Prudent valuation vs confidence accounting

As the financial crisis showed, the market sometimes does not know what something is worth. David Rowe argues explicit estimates of value uncertainty would be a better way of addressing this than so-called prudent valuations


A single number is always easier for humans to understand and to recall than a vector. As a result, we often try to simplify complex concepts by reducing their dimensionality. For example, we talk about the stock market rising or falling by a certain percentage amount when we are really talking about the change in an index that is a weighted average of the prices of many different shares.

Such simplifications are necessary and usually fairly harmless. The more complex underlying reality is

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