Better lucky than good: The Simon-Ehrlich bet through the lens of financial economics

Ross Emmett and Jesse Grabowski
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Jesse Grabowski: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: In 1980, Julian Simon and Paul Ehrlich bet on the future of natural resource prices as a vehicle for their public debate about mankind's future. Simon ultimately won, and his victory has been used as evidence that innovation can offset material scarcity induced by human economic activity. But does the outcome of the bet truly suggest this? We recast the bet as a short-sale by Simon of Ehrlich's portfolio of assets, allowing us to carefully analyze the choices made in the bet, including the resources chosen and their amounts and the period of the bet, conditioned on the information available to each man in 1980. We also investigate the role of randomness in the outcome of the bet. We find that, with careful portfolio construction, Ehrlich should win this bet more often than not, validating the age-old adage that it's better to be lucky than good.

Date: 2022-03
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Published in Ecological Economics, 2022, 193, pp.107322. ⟨10.1016/j.ecolecon.2021.107322⟩

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Journal Article: Better lucky than good: The Simon-Ehrlich bet through the lens of financial economics (2022)
Working Paper: Better lucky than good: The Simon-Ehrlich bet through the lens of financial economics (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04085159

DOI: 10.1016/j.ecolecon.2021.107322

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