Quick post here
I have been appalled at the cognitive bias that masquerades as analysis when discussing the recent collapse of the Russian Ruble. The purpose of analysis is to better understand what the real constraints in a given situation are and to better gauge what will happen based on how these constraints affect potential outcomes.
For example, with the Ruble collapse, the right questions are something like:
- Why is the Ruble collapsing?
- What could Russia do to stop that collapse given the reasons it has collapsed to begin with?
- What is fair value for the Ruble?
- In situations in which an economy collapses, if the leader is an autocrat, what impact will the downturn have?
- How do Russians view these events?
- What impact do the sanctions have on that psychology?
- What impact will the ruble collapse have on Russian investments or foreign markets?
When I run through this list, I come up with outcomes that, although not benign, are not catastrophic. But when I listen to the financial media or read the financial press, most of the analysis is so skewed by political and nationalistic bias, I can’t take anything discussed at face value. When I think about Russia through the lens of tail risk, my thinking goes to risk reduction while the crisis is proceeding apace followed by careful reflection of entry points when the inevitable oversold conditions surface.
But that’s not the kind of analysis you’re seeing. A lot of it is pure triumphalism and nationalism masquerading as analysis. This crisis is showing people and their cognitive biases at their very worst.