Full text: The dispersion of expectations in a speculative market

exclusive concentration on the individual’s mind which tends to leave no 
room for any conclusions. 
The above analysis can also be seen as an alternative to traditional 
concepts of supply and demand. Instead of two different functions 
relating the same two variables we have only one function. The supply 
(offer) and the demand are exogenous quantities. We have assumed 
implicitly that the amount of bonds is given and invariable. The new 
entrant into the market who brings in a new demand or a new supply must 
therefore indirectly find the necessary adjustment in the quantity of the 
no-bonds, that is money, which is assumed to adjust automatically in 
Kaldorian fashion. 
Let us discuss now an assumption which is crucial for the preceding 
considerations, namely the independence of the various participants’ 
expectations. When this assumption does not hold any more even 
approximately there will be no steady state. The essence of the situation 
is the assymetry which makes of one person the imitator and of the other 
the imitated or opinion leader. There will be clusters of expectations 
round an opinion leader. These clusters usually will be unstable as 
opinion shifts to new leaders. Thise is an uncertainty of the second 
kind, the variety of possible clusters of opinibn and the frequency of 
shifts between them. If the imitation concentratse and leads to 
agglomerations in one or another direction, the market will become 
bearish or bullish as the case may be. There may also be a two humped 
frequency distribution and the prevailing opinion may switch in the 
course of time between these extremes (one thinks of the behaviour of the 
dollar). The most extreme loss of independence occurs in a crash. Here 
one opinion has come to dominate and the other condition for steady 
state, the existence of a belief in certain limits or standards has also 
This brief note has made use, without quotation, of elements which are 
well known from the writings of creative economists like Keynes or 
Schumpeter. My point is that these elements would fit in very well with 
the type of stochastic approach which aims at objective and social 
concepts instead of a psychological and subjective treatment of 
expectation and uncertainty. I think that ultimately an analysis along 
these lines will lead to a new understanding not only of speculative 
markets but perhaps of the market as such which has been identified all 
too long with a cliche.

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