Thursday, October 20, 2011

Perceptions rule ...

Perceptions have always played a large role in human events. A great example comes from the late 1970s and early 1980s, when the perception of a worldwide oil shortage led to a panic that was soon replaced by the perception of an oil glut, despite only a small difference in an important measure of the real supply of oil.

In short, the Iranian Revolution of 1979 severely reduced oil exports from that country, leaving the world with an 88-day supply of oil. World oil markets responded with great alarm and oil prices shot up from about $18 a barrel to about $34 a barrel. But in 1983, oil prices fell when the world's 93-day supply was perceived as a glut on the market.

"A margin of just five days made the psychological difference between panic and composure in the West," wrote David Lamb of this situation in his 1987 (updated in 2011) book The Arabs.

1 comment:

Ken Vickers said...

I think the same perception problem is what is causing chaos in the stock market. A result of the instant gratification generation.