Humans are drawn to a simple narrative. An example of this in the financial industry is the continued use in the media and by practitioners of the index for the Dow Jones Industrial Average, or the 'Dow', as an indicative measure of the United States stock market. It was first calculated in 1896. The index is based on the arithmetic average of the share prices of the 'Dow' components adjusted by a divisor that allows for stock splits etc. A $1 move in the share price of each Dow component has the same impact on the index irrespective of each company's number of shares on issue. It is meaningless, but its simple narrative has survived over 100 years.

We live in a non-linear world which is too often expressed in a linear fashion. For most real life situations, linear models just don't cut it. Linear models may appear to make it easier for us to comprehend a situation, but they tend to provide false signals and blind us to 'black swans'.

As all value is subjective, we are very cautious about the positive use of statistics to analyse data. Too often we see a person's preconceived ideas expressed as statistical 'proof'.

Empiricism using well-trodden data can lead to results with strong in-sample results, modest out-of-sample results, and a total inability to identify the fundamental principles of a situation. In America a turkey may well have a wonderful 364 days of life in its lead up to Thanksgiving!

One of Carl Merger's insights from his theory of subjective value was that both sides gain from a free exchange. People will exchange something they value less for something they value more, based on their subjective value assessments. Market-makers make it easier for these transactions to take place by reducing the buy / sell spread.

As each person's circumstances are unique, the value of a stream of present and future goods only make sense with respect to the subjective assessment of the individual concerned.

We help our clients understand the implications for the formation of buy / sell prices for goods and services driven by the subjective value assessments of the marginal seller and the marginal buyer.