Friday, May 8, 2009

Self-esteem and economics

I wonder... Psychologists these days, they say that optimistic overconfidence is healthy. Or at least they used to. There's another view that says that sometimes over-caution can be a way of resolving anxiety. I say--is either necessary? I'll bet there's a lot of people who've been wiped out in the markets right now who wish they'd been a bit more cautious--who would have been protected by caution even if they didn't wish they had been. When a great social disaster like the new depression strikes I look for reasons. And part of our reasons was the promotion of optimistic over-confidence. When sensible caution might have protected us, part of the counter-argument was that caution was unhealthy. And, now--? I bet we'll have the glories of over-caution for a generation. Perhaps longer. Learned helplessness can persist in human societies. One of the ways to understand endogenous economic cycles is as oscillation between over-caution and over-confidence. I croak the moderate way!

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