BBRG: The Stock-Market Meltdown That Everyone Saw Coming

The Stock-Market Meltdown That Everyone Saw Coming
At least they saw it coming with the benefit of hindsight. The reality is, the explanations can’t account for what is probably a random event.
Bloomberg, October 11, 2018




We interrupt this regularly scheduled correction to bring you an after the fact narrative explaining in great detail and with complete and utter certainty, what just occurred in the markets, and why.

Hindsight bias permitting, the factors which led to this sudden and unexpected decrease in share prices are oh so obvious. Simple, compelling language creating a perfectly rational explanation of an understandable cause and effect narrative, both comforting and reassuring, is forthcoming. The alternative to this soothing storytelling is an unimaginable world of utterly random events leading to wholly unforeseeable outcomes. This stands in stark contradiction to how we have previously presented the world around us: orderly, predictable, subject to expert management and prediction. That simply will not do.

We would have shared this explanation before the market dropped XXX points and Y.YY%, but hey, that’s not how this hard-wired human talent works. Our powers of explanatory rationalization are somewhat less persuasive a priori than our overly optimistic belief in our own abilities implies. Besides, it is much easier to convince you why what just happened occurred than persuade you why what is about to happen will.


Continues here . . .



I originally published this at Bloomberg, October 11, 2018. All of my Bloomberg columns can be found here and here



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