10/09/2005
Don't Fear, The Numbers are Clear, by Victor Niederhoffer

A recent article on fear in Macleans.Ca talks about the epidemics of fear that have been sweeping thru our culture. We worry about flu's and food  and deaths to an inordinate extent. Jeffrey Rosenthal wrote a book Struck by Lightning: The Curious World of Probabilities that apparently quantifies our tendencies to place inordinate weight on highly improbable but very serious events in our decision making and Frank Furedi has written The Politics of Fear, about how societies that are very secure are more likely to worry inordinately about safety.

 The stock market is always a ideal place to study the influence of cultural and psychological biases in a testable arena. Looking thru Google I see 95,000 entries on the conjunction of "Fear " , " Stock Market " and "Epidemic ". All the entries seem to be such as "The stock market in his dream sufferer an eleven thousand point drop" or the Paul Krugman  "It's about the epidemic of corruption that spread .. ( and caused) the extent of the stock market bubble, and.... scared by Gore's shrinking lead, the stock market began its plunge". Much talk about anthrax epidemics, and Y2K, and SARS.

Yes exactly, the stock market has within it a discount for fear based on the extent to which politicians like to keep up small, and educators make people small so they redistribute a greater proportion of our wealth than the usual 50%. The changes in the VIX do measure this, and the proportion of books and movies peddling fear of disaster do take their hide off the flesh also. Indeed, one can point to the weekly financial columnist who has never been bullish, and the Sage as expressions of this pathological tendency with all the opportunities that it provides for the healthy investors.