“‘If we speak frankly,’ Keynes wrote, ‘we have to admit that our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes nothing.’ Keynes distinguished this sort of incalculable uncertainty from quantifiable risk—the risk, say, that your straight flush will be trumped by four of a kind, or that you will be killed at Russian roulette. When you decide to build a factory or take a flyer on the stock market, the arithmetic of probability and rational decision theory provide no real guidance. Such decisions can be taken, Keynes wrote, only as a result of ‘animal spirits—of spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.’ In a boom, when animal spirits are high, businesses and entrepreneurs are brimming with investment projects, which banks and other financial institutions are all too eager to finance. After a bust, the opposite applies. In Keynes’s words, ‘If the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die—though fears of loss may have a basis no more reasonable than hopes of profit had before.’”
—From “The Demand Doctor” by John Cassidy in The New Yorker, October 10, 2011