| We keeep reading about how the current financial crisis has caused and will result in recendented risk aversion. To some extent this is true. But I believe that this phenomenon is temporary. In fact, I believe there is a potential for increased risk tolerance in the long term.
I draw my conclusion from some of the works I have read about how the human brain adapts to new normals and resets its expectations and tolerance levels. We are now a burnt lot. We are wary of investing money right now. But as the tide changes, so will we realize that we bet a lot - got burnt - but eventually managed to get away from it. The scars of today's economic crisis, when healed, will probably help us a thicker skin and therefore higher risk tolerance.
How the market actually behaves in the long term remains to be seen. Social scientists and financial gurus can only speculate. |
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