John Kay

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.

The macroeconomics taught in advanced economics today is largely based on analysis labelled dynamic stochastic general equilibrium. The unappealing title gives the game away: the theorists are mostly talking to themselves. Their theories proved virtually useless in anticipating the crisis, analysing its development and recommending measures to deal with it.

To learn from mistakes, you must first acknowledge them.

The assertion that depositors in Kaupthing and Landsbanki have a claim on ordinary people who were too prudent to put money there, or did not have any money to deposit in the first place, has little justice or legal basis.

“Too big to fail” insurance is likely to leave the non-financial economy with the worst of all possible worlds – less public control of risk and greater potential calls on taxpayers.