One of the interesting dilemmas of the information age is the increased emotional response to events and the increased volatility of the markets. I would have thought that more information would have led to more rational decisions and more logical responses.

I have two theories why this has not transpired.

The mass volume of information requires a deeper level of intelligence to make any sense out of it. Certain principles should filter the data to provide better information; but this requires a deeper understanding of the principles and much more critical reading of the news and information. Quite simply the massive increase in information has not been accompanied by an increase in the ability of people to absorb and understand it.

People will rely on their emotions to figure out the overwhelming storm of information. It is easier to believe what they want to believe, and the news will be filtered to support whatever views they already hold.

Secondly, the greater the quantity of information, the greater the chance of the aberrant “Black Swan” event that will counter our most logical assumptions. The more we know, the more we think we know and the more blind we become to the events that will prove us wrong. The more we think we know the bigger is the risk we will take and the bigger will be the loss when we are wrong. Witness the disaster of Long Term Capital, the multi billion dollar hedge fund bankrupctcy managed by Nobel Prize winning economists. If you eat like an elephant you will shit like an elephant.

Either people do not know enough to make proper decisions from the information or they know too much and do not strategically or structurally manage the risks of the unknown. The mass of market data has not and will not overcome the traps of greed and fear or ignorance and arrogance. In fact it accelerates the reaction to greed and fear by widely disseminating rumors, hearsay and other forms of quasi information.

While we seek knowledge and wisdom it can become dangerous without humility.

HKO

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