Inflation and central bank actions

In general, central banks increase base rates when the inflation rates increase beyond central banks' targets and decrease base rates when the inflation rates fall below the targets. However, in the complicated real world, inflation rates in different countries are different and countries are trading with each other, it is too complicated for central banks to know whether it is absolutely right to increase base rates or not. Currently, the US inflation rate is approaching the Fed's target; however, though the Fed has shown its plans of rate hikes in multiple occasions, it has not made any actual rate hike move yet. Meanwhile, the inflation rates in other countries such as Germany are slowing down below the targets. However, the central banks in these countries (particularly the ECB) have not lowered their rates, instead, some announce they may reverse their expansionary monetary policies.

Under such circumstance, central banks do not follow their own guidance. When they do not follow their guidance, the financial market is likely to react to the central banks only when they make actual policies; otherwise, the announcements from central banks only create shocks in the financial market. In addition, central banks tend to lag behind the economy that they do not react to the market expectation but the actual market performance. This creates a problem that the market does not perform in the way central banks want but central banks may react to the market in the way that the market wants or the financial institutions want.

How much do we need a membership?

Last night, Amazon announced its first quarter financial report and showed very strong perfoance, especially its Prime program boosted it's revenue. We join different kinds of memberships in the hope of getting discounts when shopping and getting more convenient access it better services, and the sellers use our expectations to sell their memberships to boost their revenues and profits.

The sellers have to make their memberships attractive enough to allow a large amount of their consumers to be willing to pay for memberships, meanwhile the memberships need to be profitable enough. Many memberships make profits based on consumers' overestimation of their commitment. The most normal example is the gym membership. Many people including myself but gym memberships and only go to gym several times in a year. Such behaviour is caused by our overestimation of our commitment to gym and we believe we are going to increase our frequencies of going to gym after we buy gym memberships; however, after we buy the gym memberships, the costs of memberships become a sunk cost that no matter how we behave in the future, this cost will not change at all, so our behaviour is independent of owning a membership after we actually buy the membership.

Therefore, the most rational way to make the decision of whether we need a membership or not is to make calculation about our consuming habit before buying a membership (without a membership), since after buying a membership, our behaviour will not change significantly. However, the problem in the reality is that we do not try or experiment enough before we buy a membetship that we usually buy a gym membership after we attend only one of its taste session. Of course, the sellers do no offer enogh taste sessions and do not have the willingness to offer sufficiently many taste sessions as they want consumers to overestimate their commitment, and this is the way of how they make more profits.

Who is going to be benefited from increasing house prices?

When a country’s housing prices increase dramatically, people may worry about a widening wealth gap due to this change. However, this depends on the structure of the overall society. Different social classes have different asset structures. Based on people’s different asset structures, those whose real estates are their greatest proportions of assets will be benefitted the most and those who do not have many real estates will be benefitted the least.

In general, the poorest people will always be isolated from the benefits brought by any type of asset appreciation, because they do not hold sufficient assets to take advantage of asset appreciation and some of them may be in debt. Then we need to distinguish the asset structure differences between the middle classes and the wealthy classes who are considered to control the 90% of the overall wealth in the society. The traditional wealthy classes, of course, hold lots of real estates; however, the rising stars from the technology sector hold significantly more equities than real estates in terms of their asset holding. For example, Bill Gates (Microsoft founder), Jeff Bezos (Amazon CEO), Mark Zuckerberg (Facebook co-founder) are well-known wealthiest men in the world, and their wealth is built by the values of the shares they hold. Jeff Bezos surpassed Bill Gates to become the world riches man when Amazon share price rose dramatically at an incredible rate at the time in 2017. Under such circumstance, the housing price increase does not affect these wealthy people’s wealth significantly. However, many middle-class people have a relatively large proportion of real estates in their asset holding. Of course, there are differences between middle-class individuals. Wealthier people tend to have more diversified asset holdings, which mean they tend to hold smaller proportions of real estates in their asset holdings.

Based on a rough and general picture of the asset structures, increasing house prices actually can narrow the wealth gap within the society, especially the gap between the middle class and the wealthy class. However, the poorest people are still left behind and become even more isolated as their distance from becoming middle class is widened.

What is expansion strategy like?

Cost complementarity measures how different product lines affect each other in terms of production; meanwhile, on the demand side, the elasticities describe the situation of the demand side in the market covering multiple products. For any company, when making its expansion action, it tends to expand its potential production capacity and maximize its profits over a longer time period.

