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

Ross B. Emmett, Jesse Grabowski

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Article number107322
JournalEcological Economics
Volume193
DOIs
StatePublished - Mar 2022

Keywords

  • Asset Allocation
  • Julian Simon
  • Non-renewable resource prices
  • Paul Ehrlich
  • Portfolio Performance
  • Portfolio Selection

ASJC Scopus subject areas

  • Environmental Science(all)
  • Economics and Econometrics

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