But while time preference may appear to be relatively stable over history, perceptions of risk and uncertainty, which couple with time preference to create discount factors, obviously vary widely, as does liquidity preference, itself a function of uncertainty. The impact of increasing uncertainty and risk aversion was no more evident than in the crisis that gripped financial markets last autumn, following the Russian default.
That episode of investor fright has largely dissipated. But left unanswered is the question of why such episodes erupt in the first place. It has become evident time and again that when events are unexpected, more complex, and move more rapidly than is the norm, human beings become less able to cope.