152 THE GENERAL THEORY OF EMPLOYMENT BK. IV

IV

In practice we have tacitly agreed, as a rule, to fallback on what is, in truth, a convention. The essence ofthis convention—though it does not, of course, workout quite so simply—lies in assuming that the existingstate of affairs will continue indefinitely, except in sofar as we have specific reasons to expect a change. Thisdoes not mean that we really believe that the existingstate of affairs will continue indefinitely. We knowfrom extensive experience that this is most unlikely.The actual results of an investment over a long term ofyears very seldom agree with the initial expectation.Nor can we rationalise our behaviour by arguing thatto a man in a state of ignorance errors in either directionare equally probable, so that there remains a meanactuarial expectation based on equi-probabilities. Forit can easily be shown that the assumption of arith-metically equal probabilities based on a state of ignor-ance leads to absurdities. We are assuming, in effect,that the existing market valuation, however arrived at,is uniquely correct in relation to our existing knowledgeof the facts which will influence the yield of the invest-ment, and that it will only change in proportion tochanges in this knowledge; though, philosophicallyspeaking, it cannot be uniquely correct, since ourexisting knowledge does not provide a sufficient basisfor a calculated mathematical expectation. In point offact, all sorts of considerations enter into the marketvaluation which are in no way relevant to the prospect-ive yield.

Nevertheless the above conventional method ofcalculation will be compatible with a considerablemeasure of continuity and stability in our affairs, solong as we can rely on the maintenance of the convention.

For if there exist organised investment markets andif we can rely on the maintenance of the convention,an investor can legitimately encourage himself with the