Just like active financial managers, foreign policy leaders do not always live up to expectations. The reason both fail is tied to a deep problem of the human condition: we are almost always unaware of the specifics of what is going on outside of our immediate surroundings. Furthermore, we often underestimate the magnitude of our ignorance on these specifics. The economist F.A. Hayek thought deeply about this condition, which has become known as the knowledge problem.
Just like stockbrokers, politicians are forced to make decisions with incomplete and sometimes inaccurate information.The knowledge problem explains why so many stock picks are busts. The Wall Street Journal has even reported that picking stocks is a dying business. There i…
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