Of all the axioms of utility theory, the completeness axiom is perhaps the most questionable.
- Robert Aumann, Nobel Prize Winner
One of the reasons you keep in your pocket stocked wallet, because you do not know a lot about yourself. Know thyself, as the Greeks said, you can exchange the media you keep money on hand stingy.
Greater self-awareness leads to cleaner "mapping out" a person's taste, and the preferred schedule for those tastes enjoy. For example, the moment of self-reflection may lead you to the conclusion that pistachio ice cream 20:31 next Friday is the best state in the world. If the existence of a complete set of futures markets, you can buy a futures contract is the timestamp provide pistachio ice cream 20:31 Friday, your tastes will be satisfied to ensure that lead.
The problem is that introspection is difficult. We do not have the time, knowledge and energy to the carefully painted and sketched out the tastes and preferences of the full schedule. Even if we are fortunate to have the full range of the futures market, the lack of love stop us use these contracts.
As time submitted in advance to meet the taste, not taste B, C or D at 20:31 on Friday, a person may prefer to remain noncommittal. They can buy the preferences through a wide range of options contracts, allowing them to D in a blur of time to meet the tastes of the action, said Friday night ish. In the last minute, they will expire worthless while allowing others to exercise only one of these many options. This last-minute off-the-cuff measurement preferences allow direct appeal to the current state of mind. This is undoubtedly a more accurate way to get a taste you want is not their imagination would be like for a week now and lock the decision by buying futures contracts related to what is.
The problem is that the real world is not only missing the preferences, and lack of market distress. Future consumption of options does not exist. Buy a range of options to exercise between twenty different flavors of ice cream, 6 and 10 PM Friday.
There is an alternative. Policy people can allocate a portion of its composition, "currency assets, 'those who can more liquid and stable assets imitate an option to buy, and cheaper than conventional storage assets. Monetary assets, as the value of a good store until the ability to get a good final consumer behavior means that its owner does not have to worry about the lack of sufficient purchasing power to meet any taste to D and liquidity of these currency assets means they do not have to worry about any consumer good that they can not exchange their feel able to meet their needs. Therefore, by holding monetary assets, a person effectively bought his own choice to meet the entire range of flavors, on Friday night at any point. This is the easy flexibility.
Option is not free. In the financial markets, for example, the trader must pay an additional fee to ensure an option. Similarly, for the flowability. By keeping monetary assets, personal gain greater flexibility around their taste satisfaction, but the potential rewards abandoned. After all, a check deposit more liquidity than fixed deposits, but deposits, which do not meet any financial needs and provide superior capital gains.
Thus, at the margin, people are always measurement becomes a little more self-conscious of the shortcomings of the cost of holding money assets. If there are some low-hanging fruit harvest introspection, it might be worth spending a few minutes thinking, if it makes a subsequent shift of wealth from low-yielding liquid assets (such as a checking account) illiquid high-yield assets (such as time deposits). On the other hand, if you want to maintain a fluid and non-delivery-related tastes and timetables to achieve these, cash and liquid securities purchase this flexibility means.
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Here the CBD.
Economists often (but not always) require a complete personal preference. This means that the actors, in which the characters come to fill the economic model is equipped with a timetable for their taste and enjoy fully specified collection. There is no space for self-doubt, craps, or shaken. In these models, no one takes any time and effort of introspection. Self-awareness is free.
This certainly makes it easy to handle on the mathematical economic models. In the world outside of these models, however, we want to maintain the liquidity of the fact that we are not entirely motivated self-consciousness. Our tastes and timetables to achieve them often empty, usually because the reflection is expensive, inaccurate and slow. Exchange liquid medium, in order to maintain flexibility and ignorance ideal way for future tastes. By choosing to assume complete self-awareness, an economist at the outset exclude some very important reasons, people who hold foreign currency liquid medium. With the 2008 credit crisis have shown the importance of liquidity factors, which seems to be an unfortunate assumption to make.
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