Uncertainty at the Core of Finance
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Author of the acclaimed work Iceberg Risk: An Adventure in Portfolio Theory, Kent Osband argues that uncertainty is central rather than marginal to finance. Markets don't trade mainly on changes in risk. They trade on changes in beliefs about risk. In the process, markets unite, stretch, and occasionally defy beliefs.
Recognizing this would make a world of difference in investing. Belittling uncertainty has driven a rift between financial theory and practice and within finance theory itself. It has misguided regulation. It has stoked the greatest financial imbalances in world history.
Hoping to spark a revolution in the mindset of the investment professional, Osband recasts the market as a learning machine rather than a knowledge machine. The market continually errs, corrects itself, and makes new errors. Respecting that process without idolizing it will lead to wiser investment, trading, and regulation. With uncertainty embedded at its core, Osband's rational approach points to a finance theory worthy of twenty-first-century investing.