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

Author

Listed:
  • Ross Emmett

    (ASU - Arizona State University [Tempe])

  • Jesse Grabowski

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Ross Emmett & Jesse Grabowski, 2022. "Better lucky than good: The Simon-Ehrlich bet through the lens of financial economics," Post-Print hal-04085159, HAL.
    • Handle: RePEc:hal:journl:hal-04085159
    DOI: 10.1016/j.ecolecon.2021.107322
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    References listed on IDEAS

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    Cited by:

    1. Vicknair, David & Tansey, Michael & O'Brien, Thomas E., 2022. "Measuring fossil fuel reserves: A simulation and review of the U.S. Securities and Exchange Commission approach," Resources Policy, Elsevier, vol. 79(C).

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    More about this item

    JEL classification:

    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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