
the same or similar, then so will be at least some of the consequences”
(1988, p.xi; see also 1987, p.62). The development of markets doesn’t rest in
economic conditions alone but also within social and political spheres.
Economic development must therefore be seen as something wider than finance and
when circumstances are similar it can be repeated.
These
systems are not stagnant and continue to develop as an entire entity. Galbraith further went on to state, “economic life is in a
process of continuous transformation, and, in consequence is an uncertain guide
to the present or the future” (1993, p. 105). These markets develop and
continue to develop over time. Because they are always changing and developing
it can be difficult to predict and measure them accurately.
Snap shots
through economic measurements are only a particular time and place. Moving
beyond the study we can see that multiple snap shots create trends and assuming
that additional pressures in the wider market do not change their trajectories
the market will continue to develop on a basic course. At its most basic level
the market is not made up of finance but the fundamental choices that lead to
financial selection. It is the neuro-economic choices of hundreds of thousands
of participants that create the right atmosphere that leads to economic
development. Without changing the fundamental thought processes you cannot
change the system.
Galbraith, J (1988). The Great Crash. Boston: Houghton Mifflin
Raines, J. & Leathers, C.
(2011). Behavioral finance and Post Keynesian–institutionalist
theories of financial markets. Journal of Post Keynesian Economics, 33
(4).
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