Customer Reviews

Imperfect Knowledge Economics: Exchange Rates and Risk

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While this book requires a modest mathematical background, it is critical to understanding how markets work and how academic economists have resisted critical changes to their fallen field. This book will prove to be a classic once advocates of Rational Expectations are swept away. For those of you who have seen "The Inside Job" (a wonderful film), you might enjoy reading about the most critical alternative to the Rational Expectations Hypothesis. Mark my words: Professor Roman Frydman will have the last laugh.

"Imperfect Knowledge Economics" has as its central tenet that most modern economic models are flawed because they are based on the idea that people always act "rationally" (i.e. we always have perfect information, we never suffer from external constraints, and our goals are always to maximize economic value). The book then proposes a new way to think about economics, suggesting that because people act as people the best that economists can do is to make vague general predictions about the future.

Of course, to any non-economist who pays any attention to economic forecasts, all of this is met with a resounding "DUH". The one nice thing about this book is that it hopefully will be read by other economists, and get them to finally realize what most of us have already understood for quite a while, that economists are often the last ones to actually understand what *people* will be thinking, feeling and doing - and of course *people* are ultimately the driving force behind economic markets. (For example: witness how long it took for economists to start saying the word "recession" during this spring of 2008. It turns out that spending data show that consumers knew that poor economic times were coming all the back in the late fall of 2007. Somehow the economists were the last ones to figure this out.)
Probably interesting if you are an economist, or you need to deal with economists on a regular basis (certainly if you need to *argue* with an economist). However other than that, its not going to be all that useful for the rest of us as we already know, understand, and have seen the authors' main points for quite a long time.