1. I read again an old paper by Daniel Ellsberg of Pentagon Papers fame. It’s called “Risk, Ambiguity and the Savage Axioms,” and shows, from empirical studies, that people cannot assign a consistent set of probabilities — not even subjective probabilities — to diverse outcomes for which they don’t know the frequency distribution.
That seems to drive a stake into the heart of both classical and even behavioral finance, so much of which assumes people make rational or even irrational decisions based on their probabilistic views of the future translated into an expected value.
2. As far as the bailout goes, the stock market responded badly to Geithner because it is crying out for someone in authority who can make bold moves and justify them, someone non-mealy-mouthed, someone who has an equal mix of brains, principles and confidence. The market wants Churchill and they keep tossing it Chamberlains.