John Kay

We will succeed in managing financial risk better only when we come to recognise the limitations of formal modelling. Control of risk is almost entirely a matter of management competence, well-crafted incentives, robust structures and systems, and simplicity and transparency of design.

Britain is a small island, dependent on frequent and reliable air travel. From the distribution of its population, its biggest airport would ideally be north-west of London.

The theory that the right answer to the gap in information and knowledge between the investment bank’s structured products division and the person in the street is to give the person in the street more information is absurd.

The defining characteristic of civilisation is the complexity of its organisation. But complexity breeds complexity, and is subject to diminishing returns. Eventually the costs of increased complexity exceed the benefits.

Internal rates of return conflate rewards for risk with returns for patience.  That is why they are often misleading indicators of the profitability of alternative investments.
Students of corporate finance are taught the dangers of judging projects by their internal rate of return. The problem is that the attractiveness of a project depends not just on [...]

Faced with the choice of over a hundred 100 jams, I reduced the number of alternatives to 30 or so, and then … well, I finally walked out of the shop without having bought any jam at all. People are overwhelmed by variety of choice.

Irrationality lies not in failing to conform to some preconceived notion of how we should behave, but in persisting with a course of action that does not work.

Activities that are good in themselves are good for the economy, and activities that are bad in themselves are bad for the economy. The only intelligible meaning of “benefit to the economy” is the contribution – direct or indirect – the activity makes to the welfare of ordinary citizens.

Shamefully, the purpose of current stress tests in the financial sector is not to ensure that depositors’ money is safe or that taxpayers will not be called on again, but to reassure banks and their shareholders that they will not be required to provide significant additional capital.