Tyler Cowen - Hayek, Keynes, & Smith on AI, Animal Spirits, Anarchy, & Growth
Dwarkesh Podcast
Managing Investor Temperament and Efficient Capital Allocation
Investor temperament plays a crucial role in decision making, as overconfidence or lack of confidence can lead to suboptimal trading behavior. While fine-tuning emotions for optimal decision-making would be ideal, it is challenging in practice. As markets mature, they tend to become more speculative, raising questions about the efficiency of capital allocation. The financial sector's percentage of wealth, rather than GDP, is a more relevant measure for evaluating its impact, with a consistent 2% share in the US for decades, suggesting a balanced and stable contribution to the economy.
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