The guidance from the production side and the guidance from the demand side contradict each other in some way. Based on the production side, a company should create new production line that has positive cost complementarity with its current production lines, so it could have lower costs for its expansion. The concept of studying from doing suggests such expansion is more likely to be within the company’s original sector and the new products produced under such expansion policy are likely to be the substitutes (including updates) for its original products. Such expansion may be effective in some certain sector; however, the company then bounds itself with the sector, while expansion across sectors may lower the company’s risk. Also based on the demand side, the company does not expand its company by producing its products’ own substitutes, as this would not boost the sales significantly. When the company tends to expand to other sector, the cost complementarity is likely to be negative.

To conclude, when companies choose their expansion strategies, the strategies that may lower the market risk are likely to worsen productivity and efficiency, and the strategies that may improve productivity and efficiency are likely to increase the market risk,

What makes the US Treasury Bill yield so high?

The US 10-year government bond has risen to a historically high point above 3%, this increase is fulfilled by the investors’ expectations about the possible rate hikes by the US Federal Reserve. When the US Federal Reserve decides to increase its rates, bond yields including corporate bond yields as well as the US Treasury Bill yield will increase in general. The rise of bond yield indicates the fall in its price as the lenders give out more interests with the same amounts of loans.

The sharp rise in the stock market last year partially contributed to the high Treasury Bill yield, as when the stock market is so attractive, in order to make investors invest in Treasury Bills, the yield has to be high enough to make Treasury Bills attractive. Moreover, the political tensions have weakened, especially when North Korea shows its willingness to be back to the negotiation table with other countries (by the time, the Far East was believed to the place where it was the most likely to have a war).

When there is no intervention from the central bank, the stock prices and the bond prices move in the opposite directions. However, when the central bank intervenes and raises the base rates, the stock prices will fall, and the bond yields will soar (in other words, the bond prices will fall), so the stock prices and the bond prices move in the same direction. After the central bank intervention, the stock prices and the bond prices will then move apart.

What does a US sanction on Russia cause?

It is unclear about if there will be a further US sanction on Russia and if there is, what the sanction will be. It is almost certain that the US government will not be as harsh as it may have sounded as it is possible that the US government may not place a further sanction on Russia. The public wants to know what a US sanction on Russia means to ordinary people. In general, a sanction will not affect most of the ordinary people unless if they live in Russia or do businesses with Russians. However, such sanction could influence the global financial market, which might affect many people’s investment in assets and their pension funds.

Russia is a country that exports natural resources to the world. After the US government softens on the sanction issue, the price for aluminium drops significantly, this is the same for other types of natural resources including crude oil as well. This will push up the stock prices of the companies which demand these natural resources as raw materials for production but drag down the prices for companies that mine these natural resources or provide alternative solutions (such as solar companies). In addition, sanctions on Russia, this kind of powerful nations, would raise the world concern about the tensions between superpowers. This could increase the price of the US Treasury Bills. The concerns surrounding the trade war between China and the US have raised the worries of the investors worldwide, this increases the demand for secured assets such like the US government bonds, so the bond price will increase and the yield will fall; the stock market performance is inversely correlated with the US bond price. When the tension between the US and Russia is relieved, this will lower the bond price and increase the bond yield. The US bond yield has hit nearly 4-year high, this shows the financial market has not been very cautious about the consequence of the trade war between the US and China.

To conclude, if the US does not place a sanction on Russia, in the short term, it definitely is good news for the world financial market in general, as it relieves the tension between the US and Russia and lowers the probability of conflicts between these two powerful countries in the short term. However, given the ongoing trade war between China and the US and the yield hits 4-year high, I think it is possible that the US bond is undervalued.

Time constrained investors

Some investors do not have a mean-variance preference or goal when making their investment, instead they want to maximize their capital returns over a certain time period. For this type of investors, their attitudes would be very likely to be different from what we consider as rational investors or economic man.

This type of investors are often seen in the real world. Those who work for financial institutions including funds are often this type of investors, since their performances are evaluated every quarter by their committees and sponsors (investors). Then this will explain the change in those investors’ risk preferences when they experience different capital returns. In general, investors are risk seeking when they suffer losses, and risk averse when they experience capital gains. When they make losses, to meet their goals, they have to take more risky and aggressive actions to meet the goals before the evaluation day. However, if they make good progress at the beginning, they want to keep the gains, so they will be more conservative (in other words, more risk averse).

