People misperceive objective probabilities - they are inclined to underweight bad outcomes and overweight good outcomes.

QuoteOriginally posted by: dweebPeople misperceive objective probabilities - they are inclined to underweight bad outcomes and overweight good outcomes.I disagree with this. It is impossible to weight rare outcomes correctly. So it is hard to say whether they are underweight or overweight. But I observe an interesting thing among a lot of people who ride motorcycles. Many wear protective gear which they expect to protect them zero times.A lot of the kids wear spine protectors. A lot of people wear heavy boots. Others wear gloves, armored jackets. It varies a lot from person to person. Some don't even wear a shirt or a helmet. I think if they expected the spine protector to come into use even one time - if you guaranteed to them you would cause exactly one accident in the next five years where it would save them from paralysis - they would not ride at all.So they prepare for an event which they expect to happen zero times. It costs a couple bucks. It is a little bit of a drag to use religiously. It is hot as hell in the summer. I don't know, maybe some think the gear looks sort of cool.

Promise land

Rising cost of breakfast leaves bitter taste, FT 17-Mar-14* Eight key breakfast commodities up 25% this year, driven by drought, disease and rising demand.* price increases also driven by financial players buying into softs Climate change - In the balance, The Economist 5-Apr-14* New IPCC Report includes a discussion on the ways climate change influences agricultural species - winners and losers.

The Economist 12-Apr-14 has a piece on the UK housing market

Some Britt shoestrings

So where does all this end?? Housing bubbles have burst before - recently in the US, NYC and Oz in the late 80s. Lots of leverage followed by consequences in the banking system.I keep wondering where the Central Bank cheap money policies will end up. Deflation is on the radar, so maybe QE is here to stay for a while. Inflation is a riddle wrapped in a mystery inside an enigma - food prices are up significantly (headline), but with core the theme is deflation.

QuoteOriginally posted by: dweebSo where does all this end?? Housing bubbles have burst before - recently in the US, NYC and Oz in the late 80s. Lots of leverage followed by consequences in the banking system.I keep wondering where the Central Bank cheap money policies will end up. Deflation is on the radar, so maybe QE is here to stay for a while. Inflation is a riddle wrapped in a mystery inside an enigma - food prices are up significantly (headline), but with core the theme is deflation.Good questions! The core problem is the crudeness of the central banker's tools -- they create a rising or falling tide of credit that hopefully keeps all the boats floating and off the rocks. But the faddish gain-seeking behavior of investors and speculators causes credit to flow laterally from sector to sector. These lateral flows have gotten worse with the decline of transaction costs and the rise of globalization -- it's too easy to grab cheap money from the quant-easer du jour and throw it at the darling asset class du jour.It's a microcosm of the broader problem of government. They try to manage an aggregate outcome that is, in reality, a nonlinear function of less-controllable individual variations.f(E[x]) != E[f(X)]

QuoteOriginally posted by: CuchulainnQuotef(E[x]) != E[f(X)]>=<= ?It depends on various derivatives of f and the distribution of X. And if either X or f are time varying (for other reasons), then the inequality could flip sides, too.

London prices went up because Chinese are buying up houses all over the globe, to stow away money funneled to their back account during the world's greatest credit binge. Screws are now tightening behind the red curtain. So every who could get their money out has done so and they like to buy concrete stuff (pun intended). Now, the interesting point is not everyone was able to leave China on time and an increasing proportion are now being caught in "corruption" cases and sometimes the only way to pay the fines is to liquidate the off shore property?..

QuoteOriginally posted by: Traden4AlphaThe core problem is the crudeness of the central banker's toolsThere is also some issue of economies shifting from manufacturing, to intellectual property and services. Alan Greenspan used to ramble about this, having watched the transition firsthand. But Bernanke studied the Great Depression, and just ran right in with the Taylor rule. So the US got great growth in housing, autos, gold, and farmland! His main economic indicator might have been whether there is a chicken in every pot.It may be that in a services and intellectual property economy, price stability is better achieved using my "hedge transmission mechanism."