In contrast to the upturns in business equipment investment, consumer durable purchases, and foreign trade, other sectors of the economy have not fared as well. Despite historically low mortgage rates, purchases of new and existing homes have not risen much above their lows seen several years ago.
The outcome of a low-probability event with severe adverse effects may then be considered riskier than the costs of insuring against contingencies that in the end are not materialized. In this sense, relatively simple instrumental rules can perform as well as other much more complex “optimal” reaction functions.