What is the effect of the existence of such investors then? Such investors would behave like noise traders, though they may have very good knowledge about the financial market and the assets they invest in. However, because we know the financial market does not perfectly reflect its fundamentals, the investors with this type will trade based on the market momentum rather than the fundamentals. This will further deviate the financial market from its fundamental value.

Since we know institutional investors including fund managers face performance evaluation pressure from their sponsers, they are like to be this type of investors. Because the institutional investors are influential, the financial market would not be at its fundamental level and would be deviated by the market momentum created by retail investors as well as institutional investors.

Economics: an approximation

Economics is good at pursuing a way to explain phenomenon in the real world and captures some basic "economic" rules in our life; however, economics can never precisely describe the entire picture of the world. For example, economics is about how individuals make decisions based on profits (utility) and costs, when economics come to individual cases, it is hard for any economist to find a general and direct method to calculate the marginal cost, which is an extremely concept in economic theories studying firms' strategies. Moreover, when economists are talking about utility, utility is significantly dependent of individual tastes, different individuals can have different utility, economists tend to use a mean individual to represent the entire population, but it is just not possible to be sure if a right mean individual is found.

Secondly, economics describes the current situation based on economists' expectations of the future and does not deliver the prophecy. Economists tend to think individuals and the economic system behave or function in a typical cycle or following certain rules. No one knows the future, so based on several assumptions that create a stable and reasonable system, economists form some expectations of the future and create models based on these expectations. Furthermore, when economists tend to make predictions, they also bring the idea of stability from the models to the reality, by projecting a trend, they make their predictions along this trend which comes from their models.

Thirdly, economics is not natural science, though it tends to be mathematical and data-intensive. Because economics studies social issues that largely involves numbers, economists tend to bring in the concepts of experimental science, statistics and mathematics. The findings do not come from the nature, they come from the interaction between individuals and such interaction can change over time.

The idea of Asian Union

The US president Trump tweeted about his dislike of the TPP on Tuesday, this added pressure on Japan. Japan is a large exporter in the world economy that trade in goods and services accounts for 16% of its entire GDP. Japan is not the only Asian ally that seeks for a trade deal with the US, South Korea is another such country that its trade in goods and services accounts for 42.2% of its entire GDP. Although China is definitely not an ally of America and is not likely to join the TPP anyway, China shares many mutual economic interests with Japan and South Korea and many other countries nearby. These three countries export goods and services, but they do not produce similar goods and products, each of them has their unique comparative as well as absolute advantages in terms of trading. When they form a trade deal, they all could potentially boost their trading volumes even further.

In terms of cultures, we cannot say China, South Korea and Japan share the same culture, but we can see there is a lot of interaction across these three countries' cultures. Countries that are closer to each other are more likely to better understand each other. Because modern wars are catastrophic, these countries want peace in their district, though they could have some conflicts of interests.

The three countries are influential in East Asia, if they can unit together, it is almost guaranteed that there would be no serious conflict in this district. In addition, because of the political stability in the area, it would encourage further economic development in this district. They would become more powerful and influential when they unit together than they are currently.

Option trading

 Today I want to discuss if it is a good idea to trade options alone. Option is a type of derivates, and gives investors the right to buy or sell a specific stock at a specific price. There are some differences between American options and European options, but the existence of the option market narrows the difference between these two types of options. Buying an option is a bit like adding leverages to investors' portfolio, but there is some difference.

The prices of option are definitely more volatile than the stock prices; however, the prices of option will eventually collapse to the difference between the strike prices and the actual stock prices by the exercise dates or zero. Because option prices include the prices for timing, the longer time period involves higher uncertainty, since one of the option functions is to seek certainty, the prices of options with longer time periods to exercise dates are higher. Therefore, the values of options based on seeking for uncertainties are declining overtime, so it is very risky to hold options as assets for a very long period.

When investors do not hold options for long, they behave just like opportunists. When behaving like opportunists, investors turn to be more like noise traders rather than sophisticated investors who study the fundamentals. This increases individual risk. Therefore, it is not a good idea to trade options alone.

Why do we care more about copyright?

