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xiv The economist has gradually provided himself with an outfit of most powerful, elegant, and ingenious tools, with which he can now attack with assurance a great variety of important problems.
Chapter I. Introduction, p.1
p.1 By expectation I mean the act of creating imaginary situations, of associating them with named future dates, and of assigning to each of the hypotheses thus formed a place on a scale measuring the degree of our belief that a specified course of action on our own part will make this hypothesis come true. Such a hypothesis I shall call an expectation. A treatment of expectation should, I think, try to answer the following questions:
- What purpose is served by the forming of expectations? ...
- What materials are used in forming expectations, and how is an expectation, or system of expectations, constructed from these materials?
- What determines the degree of belief accorded to an expectation?
- How can such degrees of belief be measured and compared?
- What determines the influence upon our decisions for personal action... which we allow a given imagined future course of events to exert?
- What is the consequence of disagreement between expected and realised situations?
- Can any general types of development of situations one out of another through time (organic sequences of situations) be distinguished and ascribed to the essential nature of the expectation-forming process and its part in determining our actions?
Of these questions, numbers 1, 4, 5 and 6 have led me to ideas which are, I believe, possible constituents of a general theory of expectation, applicable to no matter what concrete subject-matter. Numbers 2 and 3, however, have yielded nothing which can serve as part of a general apparatus of analysis.
[JLJ - For number 2, 'What materials are used in forming expectations, and how is an expectation, or system of expectations, constructed from these materials?' my position is that 'tricks that work,' perhaps even developed during play or daydream, furnish such materials, or even developed by watching others or maybe combining the techniques of others in such a way as to form a scheme which simply can be executed. For question number 3, 'What determines the degree of belief accorded to an expectation?' my answer is that some belief emerges from practical necessity, through experience and trial and error, perhaps during competition or competitive events where many such techniques are applied and the results observed, because we must grasp at something in order to 'go on.' Some belief comes from tradition.]
p.2 sometimes the question is a practical one: What would be the respective outcomes of a set of rivalcourses of action?
p.3-4 In forming our expectations we feel it easy to exclude some outcomes as 'impossible'. The actual occurrence of any one of these would cause us such extreme surprise, if we were to retain until then our existing assessment of the situation, that they are simply ignored. With other outcomes we associate a rather less degree of potential surprise, with others less still, and so on, until we are left with a range of outcomes any one of which could occur without surprising us at all. In general, there are two possible reasons for the individual to pay more attention to one of a pair of outcomes than the other: first, there may be a difference in the respective degrees of potential surprise he associates with them, and secondly, when both outcomes are desirable or when both are undesirable, one outcome may be more desirable or less desirable than the other. But among all the outcomes for which his surprise is nil, there will be only one reason for him to concentrate his attention on some rather than others, namely, that some are more to be desired or the opposite.
p.5 The theory of probability, in the form which has been given to it by mathematicians and actuaries, is adapted to discovering the tendencies of a given system under infinitely repeated trials or experiments.
p.6 What 'large numbers' do is to turn ignorance into knowledge, or doubt and fear into assurance. But this assurance that there will be no disaster provided our gamble is many times repeated can give no comfort unless there is assurance that it will be many times repeated.
p.7 Amongst the essential characteristics of any thought which can be classified as an expectation there is, besides the viewpoint or instant when this thought is generated, the image-date or point of time with which it is concerned.
p.8 the individual's forward vista must inevitably change as the viewpoint advances
Chapter II. The Nature of Expectation, p.9
p.9 We decide on one particular course of action out of a number of rival courses because this one gives us, as an immediately present experience, the most enjoyment by anticipation of its outcome. Future situations and events cannot be experienced and therefore their degree of desirableness cannot be compared; but situations and events can be imagined, and the desirableness of these experiences which happen in the imagination can be compared.
p.10 we can use the degree of surprise which we judge would be caused to us by the non-occurrenceof a given outcome, supposing there had been meantime no change in our relevant knowledge, as an indicator of our degree of belief in this outcome.
