Just ran across a quotation from John Maynard Keynes that I'm pretty sure is a propos to this thread:
"If the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die -- though fears of loss may have a basis no more reasonable than hopes of profit had before."
Here's the line in the (recommended) context where I read it -- in John Cassidy's "The Demand Doctor" (The New Yorker, 10/10/2011):
"In particular, Keynes understood how a financially driven economy, like ours, can go into self-sustaining downward spirals (and upward spirals) under the influence of crowd psychology and chronic uncertainty about the future. In the classical scheme of things, banks and financial markets are treated as abstractions, which effortlessly convert savings (money) into investment (forms of capital like factories or computers). Keynes pointed out that the link between savings and investment was far from straightforward. It relied on people who are looking to make quick profits, and who are susceptible to shortsightedness, herd behavior, and panic. 'Speculators may do no harm as bubbles on a steady stream of enterprise,' he commented. 'But the position is serious when enterprise becomes a bubble on the whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.'
"The problem isn’t that Wall Street traders are reckless or stupid; Keynes had a wary respect for their smarts. The problem is that our investment choices can never be truly rationalized. 'If we speak frankly,' Keynes wrote, 'we have to admit that our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing.' Keynes distinguished this sort of incalculable uncertainty from quantifiable risk—the risk, say, that your straight flush will be trumped by four of a kind, or that you will be killed at Russian roulette. When you decide to build a factory or take a flyer on the stock market, the arithmetic of probability and rational decision theory provide no real guidance. Such decisions can be taken, Keynes wrote, only as a result of 'animal spirits—of spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.'
"In a boom, when animal spirits are high, businesses and entrepreneurs are brimming with investment projects, which banks and other financial institutions are all too eager to finance. After a bust, the opposite applies. In Keynes’s words, 'If the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die—though fears of loss may have a basis no more reasonable than hopes of profit had before.' Five years ago, banks were extending mortgages to anybody who walked in the door; today, many good borrowers can’t get credit. Corporate America, after jettisoning workers by the millions to preserve profits, is sitting on billions of dollars of cash. American households, known everywhere for their prodigal ways, have discovered the virtues of saving and thrift."
Read more at
http://www.newyorker.com/reporting/2011/10/10/111010fa_fact_cassidy#ixzz1e5yTpc50