Long Bets

LongBets.com

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The intention of Long Bets is to encourage responsibility in prediction-making (by keeping a public roster of predictions), to encourage long-term thinking (by offering an opportunity to shape a long-term bet), and to sharpen the logic of forecasting (by recording the logic of predictions and bets.)

Buffett’s bet is an ideal Long Bet. It makes a huge difference to anyone who invests in stocks (as do a large percentage of the US, either directly or indirectly) whether a boring index fund yields as much as fancy private hedge funds. The answer either way would be a huge influential signal. When economist Julian Simon won the famous bet against biologist Paul Ehrlich (Simon betting that the long-term prices of commodity minerals would decrease over ten years; Ehrlich betting they would increase), his win essentially eradicated the argument of resource scarcity from the environmental debate. Environmentalists then shifted their concern to the many other issues needed to foster a healthy environment.

Wikipedia has an interesting article on that last wager mentioned, including analysis on why Ehrlich lost. The main gist of the analysis is that the bet was in economic terms and scarcity leads to price changes only indirectly. There is no question that resources become scarce, but we really sit on deep pools of long-term elasticity, where any long term increase in price pressure pulls miracles out of the pool. For example, public discussion about oil scarcity today is phrased in strange terms – people generally do not mention the vast amounts of more expensive oil which remain untapped, and “oil running out” actually means “oil at today’s prices running out”.

A biologist positing a theory which violates a law of physics is just plain wrong, because the rules of physics exist at a higher level of rigor. Granted this is a rare situation, because biological phenomena are usually too hard to capture in physics terminology, but when it does happen the victor is certain.

The followup: just how fundamental is economics? Sure, it may be based on expired physics concepts, and sometimes takes its assumptions way too seriously, but when compared to most populist ideas like “eating less meat because it is better for the environment”, if conflicts between the two arise, I’d lean heavily towards the economics approach. In this case, I will agree with efforts to price in the externalities of meat, but not be willing to take individual action otherwise since I really enjoy eating meat and highly doubt that it is so bad for the environment that abstaining would be profitable overall.

HT: MR

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