Andrew Haldane: Patience and finance Speech by Mr Andrew Haldane, Executive Director, Financial Stability, Bank of England, at the Oxford China Business Forum, Beijing, 9 September 2010. *  *  *  I am grateful to Geoff Coppins, Richard Davies, Salina Ladha, Pippa Lowe, Gareth Murphy, Rhiannon Sowerbutts, Nick Vause and Iain de Weymarn for background research and comments. In the East, it is said: “One moment of patience may ward off great disaster One moment of impatience may ruin a whole life” [Chinese Proverb] In the West, it is said: “I often make more money when I am snoozing than when I am active” [Warren Buffett] These observations have common conceptual roots. Underlying both lies patience. Patience, or its alter ego impatience, is a key factor shaping inter-temporal decisions. Whether to save or spend, trade or invest, work or quit, stick or twist. As such, patience has important implications for the evolution of economic and social systems. This paper considers the role of patience in decision-making, in particular financial decisionmaking. Patience is not static; it evolves. This paper brings together lessons from economics, history, psychology, neurology, sociology to assess patience and its implications for the evolution of economic and financial systems. Evidence from social and economic systems points to two evolutionary paths. Along one, patience becomes self-reinforcing. For example, financial liberalisation may encourage patience and improve inter-temporal choice, unlocking growth. But there is a second path, along which impatience is self-reinforcing. Financial liberalisation can also unlock impatience, generating over-trading and under-investment.

During the Ming (1368–1644) dynasty, paper money was swept away by commodity money. 23 This dynamic has also since been replicated across a number of monetary economies, including dollarizing emerging market economies over recent decades. Today, finance faces its own Gresham’s dilemma – the patient or impatient path. Innovation has, of course, transformed finance over the intervening years. Liberalisation has resulted in far greater information and liquidity in financial markets. Perhaps these developments have helped good finance drive out bad, nudging money towards the patience path? Not necessarily. Take information. In an evolutionary game, information is a double-edged sword. It supports the cause of the long-term investor, by allowing them more easily to compare prices with fundamentals. But it also tests the patience of the untested investor subject to regular performance evaluation. Investors whose judgement is right, but whose timing is wrong, stand an increasingly high chance of exiting the game. More frequent information on performance risks contaminating the gene pool, driving out the patient to the benefit of the impatient. Anecdotally at least, performance evaluation intervals have progressively shortened. Over recent decades, companies have migrated from annual general meetings, to a six monthly or quarterly reporting cycle to today’s steady stream of within-cycle trading updates. In finance, information is in general a good thing. But in finance, as in life, it is possible to have too much of a good thing. Liquidity is similarly double-edged. It reduces the impact of momentum trading on prices, thereby increasing market efficiency.