In China, people are caring more and more about copyright. This could be seen as a good situation that it could encourage more innovation and invention. Moreover, it protects companies (including foreign companies)’ rights as well. However, there are basic economic incentives to force people to care more about copyright.

Firstly, when more people want to make money from innovation and invention, they have to care more about copyright. Secondly, when people face more competitions in terms of their skills, they want to increase the scarcity of their skills. Copyright increases the cost of skills and knowledge, and creates a bar for people to earn new skills and knowledge. This will reduce the competitions for the people who initially control the skills and knowledge as well as those who have the ability to buy the skills and knowledge, so they will eliminate the competitions from those who cannot afford the costs of receiving new skills and knowledge. Thirdly, for companies, copyright lifts the costs of entry, creates some degree of market power for the large companies. In the court, those judges do not know about technology, they make their judgments based on which firm has the longest copyright list.

To conclude, though copyright encourages innovation and invention, it can reduce the competitions in the market.  

Lobbyists and politicians

Lobbyists do not exist in China but widely exist in the western political system. The job of lobbyists is to persuade policymakers to make or withdraw certain policies. Lobbyists are very influential in the western politics. It is clear that there are unlikely any regulations on Facebook after Mark Zuckerburg’s hearing because even if the government decided to do so, Facebook could spend billions of dollars on lobbying and eventually block the regulations on it, said by one of the congressmen during the hearing.

The money spent on lobbying is a waste to the society because it does not actually produce any outputs other than shifting the policy directions. It is possible for lobbying to be socially beneficial that when lobbyists are more informed than politicians, they are possible to direct politicians to make more socially desirable policies. However, under such circumstance, because lobbyists have more information, they are easier to manipulate the politicians and make them misestimate the outcomes of their policies.

Moreover, lobbying could be seen as a legal bribery that theoretically speaking, lobbying and bribery give the same levels of private benefits to the politicians. Therefore, overall lobbying is not socially desirable.

A brief introduction of bubbles

Bubble is a phenomenon that the market price drifts away from its fundamental price. Large bubbles are rare but little bubbles happen all the time. We have experienced large bubbles several times, such as the Tulip Mania in the 17th century, the South Sea Company in the 18th century, the most recent 2007-8 Subprime Crisis. The bubbles could be put into four categories: rational/near rational bubbles, informational bubbles, intrinsic bubbles, fads.

For rational bubbles, the bubbles increase at the same rate as the interest rates when the assets have infinite maturities. In addition, there is a possibility of bubble bursts at each period. When the possibility of bubble burst increases, there is a need for high asset prices (high capital returns) compensate the high risk. This will lead to a great fool market that investors believe they can exit the market at the right time. For near rational bubbles, when investors are unrealistically overconfident, overoptimistic and myopic risk aversion, it will also contribute to create bubbles.

For intrinsic bubbles, investors overreact to the news about fundamentals. Stock prices are more volatile than dividend changes, so prices overreact to dividend changes easily.

For informational bubbles, if the market price is informationally efficient, there is no economic incentive to collect private information. Investors need to choose whether they collect their own private signals and respond to their private signals or just copy what the other investors (their trusted friends, colleagues) are doing.

For fads, investors sometimes believe there is a new fashion that we enter a new era. For example, the Dotcom bubble was created based on people's belief that we were entering the "Internet Era".

There are three theories that explain how bubbles arise: belief-based theories, preference-based theories and a speculative model (Shiller 2002). The belief-based theory suggests there is an extreme bullish view and there is an extreme bearish view, because of the short-sale constraint, the market reflects more about the bullish view rather than the bearish view, so the market price is overvalued. The preference-based theory suggests investors may have a strong preference for lottery-like payoffs, this would overvalue these stocks. Shiller suggests the essence of a speculative bubble is a sort of feedback, from price increases, to increased investor enthusiasm, to increased demand and hence further price increases. Behavior bias contribute to the feedback system: the representativeness heuristic, overconfidence, attention anomalies, self-esteem, conformity pressures and salience.

It is very difficult to spot a bubble, but bubbles commonly burst after a sharp price increase.

Why is it necessary to allow investors to place short positions

In the Chinese stock market, investors cannot place short positions on particular stocks. I think that the regulators would open the door for investors to place short positions in the future, because this is beneficial for the stock market overall.

