Wars, Conflict and Markets: what history shows (education only)

01

Uncertainty and "risk-off"

In simple words

When something scary happens and nobody knows what comes next, people get careful. They hold on to their money, wait and look for safe places to keep it. Markets are made of people, so markets get careful too.

Key facts

Education only. This lesson explains ideas, not trades.
Uncertainty means not knowing what will happen next. Markets put prices on the future, so when the future becomes harder to guess, prices can move a lot.
"Risk-off" is market slang for a period when many investors sell assets they see as risky (for example shares) and move toward assets they see as safer (for example some government bonds or cash). "Risk-on" is the opposite. These are descriptions, not rules: they do not always happen.
Researchers measure geopolitical risk. Two economists built a Geopolitical Risk Index from news coverage of adverse geopolitical events (American Economic Review, April 2022):
The index rises sharply during the two World Wars, at the start of the Korean War, during the Cuban Missile Crisis and after 9/11.
Higher readings come before falls in investment and employment.
Both the threat of adverse events and the events themselves contribute to these effects. This is why markets can move before anything happens, and again afterwards.
Case study: uncertainty in 1990. A March 1991 Federal Reserve Bank of Chicago letter, "The Cost of Uncertainty", argued that after Iraq invaded Kuwait in August 1990, a surge in uncertainty, more than the oil price itself, pushed people and businesses to delay purchases. Its uncertainty measure (the TED spread) rose from about 80 basis points in July 1990 to about 150 on 2 November 1990.
In a consumer survey shown in the letter, the share of people who mentioned "bad and uncertain times" about buying a car rose from about 4 to 6% (January to July 1990) to about 20% in December 1990.

Idea	What it means	Example from this lesson
Threat	Fear that something bad may happen	Index rises before events
Event	The bad thing happens	Index spikes after 9/11
Uncertainty	Nobody knows what comes next	1990: people delayed buying cars and homes
Risk-off	Moving away from assets seen as risky	Described in later lessons

Threat, then event, in real data (2022): the WTI oil price was $75.99 a barrel on 3 January 2022 and $92.14 on 23 February, the day before Russia's full-scale invasion of Ukraine. It reached $123.64 on 8 March 2022. Prices moved both during the weeks of rising tension and after the invasion began.

WTI oil, late 2021 to April 2022. The price rose while tension grew (before) and jumped after the invasion began (after).

Step by step

Take a page and write two headings: "Before the event" and "After the event".
Under "Before", write: "Threats and fears can move markets before anything happens."
Under "After", write: "Uncertainty about what comes next can keep moving markets."
Write the meaning of "risk-off" in your own words, in one sentence.
Write one thing a scared person might do with their money, and one reason that action might be a mistake if done in a panic.
Check: you can explain to a friend, in under a minute, why a market can move before and after an event.

LESSON 01Uncertainty and "risk-off"

LESSON 01 / APP DEMO / AI VOICE00:00 / 01:00

Voice

Read the video script

[Host] "Before we start: wars cause real suffering. We study markets here to understand the news and stay calm, never to profit from pain."
[Text on screen: uncertainty = not knowing what comes next] "Markets put a price on the future. When the future gets harder to guess, prices can swing."
[Screen: a line chart labelled Geopolitical Risk Index with spikes marked World Wars, Korea, Cuba, 9/11] "Researchers measured geopolitical risk from news reports. It spikes in wars and crises."
[Text on screen: threats AND events] "And both the threat and the event itself matter. That's why markets can move before and after."
[Screen: a survey bar rising from about 5% to about 20%] "In 1990, uncertainty made many people delay big purchases."
[Host] "Uncertainty is normal in a crisis. Panic is optional."

Try it now

Find one news story about a conflict from any year. Write one sentence about the uncertainty it created for ordinary families, and one sentence about what markets might have been uncertain about. Do not make any trade.

ClaudeStuck? Copy a ready-made prompt for Claude

Copy this, open Claude, paste it, and Claude will walk you through the lesson step by step.

For a grown-up: Claude is for adults (18+). Copy this, paste it into Claude, and use the answer to explain the lesson to your child.

I'm learning "Wars, Conflict and Markets: what history shows (education only)" on The Future Market. Lesson 1: "Uncertainty and "risk-off"".

What the lesson teaches:
- Education only. This lesson explains ideas, not trades.
- Uncertainty means not knowing what will happen next. Markets put prices on the future, so when the future becomes harder to guess, prices can move a lot.
- "Risk-off" is market slang for a period when many investors sell assets they see as risky (for example shares) and move toward assets they see as safer (for example some government bonds or cash). "Risk-on" is the opposite. These are descriptions, not rules: they do not always happen.
- Researchers measure geopolitical risk. Two economists built a Geopolitical Risk Index from news coverage of adverse geopolitical events (American Economic Review, April 2022):
- The index rises sharply during the two World Wars, at the start of the Korean War, during the Cuban Missile Crisis and after 9/11.
- Higher readings come before falls in investment and employment.
- Both the threat of adverse events and the events themselves contribute to these effects. This is why markets can move before anything happens, and again afterwards.

The exercise I'm working on:
Find one news story about a conflict from any year. Write one sentence about the uncertainty it created for ordinary families, and one sentence about what markets might have been uncertain about. Do not make any trade.

I'm stuck. Please:
1. Explain the main idea in plain, simple words with one everyday example.
2. Walk me through the exercise one small step at a time. Ask me what I've done so far before giving the next step.
3. Don't just give me the final answer. Help me do it myself, and check my work when I share it.
4. This is for learning only. Remind me to check with a licensed professional before I make a real decision about my own money, health or legal situation.

I'm a parent helping my child (about 8 years old) with a lesson called "Uncertainty and "risk-off"" from the course "Wars, Conflict and Markets: what history shows (education only)".

Here's what the lesson says:
When something scary happens and nobody knows what comes next, people get careful. They hold on to their money, wait and look for safe places to keep it. Markets are made of people, so markets get careful too.

The activity:
Find one news story about a conflict from any year. Write one sentence about the uncertainty it created for ordinary families, and one sentence about what markets might have been uncertain about. Do not make any trade.

Please explain this so an 8-year-old understands: short sentences, a fun everyday example, and no hard words.
Then give me 3 simple questions I can ask my child to check they understood, and a way to do the activity together, one tiny step at a time.
Keep it general and educational. This is not advice for a real situation.

Open Claude

Sources

Caldara and Iacoviello, "Measuring Geopolitical Risk", American Economic Review 112(4), 2022: www.aeaweb.org/articles?id=10.1257/aer.20191823
Federal Reserve Bank of Chicago, "The Cost of Uncertainty", Chicago Fed Letter No. 43, March 1991: www.chicagofed.org/publications/chicago-fed-letter/1991/march-43
US EIA, Today in Energy, Crude oil prices increased in first-half 2022 and declined in second-half 2022 (4 January 2023): www.eia.gov/todayinenergy/detail.php?id=55079
U.S. Energy Information Administration, WTI crude oil spot price (DCOILWTICO), via FRED (chart data): fred.stlouisfed.org/series/DCOILWTICO

My notes

I learned this

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