[JLJ - Huh? We are surprised all the time and expect to be surprised. We believe instead in our ability to adapt to changing circumstances, we believe in the capacity we have to understand our predicament and to maneuver within it, with adequate sensitivity and resources.]
p.13 The entire set of advantages and disadvantages which we attribute to our adoption of one course of action rather than another can sometimes be reduced to the value of a single variable.
p.14 Experience teaches us that except in the most trivial sorts of case a person faced with a number of rival courses of action amongst which he must choose will virtually never be able to specify for each of these courses a unique outcome which he can feel completely certain will turn out to be the true one.
p.14 In order to assess the merits of any given course of action, a man must find some way of reducing the great array of hypotheses about the relevant consequences of this course, which will usually be present in his mind, to some compact and vivid statement.
p.14-15 our central problem: How will an individual choose between the different courses of action when the outcome of each cannot be known in advance, but is only represented in his mind by a whole set of differing hypotheses? In order to assess the merits of any given course of action, a ,am must find some way of reducing the great array of hypotheses about the relevant consequences of this course, which will usually be present in his mind, to some compact and vivid statement. The real incentive for embarking on some given venture, whose objective results will not develop and their character become known until some date in the future, is the immediate mental experience which the decision to embark on this course will give us, namely, the enjoyment by anticipation of a high level of success. For any specified hypothetical outcome associated with some named future date, there will be in any person's mind a set of actions on his own part, distributed, in general, over a number of dates, whose performance at the due dates he regards as necessary... conditions for the realisation of this outcome.
[JLJ - Consider that not all futures point to a 'high level of success.' A retreating army, for example, might foresee fewer casualties, than otherwise might occur. A diabetic patient consenting to have a portion of his/her foot removed might see this as preferable to the consequences of infection in leaving it attached. A chess player might decide to lose a pawn instead of a higher-valued piece, etc.]
p.15 A lively expectation, something which seems a living projection of the future into the present, is what is needed to induce us to take action now to attain that reality.
p.17 The intensity of enjoyment of a given hypothetical outcome by imagining it in advance is no doubt a function of several variables, but two of these are, I think, likely to be dominant; this intensity will plainly be an increasing function of the desirability of the outcome in question, and a decreasing function of the degree of potential surprise associated with it.
p.19-20 It has been pointed out to me by Mr R. F. Harrod that the notion of focus-outcomes as the principal criteria of an enterpriser's decisions involves some element of paradox. For it assumes the individual to guide his conduct by reference to outcomes which he expects not to happen, either of which, that is to say, will surprise him if it actually occurs. But I do not find this mode of decision to be out of keeping with what we observe every day.
[JLJ - Should we be truly surprised if a low-probability event happens, given the length of a typical lifetime and the eventuality of low probability events occurring? I think that we should only be truly surprised if our preparations for such an unlikely event, say an accident, injury, house fire, unexpected maintenance cost, etc., did not leave us with a cost efficient, simply-executed recovery plan which restores our everyday life back to somewhat of a normal state. Do we not instead 'plan' for an adaptive capacity of sorts, for whatever occurs, rather than for a specific act or event to 'happen' in the future? Are not plans modified as we go? We do nothing more each day than to prepare and posture ourselves - in the present - for the future, so that when it arrives, whatever it is, we will have some degree of enjoyment in it, even if possibly only brief. One can have expectations for the future, but it is naive to assume that one is surprised - like a child not getting exactly what he/she wants for Christmas - if what happens does not come about exactly as anticipated. In a mature individual, expectations help us to develop plans to mitigate the unexpected. Whatever happens, happens. Our preparations should help us to 'go on,' contributing to an enjoyment that we are only to blame, should it not emerge.]
p.28 What is the real meaning and final outcome of the mental process, of which we have given a formal representation or mathematical model? It is simply this: that the enterpriser epitomises and represents to himself any venture's promise of gain by means of a single, particular quantity; that size of gain, namely, which, if it carried nil potential surprise, would stimulate his interest and imagination just as powerfully as the most interesting of all the combinations of hypothesis of gain and associated potential surprise which he actually entertains; this latter, the true 'most interesting' hypothesis, being actually one which carries some greater degree than zero of potential surprise; and that he does the same in regard to the venture's threat of loss.
