The Reality of Economics/Finance Section of the Book

WEEK5 DISCUSSION
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1. How do you feel about the reality economics/finance section of this book?
Just like John Cassidy, I am skeptical. Because, through proper analysis and scrutiny of what the economic sector is experiencing, there is already an indication of a red alarm towards the economic sector. For instance, terrible headlines like job losses, bank bail-outs, and co-operate greed are suitable indications of a bad story ahead. But for many years down the line, economists have tended to engage themselves in constructing elegant theories of how markets work, wealth creation, and facilitating innovation, among others. But what if otherwise happens? What if the markets fail to work? What will they do in case they lead to stock market bubbles? What if they experience glaring inequality? Or maybe credit crunches? What solutions do they have? Therefore, from John Cassidy’s explanation about these unrealistic Utopian economics, I am assertive that the economics/finance section is diverging from reality. Because of their thinking that is blind to how real people act.
2. As the hedge fund manager, which part can you follow? To fight the bubble or to ride the bubble? Explain your answer.
Due to the existence of limits to arbitrage in the real world, and at the same there is an existence of herding as a fundamental factor in behavior, as a hedge fund manager, I will choose to ride the bubble. I will choose to ride the bubble because, in the process of doing so, I will be able to gain excessive returns more than offsets the risks of a subsequent crash.
3, How are you guilty of the law of small numbers?
The law of small numbers refers to the incorrect belief that small samples are likely to represent the entire population they are drawn from. As a finance student, I have found myself guilty of this law on several occasions. I have been a victim of its conseq...