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CronoDAS comments on Post ridiculous munchkin ideas! - Less Wrong
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I have a horrible thought.
Most (legally acquired) debts are dischargeable in bankruptcy. That puts a floor on the amount of money one can lose. If your net worth is "almost nothing" and you can find suckers, er, I mean, organizations with loose standards that are willing to lend you money, then the expected utility of risky bets changes in a way that favors you - because going bankrupt while owing $10,000 isn't much different than going bankrupt while owing $500,000. Of course, going bankrupt is still pretty bad either way, but the upside of winning a risky, highly leveraged bet can also be correspondingly large...
Personally, I don't think this is a good idea and is probably unethical anyway, but it is the kind of crazy thing a certain kind of munchkin would do...
This is called moral hazard. If the "suckers" who loaned you the money are "too big to fail" and in turn need bailing out, it is a form of negative externality.
Plenty of examples here in the recent financial crisis...
Indeed it is!
Compare strategic default.
Where are you going to find someone stupid enough to lend you $500k without assets and income? There are door to door lenders but they charge very high fees (though not nearly as much as pay day lenders) and lend relatively small amounts partially because of the risk of someone without much to lose doing this sort of strategy.
Well you become a NINJA. Probably a bit hard to get one now, but you could always wait for the next bubble...
Scary munchkin ideas are obviously absurd, until they happen.
If you don't have any collateral and someone loan's you $500,000 it's partly their problem for engaging in the loan.
Mitt Romney made the vast majority of his money doing this. He'd buy a company cheaply that has a lot of debt (in particular, pension obligations). He'd then jump the queue for getting paid out and shaft all the other debt holders (in particular, pensioners).
Sure, but it's a way to sell a small part of your soul for lots of money. You can then do an arbitrage operation, by using that money to buy lots of cheap soul, e.g. through efficient charity.
I thought this was what 90% of the economy is made of almost everyone doing?
If you think it is unethical you shouldn't post it.
Whether it's unethical would seem to me to depend on who you are raising the money from and what they perceive the rules of the game to be. From my perspective, doing the submissive, 'morally cautious', un-winning thing rather than the game theoretical thing is unethical.
You'll hurt your credit rating, right? Which makes it harder to find places to rent, 'cause landlords will want to know your credit rating. And of course, harder to get credit cards, auto loans, mortgages.
Yes, of course. If your risky bet doesn't pay off, you're screwed - but there's a limit to how screwed you can get.
See also: voluntary homelessness.
IME the likelihood of success in risky ventures decreases faster than benefits increase.
I knew someone who did this: bought large amounts of jewelry-making and other crafting supplies on credit, went bankrupt, and then made a living by using the supplies. It feels like theft to me.