When investors are only able to place long positions, the prices in the stock market are biased towards the investors who focus on the long side. All activities are done by the long side investors, and the investors are only able to show their short-side opinions about the stocks. However, buying and selling stocks are normal market activities and only extreme occasions would draw the market attention.

Placing a short position is a different trading move that directly shows the short-side's opinion. When placing a short position, the investors need to borrow stocks to sell, and the ones who are able to lend them stocks are usually institutions who are large long-side players. When the institutions are able to receive such orders from other investors including some institutions, they would realize the market opinion is contestable and there is a possibility of mispricing (bubble) in the market.

Therefore, if placing short positions is allowed, the market could be faster to realize the mispricing in the market. 

Financial companies outside China

The Chinese president Xi said on Tuesday that China would broaden market access for foreign financial services companies. There have been several financial services companies operating in the Chinese mainland, including HSBC, Goldman Sachs. These foreign financial services companies have been focusing on financial services that have to do with (financial) activities in foreign countries, their potential consumer sizes are not as large as the Chinese companies', this will not increase the competition in the Chinese financial sector. There are restrictions to these foreign financial services companies that limit the activities for these companies in China. Moreover, the financial services companies do not share the same financial network with the Chinese financial services companies (including the Chinese companies). The transaction costs for Chinese clients to do businesses with the foreign financial services companies are larger than to do businesses with their local companies. If the Chinese government were willing to reduce the limitations on these foreign financial services companies, the level of competitions in the Chinese financial market would increase significantly. In addition, the many financial services would be introduced to China, the skilful workers in the sector will transport across borders as well, this would improve the services or lower the wages in the sector or both. 

What do people miss out when focusing on the tension between the US and China

American officials have softened the tone when talking about the trade war with China. Many people have paid lots of attention on these two countries only, some may forget about other countries' roles in this trade war.

The current American president has some complaints about Latin American countries including Mexico. If he decides to take actions against these Latin American countries, this might be a chance for China to build good relationships with these Latin American countries. In addition, the European Union could take advantage of the trade war between China and the US. China does not want to spread the trade war, so China will not treat the EU as its enemy through the US launches a trade war on China and most EU countries are traditional allies of the US. The EU is also powerful to control the influence from the US, so it is possible for the EU to get some benefits from both sides. This is the same for Britain. The relationship between Britain and China has been built relatively well via several negotiations between the two countries. The bond between the two countries might be stronger than what we think that there are more Chinese people who move to Britain via Tier 1 Investor Visa than Russians.

The tension between the US and China might be beneficial for other countries including some American allies.

Would a house price fall be socially desirable?

Many people in China are complaining that they cannot afford high house prices at the moment, especially for the young generation. Houses have been a necessity for entering a marriage for people in China because of the culture. The house price issue has been brought up in many important occasions that many social key figures including famous economists and celebrities as well as some important government officials have been publicly discussing the house price issue very often. Because of the wide scale of complains about high house prices, many people do believe it is socially desirable to pull the house prices down. Many governments have used many policies to limit the demands for purchasing houses that they only allow local individuals to purchase a fixed number of houses and put high taxes on purchasing more than one houses.

For many middle class families, they own more than one houses, some may locate in those large cities and have very high values, and some may locate in the small or medium cities and not have very high values. When the house prices fall, this would have significant impacts on these middle class families as their wealth shrinks. In addition, many of them borrow mortgages to purchase houses. Although this will not cause serious problems for banks as the banks only lend a small proportion of the house value to individuals, individuals are less likely to sell their houses because people could expect the house prices will continue to fall.

I have an unmatured idea about how to stabilize the house price and make people more able to purchase houses. Many people in China prefer buying new flats rather than second hand flats. If we are able to make people much easier to sell or buy a second hand flat than to sell or buy a new flat, it is possible to lower the prices for new flats and increase the prices for second hand flats. Moreover, by making people easier to buy or sell a second hand flat, it would increase the demand for old flats and increase the supply for old flats. Then the prices will depend on the scales of the increases in supply and demand. Then it will depend on the economic attractiveness of the cities that if the city is attractive, the demand will always be higher than the supply, and vice versa.

To conclude, the house prices in Beijing, Shanghai, these large cities, are inevitably high, but if we are able to increase the supply of second hand flats by make people easier to borrow to buy second hand flats or other policies, it is possible to lower and stabilize the house prices for small and medium cities.

