Perception is sufficient reality
THERE is often the conversation on whether or not economic observers can distinguish perception from reality. The accurate response in numerous economic contexts is an overwhelming no! Economic observers cannot distinguish perception from reality.
Of course a precondition to such a response would cater to the kind of observers under sample. Concededly, it can be argued in more sophisticated niche demographics that value and profit lay in spotting the difference between perception and reality.
However, very few, if not a negligible sample, possess the rare talent of distinguishing between perception and reality; namely high level hedge funds, asset managers, and other few erudite investors who spot opportunity in the often marginal disparity between perception and reality.
Otherwise, for the overwhelming majority of economic observers worldwide, perception is acceptable as sufficient reality.
This is so to an extent that many instruments, mechanisms, and economic models of market signalling by policy makers and economic governance are in fact designed under, and factor in, the agreeable notion that the market will respond on its interpreted perception of policy making and economic governance.
Consider for instance what is known as the efficient market hypothesis.
It is the fundamental theory on which public interpretation is used to put a number on any business within an economy.
What is the value of a particular business in a given economy?
According to the efficient market hypothesis, stock valuation at any given moment is assumed to reflect the information available to the investing public.
It would be greatly difficult to argue that publicly available information is comprehensive indisputable reality.
Rather, a more precise argument would be that the information readily available to the public about a stock creates perception that at most becomes acceptably sufficient reality of what is then the market determined stock valuation at that time.
More academically, the projected future cash flows of a stock (which is the academic valuation of a stock), cannot truly be a reality for they cannot be known for certain.
Rather projected future cash flows are assumptions that form sufficient perception acceptable by the market to be the real valuation of that stock.
By conceding to that nuance, the efficient market hypothesis lends credence to the acceptance that any disparity between perception and so-called reality is negligible. For the investing public, perception is sufficient reality.
Another example, perhaps less verbose, is central bank signalling.
Notice how in more developed economies, central banks are guarded and calculated about how they “signal” policy to the public.
For instance, interest rate announcements or other monetary policy is subject to the context where the public respond to perception.
Consider how sensitive the public is at a time when the South African Reserve Bank indicates intent to move interest rates.
The perception interpreted by the public is sufficient to create the reality of varied market outcomes.
For example, currency exchange rates to the rand adjust, influenced by perception. Stock markets adjust as well.
More profoundly, downstream effects
More academically, the projected future cash flows of a stock (which is the academic valuation of a stock), cannot truly be a reality for they cannot be known for certain.
also take immediate effect such as levels of investment, employment, or responsive micro-economic strategy of market participants; all these are tangible adjustments from the mere perception of speculated interest rates movement.
So again, central bank signalling, just like the efficient market hypothesis, lends credence to the acceptance that any disparity between perception and so-called reality is negligible.
For currency exchange rates, investment flow, employment and micro-economic strategy, perception is sufficient reality that motivates real outcomes.
In fact, in Zimbabwe it is just over a year now since the announcement by our central bank to put bond notes into the market.
The last year alone should stand as our own credible evidence that perception is sufficient reality, and it is high time we halt trying to distinguish the two.
We have experienced real market outcomes attributable to the mere perception interpreted by the public’s understanding of bond notes.
Listening to Finance Minister Chinamasa’s public speeches over the last few years as well, Government has taken on the insurmountable battle to try and convince local and international observers to distinguish perception from reality.
In numerous instances, More academically, the projected future cash flows of a stock (which is the academic valuation of a stock), cannot truly be a reality for they cannot be known for certain. Minister Chinamasa laboured to convey that Government’s program for public sector reforms was not of IFI prescription, but rather was one of Government’s own craft and volition.
Often times, many representatives in the tourism sector have spent years trying to create an imagery of our pleasant environment stamped as reality, supposedly against more cynical presentations that we they prefer to label as bad perception.
Well intending industrialists have tried to chime into the chorus as well, “perception is not reality.”
Many local business interest groups travel abroad carrying messages packed within similar narrative.
Indeed, the battle of convincing the public and markets to distinguish perception and reality is one that governmental institutions and business stakeholders have partaken in for too long. It is futile.
Erudite governance and business proponents, across all sectors, must embrace the fact that perception is sufficient reality.
Trying to distinguish that which we may prefer to be reality from the perceptions we deem undesirable is an economically illiterate notion, and one we would be stubborn to hold onto.