Friday, October 09, 2009

Book Review: 'This Time Is Different' - WSJ.com

Book Review: 'This Time Is Different' - WSJ.com:

I am definitely getting this book! This Time is Different: Eight Centuries of Financial Folly by Carmen Reinhart and Kenneth Rogoff.

The WSJ reviews it. Here is the most important part:

"19th-century British journalist Walter Bagehot claimed that during each speculative upturn merchants and bankers 'fancy the prosperity they see will last always, that it is only the beginning of a greater prosperity.' A boom in U.S. stocks in the early 1900s was remembered by Alexander Dana Noyes, the financial editor of the New York Times in the 1920s, as 'the first of such speculative demonstrations in history which based its ideas and conduct on the assumption that we were living in a New Era; that old rules and principles and precedents of finance were obsolete; that things could be done safely to-day which had been dangerous and impossible in the past.' This mode of wishful thinking has continued up to the present day."

We were talking about this exact phenomena in class the other day. Our conclusion was that we are probably "wired" to think this way.

Why? Consider the caveperson who went out looking for food and did not find any. The next day had to be optimistic that "things would be different this time". Or with dating, or any of a million things that often deal with failures. (Neuroeconomists have any thoughts?)

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