The Best Self-Help is Free: The Limits of Knowledge, Ideas, and Impressions

This is Chapter 2 of The Best Self-Help is Free, a treatise by Mr. Stolyarov. You can read all chapters of this freely available work here.

When you come to hold any idea, it is essential to understand exactly how far this idea applies and what the limits of its application are. Every idea is an idea about something, and it will work well only when applied to that, which it is about.  

It is tempting to assert, on occasion, that an idea which describes or works well in one particular situation can be applied with similar effectiveness to other similar situations. It is likewise tempting to derive a lesson from a particular life experience and to think that it applies in all times and all places, for all people in all circumstances. But especial care is needed here.

Every idea we arrive at is embedded in a particular context and is based on assumptions that may or may not hold in all circumstances. Sometimes checking whether an assumption holds is a matter of fairly simple empirical observation or logical deduction. At other times, however, whether the assumption holds depends on a complex interplay of factors to observe which one might have neither the time nor the access nor the mental processing power.

This is why, despite some highly advanced mathematical models and a decent understanding of human behavior, economists and financial analysts have never been able to reliably predict the movements of asset prices; the best that can be done is to explain the movements after the fact of their occurrence or - if one is especially perceptive - to foresee some general tendencies without knowing the specific price movements or the times at which they will occur. If economists, actuaries, and financial mathematicians were able to precisely figure out how the prices of stocks, bonds, options, and other financial vehicles changed over time, they would all be multi-millionaires by now!