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[link] Betting on bad futures
Garett Jones, an economist at George Mason University and guest blogger for EconLog, suggests a way for people to bet on apocalyptic events:
http://econlog.econlib.org/archives/2012/09/how_to_bet_on_b.html
The basic idea:
Suppose Alice and Bob disagree on whether the world will end a year from tomorrow, with Alice believing it will end. If she is right, then there will be no way to settle the bet, what with the apocalypse and all that. Thus there is no way for her to collect, and so she has no incentive to bet on the apocalypse, no matter how certain she is.
Or so it would seem! The way around the difficulty is simply for Alice to get her money today, and enjoy it for a year. If she turns out to have been right, then she will have been paid properly. If the world doesn't end, then of course she'll have to return the money, plus interest--plus a penalty for being wrong.
The actual terms should depend on the confidence Alice and Bob place in their respective positions.
Personal note: Several people at my place of work have told me that they are worried about the world ending later this year. They saw a movie about it, or something. So far, they have rejected my bet proposals.
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Comments (19)
Yet another example of the Sequences plagiarizing the future
Robin Hanson kinda killed it here:
http://lesswrong.com/lw/ie/the_apocalypse_bet/ekw
Did Jones answer Hanson's objection? Rereading, it seems a bit knockdown, and past-EY's attempts to evade it seem like past-EY was updating too slowly, I shoulda just said "Oops."
The first commenter on Jones' post linked to that, too; I had somehow never read that post of EY's before.
That was me. No reply though.
I am going to use this sentence.
Alice, believing that the world will end, will spend all her money by her predicted end-of-the-world date. She will then be unable to pay back. Bob, knowing this, would never lend her the money.
Alice will still have the human capital, in theory, to pay Bob back, though bankruptcy is an issue.
What do you mean by human capital? I imagine it involves the selling of humans in some form or other. Am I misunderstanding?
Human capital is training, skills, knowledge, etc. Essentially, the idea involves Alice then working to pay off her debts.
Ah, okay. Thank you; I'd heard it before, but for some reason this time only illicit activities came to mind.
Human capital:
http://en.wikipedia.org/wiki/Human_capital
http://www.econlib.org/library/Enc/HumanCapital.html
http://www.investopedia.com/terms/h/humancapital.asp
Alice secures the loan with collateral. At the end of the loan, Bob keeps the collateral.
But then Alice would like just as much to sell the collateral and not take part in the bet.
As I pointed out on the original post, if the collateral is something like a house, you can have your loan and live in it too.
Only assuming the collateral has no value. I wasn't saying that Bob should take possession immediately, just a lien and/or the title.
So... the way to bet that the world will end soon is to take out loans, and the way to bet that it won't end soon is to issue them.
Hooray, the world finally set up a mainstream prediction market!
I would not say that betting on the apocalypse is mainstream...yet.
Related: After the Rapture pet care
The problem with this is that believing in a next-year doom is evidence that the person can't be trusted to lend them money.