[JLJ - This is why economics is and forever will be the dismal science. Shackle cannot admit that the complexity of our modern society requires us to use intelligent and experienced schemes - perhaps involving rules of thumb - to simplify or break down the driving and interlocking forces and actors of our world into simple blocks that we can play with (scenarios) and learn from, in order to determine positions or postures which are holdable in the present and near future, and likely also changeable in the more distant future which we cannot clearly see, and which ultimately allow us to practically and effectively 'go on.']
p.29 The concept of focus-outcomes leads us at once to that of an indifference-map of uncertainties, from which, given the standardized focus-gains of any two investment-opportunities or speculative outlays of money, and their standardised focus-losses, we can read off which of these two opportunities the individual whose map it is will prefer.
p.36 The purpose of this book is to offer new conceptual tools for the analysis of expectation and uncertainty.
[JLJ - What, so you wait until page 36 to tell us this?]
p.40 The role of potential surprise is to permit or deny to the imagination effective access to some particular idea. A man's judgment compels him to attach certain degrees of potential surprise to given hypotheses of gain. These degrees determine what will be the most powerful amongst all the gain-elements which the venture in question provides; determine, that is to say, what is the most powerfully stimulating idea (amongst those connected with gain) to which the venture can give rise; increasing potential surprise forms a barrier denying access to still more powerful and exciting ideas.
p.41 I think that the reader may experience some considerable difficulty in fully assimilating, and adopting as part of his apparatus of thought, the idea that gain-elements are non-additive, that the whole power of the attractive aspect (as distinct from the deterrent aspect, in regard to which the same argument applies to loss-elements) of a venture resides, in effect, in the most powerful gain-element and is not added to by the others, whether their values of x are smaller or larger than that of the focus element.
p.58 different courses of action... Any one such course will be rejected by him if he has also in mind some other course located on a higher gambler indifference-curve. Our discussion in this Appendix has shown it to be possible for him to reject a course of action on this ground, and yet to have in mind the possibility that at some future date the attractiveness of the temporarily rejected venture may improve; that is to say, that it may shift to a higher gambler indifference-curve.
Chapter III. Expected Clarifying of Expectations and its Influence on the Pace of Investment, p.59
p.70 Clearly we cannot explore all the possible combinations of circumstance which can face the investor in making a choice... An investment opportunity... is something which exists in the investor's mind. Its characteristics and qualities are thoughts, and not something which can be observed without reference to the individual.
p.73 An actual occurrence which causes surprise proves that the individual's structure of expectations either contained a misjudgment or was incomplete.
Chapter IV. The Choice of Assets to be Held for Speculative Gain, p.77
p.92 In order to enjoy with a high intensity, or even to the full, the anticipation of some gratifying outcome, a man requires only that there should be no solid, identifiable reason to disbelieve in the possibility of this outcome; he does not require solid grounds for feeling sure that it will be the true outcome.
Chapter V. Design of Taxation to Preserve the Incentive to Enterprise, p.94
p.100 the purpose of this book... is with theory and analysis, not with problems of administration... The practical problems... I must leave to be studied elsewhere.
[JLJ - Whatever system you design for taxation, will be immediately schemed by those imvolved to change behavior in order to minimize what they pay into the system, and so the system from its very start will generate less in revenue that it had initially planned. A practical and effective scheme for taxation should ideally consider these inevitable counter-schemes to avoid paying taxes, and should continuously change as the counter-schemes themselves become more sophisticated and elaborate. A theory for taxation that does not consider practical administration is incomplete at best, laughable if presented in final form.]
Chapter VI. A Theory of the Bargaining Process, p.101
[JLJ - This chapter is kind of useless. Market forces will set the price and if selling, you want to expose your item to be sold to the market, displaying all the features of value to the buyer, making it immediately usable and without need for immedate repair, and downplaying those features deemed unattractive or needing repair, and if possible to set up a bidding war among the various buyers. If buying, you want to find hidden value which you see but that others do not see, and you want to avoid entering a bidding war with others if possible. With regard to offers and counter-offers, you strategically play a subtle mind game of sorts with your opponent/opposite party in the deal. End of story.]
Chapter VII. A Comparison with the Orthodox View, p.109
Appendix, p.128
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