Keynesian Economics: The Most Well-Known Economist John Keynes
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Keynesian Economics: The Most Well-Known Economist John Keynes
Keynesian economics is famous in business world. Today, the most well-known economist is John Maynard Keynes (1883-1946). Especially, the general theory of employment, Invest and Money books is from the classics of economy literature.
His book The General Theory of Employment (1936), which he especially wrote, forms the basis of The Keynesian Theory of Economics Employment and is a classic in the economic literature. Also you can read the best business books of the world.
The book wasn’t popular. However, it’s value appeared later. In the 23rd chapter of this book, Keynes gives advice to investors as well as observations and observations about human nature.
In addition to being a very successful economist, Keynes worked as the fund manager of King’s College Cambridge. It is perfect that the presence of a serious amount also completely lost in this way.
Therefore, it is necessary to consider Keynes’s investment recommendations and determinations not as economists, but as practical advice.
You should also look the schedule before John Maynard Keynes’s advices.
‘’Active market hypothesis ‘’ , ‘’ Financial behaviours ‘’ was valued after keynes’s death. People belive that he created the basics of economy.
There are some economics of Keynes;
Expectations on stock Price
Keynes states that human nature tends to be in the expectation that this situation will continue on the basis of the current situation. In behavioural finance ’extrapolation error’’.) In the long term forecasts, investors are over-confident about their estimates (error overconfidence bias an in behavioural finance).
Expectations determine stock prices. Also it may be irrelevant for manage the company. One of the main reasons for this deterioration in pricing behavior is the short-term transaction.
Market Pricing Can’t Be Effective
Keynesian economics says that irrelevant people formed the pricing in the market. Keynes who sees them as the result of unfounded expectations. Therefore, he says that the market cannot be effective. These expectations are seen as the main reason of the imbalance in the market.
In contrast to the investor pricing of the Effective Market Hypothesis we see more the unfounded pricing quoted by Keynes.
Beauty Contest simulation in Keynesian economics
Keynesian economics say that you need to find the contestant who thinks people are the most beautiful In order to guess who will win the beauty contest. As another example, if you give a jewel to a tribe chief who don’t know the jewel, he can give two apples for this.
For this reason, most traders expect to see stock prices go up in frustration level after investors receive a stock they found it as cheap. In the short term, we look for reasons for other investors to share the same opinion about the share price.
If we don’t read what the opinion of other investors will be, we will wait in position without gaining money for a long time.
Keynesian economies also say the point is not to find your favorite, or to guess the idea of the average. Therefore aim is applying third-level thinking
Animal Instincts is main concepts for keynesian economics
The concept of Animal instincts which is well known by investors, is also addressed by Keynes.
Keynes economics states to our positive decisions and activities. Besides, our animal instincts is rather than mathematical calculations. He says that without these motives, we will not rely on anything other than mathematical expectations, and it will end entrepreneurship.
Successful investors use the most intense form of animal instincts in the stock market. Especially, we think the instincts play an important role in very short-term trades. Therefore a successful trade prevents the instinctive weaknesses.
