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Pandora’s Risk: Uncertainty at the Core of Finance resources

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2 Th dence Game e Ultimate Confi Every day we exchange useful goods and services for mere symbols of value, on little more than the conviction that others will do the same. The exchange in turn helps justify the conviction. When crises expose the underlying fragility, other symbols vie to replace. Money proves the power of belief; it fosters massive division of labor and knits economies together. Financial markets chronically confuse beliefs with reality. Th at’s their job, along with unwinding the confusion and helping make beliefs real. Th ey’re so pervasive that we ordinarily take their smooth operation for granted. To rekindle our sense of wonder, this chapter focuses on the safest thing we know in fi nance: cold hard cash. What is it? What makes it safe? How does it evolve? As we will see, uncertainty and learning permeate what we think we know best. Money as Liquidity To give is better than to receive. Th is is especially true of money. I give you some ciphers; you give me something I can directly use. Th is in e qual ity renders most commerce absurd. When two people trade, neither wants to get ripped off e values exchanged ought to be approxi- . Th mately equal. Fortunately, the stores I frequent don’t realize that. Th ey encourage people to cart away valuable items or have them delivered. All they demand in return is the deposit of qualifi ese sym- ed symbols with the cashier. Th

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