Slide 1 - HannesK

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					   HOPE and FEAR

  The future tenses of
 “pleasure” and “pain.”

 Pleasure and pain in
 the planning stage.

Definitions from an Irish
     potato farmer
Probability




                                               HOPE




              Qsub QM                            Next year’s
FEAR                                             production
                   Subsistence. If you have
                   less than this, something
                    very bad will happen to
                              you.
Probability                THE ROLE OF SAVINGS




              Qsub’ Qsub   QM               Next year’s
                                            production
                Saving
                reduces
                fear
Probability        THE ROLE OF INVESTMENT




              Qsub QM   QM’        Next year’s
FEAR                               production
       LESS
                                    MORE
       FEAR              HOPE       HOPE
    BUT …


 Income (Y) = C + S + I
                                  Yeah, I know …
                                  Just play along

                                  or pretend for a moment
                                  that you’re not an economist


If you must be an economist we could say Y = C + Sp + Ss,
dividing Saving into precautionary and speculative motives


Setting aside the economics definitions, the usual use of
the words “savings” and “investment” are derived from
separate psychological impulses
         We Save from Fear
         We Invest from Hope

        We Invest to get ahead
  We Save to keep from falling behind


 But … Holding Consumption constant,
increases of Saving require deceases of
       Investment and vice versa

   At some point, Investing more will
  increase fear by reducing Savings.
 The farmer’s problem is to maximize
a utility function whose arguments are
Consumption, Fear and Hope, subject
             to Y = C + S + I




                 I’m ready to sing now

				
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posted:4/27/2013
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