Pick any number

Pick any number
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First Published: Thu, Oct 09 2008. 12 40 AM IST
Updated: Thu, Oct 09 2008. 12 40 AM IST
Numbers have lost all meaning in the current financial crisis ripping through the world economy.
Consider these examples:
The first estimates on the losses in the US subprime market were around $100 billion. The International Monetary Fund said this week it expects them to top $1.4 trillion.
Important parts of the credit market are shut for business. So, it has become difficult to estimate the true worth of bank balance sheets.
Technical analysts who watch charts have seen stock prices slice through various support levels with ease. Their forecasts are basically meaningless.
The financial markets live and breathe numbers. Most valuation models are based on correlations arrived at by studying historical prices and trends. These models are now poor guides to what is happening around us. Plain human judgement is perhaps a better bet.
Economist Frank Knight had made the key distinction between risk and uncertainty in the 1920s. The former could be assigned probabilities and priced; the latter could not. We are in the midst of rampant Knightian uncertainty, where numerical models are useless.
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First Published: Thu, Oct 09 2008. 12 40 AM IST