The break-down of the world organizations

China takes the US to WTO over trade tariff plan, this is not the first time for a country to challenge the US in WTO this year that earlier this year South Korean responded to the US tariffs on the solar industry with WTO tariffs challenge. However, there is a question that if WTO really has the power to impose a global free-trade environment. In addition, this question can be asked about any international organizations, including the UN. For some countries which are relatively small and significantly rely on trading with one particular big country, they are more likely to follow the orders from these international organisations that are led by large countries; however, large countries have significant power to influence or even overturn the decisions of the international organizations.

The efficiency and power of the international organizations are largely dependent on the relationships across large countries. When the relationships are good, the international organizations are powerful and influential; and vice versa. Currently the US has issues with China and Russia that the US launched a trade war with China in order to close the trade gap and the US is also suspicious about the Russian influence in the last presidential. The world political environment largely weakens the power and influence of the international organizations.

From history, we can see that the international organizations are in general founded after major global conflicts or wars. The League of Nations was founded after the first world, the UN was founded after the second world, earlier the modern diplomat system was argued to form after the Napoleon War. In the beginning of these international organizations, countries are really careful about the possible large scale of conflicts; however, after a while, countries become relatively careless and the possibility of conflicts across large countries increases. The nuclear power has limited the possibility of wars between nuclear power countries but we may expect more other forms of conflicts between large countries.

The increased tension between China and the US

The world stock market fell in general when China threatened 50 billion dollars on 1333 American products. China has repeatedly pointed out China does not want a trade war via its officially and unofficially channels.

China passively enters the trade war with the US since the US stroke the first attack on China; however, once China enters this trade war, China has to make its counter-strike on the US. The most immediate effect of this tension focuses on the stock market performance, since the trade war started, the stock market has fallen significantly, especially in the key industries' stocks. The long term effect of the trade war has not impacted the world economy since it only just started. The most recent job releases from many countries have been very pleasing, the unemployment rates in several key countries have fallen to the historical lowest points. The trade war is started by the increasing populism, and the increasing populism is started by the increasing wealth gap. The economic performance is constantly good but the benefits have not been distributed equally. Some governments want to turn the internal problem to be an external problem. This problem can lead to two kinds of outcomes. The first outcome is when the economy is not performing well, it can make people turn their attention back to the economic performance. The other outcome is when the economy is not performing well, it can make people more angry about their situations and want more extreme foreign policies.

To conclude, the current situation adds more uncertainty to the future world economy.

What can be explained by economics and what cannot be explained? 5

Yesterday I suggested that there is a lack of economic explanations about what causes uncertainty and differentiate people's taste. Today I want to further discuss what cannot be explained by economics.

Many economic models and theories assume perfect information; however, in reality, we literally cannot prove that we are able to have perfect information. In economics, imperfect information is often used as supportive argument; of course, there are some economic frameworks about imperfect information. However, these economic frameworks cannot fully describe the complexity of imperfect information in reality. Economics in general refers imperfect information as a systematic problem or an issue that can be solved by technological innovation. However, in my opinion, information is a form of resources or goods. They could have similar characteristics as public goods, but they do have a special property. Information has a upper barrier of consumption that individuals (including companies) cannot consume information beyond their abilities.

Economics does not combine the abilities of individuals to consume information with other theories which requires information conditions.

What can be explained by economics and what cannot be explained? 4

I have talked many things that can be explained by economics and today I want to talk about the things that cannot be explained by economics. Here I need to say these things may not be able to explained by myself only or just cannot be explained yet.

In general, every phenomena can only be partially explained by economics. For example, when we face perfect substitution, such as Pepsi and Coca Cola, many of us still have some preferences; and economics cannot explain why some people prefer one over the other. In general, we can summarise some problems as probability problems, just like we suggest there is a probability for someone to prefer Pepsi over Coca Cola. Economics cannot fully explain people's tastes, then many economists suggest it is just an issue of probabilities, this conclusion might not be rigorous enough.

In addition, there are other probability explanations that seem not very rigorous. For example, in finance, we usually give a probability for a state to happen, then based on these states' probabilities, we calculate expected outcomes. Furthermore, we tend to assume an event has a particular probability distribution. However, can we really make these probability assumptions? This is just like flipping a coin. If we know the force and other key factors, we may be able to predict the outcome of flipping a coin.

Therefore, in economics, it is possible that the concepts of randomness and probabilities and uncertainty are used too often without much deep thinking.