We didn't fully cover the last slide in the PowerPoint from today. So I will start with that on Thursday. It is a puzzle. Let me see if I can explain the issue here.
The asset equation that I briefly showed is from this document, on page 3. The important point to note is how we typically interpret such an equation. The asset value, "A," is measured in current time, that is the value of the asset today. The return "a1" happens 1 period into the future. Similarly, the return "at" happens t periods into the future. In other words, the asset value is the sum of the appropriately discounted future returns.
On the other hand, in assessing the reputation of an individual, we typically look at past performance. Typically, the rule of thumb is to trust somebody who has had strong past performance and to distrust somebody else who has had weak past performance.
The puzzle is how in one case can the reputational asset be forward looking only while in the the other case where we assess the assess we are backward looking only. Can that make sense? If so, how?
No comments:
Post a Comment