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2012 | OriginalPaper | Chapter
The Theory of von Neumann and Morgenstern
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Before the Great Depression, the simple financial theories of the 1920s had not been put to task. There was little need for nuanced model sophistication to include uncertainty in the ever-rising financial markets of the Roaring Twenties. By the end of the decade, the markets began to falter. Soon, the economy was plagued with waves of uncertainty that would soon poison financial markets worldwide. The imposition of financial risk on humanity has remained a central topic in finance ever since. There became a pressing need to incorporate uncertainty into our understanding of financial markets.