Risk as Feelings

Brad Delong summarizes an important point when it comes to evaluating whether or not the latest plan to rescue banks from their own toxic assets is going to work. In this interesting post, he contrasts his own tepid support for the plan with Paul Krugman's pessimistic opposition:

I think the private-sector players in financial markets right now are highly risk averse--hence assets are undervalued from the perspective of a society or a government that is less risk averse. Paul judges that assets