Such events do not existentially threaten one’s financial position, so they should not be considered as part of the expropriation rate for our purposes.
Could you give some sense for why you think this is the case? Naively I would have thought that a double chance of getting half your assets expropriated would be approximately as bad as losing all of them. There will be diminishing marginal utility, but surely not enough to totally neglect this issue.
According to Sandberg (n.d.)[13], nations have a 0.5% annual probability of ceasing to exist. Most institutions don’t last as long as nations, but an institution that’s designed to be long-lasting might outlast its sovereign country. So perhaps we could infer an institutional failure rate of somewhere around 0.5%.
This seems like an upper bound for what we care about. Many countries and institutions that have existed for centuries have done so at the cost of wholesale change in their values. The 21st century catholic church promotes quite different things than it did in the 11th century, and the US federal government of 2020 doesn’t have that much in common with the articles of confederation.
Similarly, organizations that avoid value drift will tend to gain power over time relative to those that don’t.
I’m not sure this is true in the sense you need it to be. Consider evolution—we haven’t seen species that have low rates of change (like sharks) come to dominate the world. They have gained power relative to proto-mammals (as the latter no longer exist) but have lost power relative to the descendants of those proto-mammals. Similarly, a human organisation that resisted memetic pressure remained true to its values will find itself competing with other organisations that do not have to pay the value-integrity costs, despite outlasting its rivals of yesteryear.
Naively I would have thought that a double chance of getting half your assets expropriated would be approximately as bad as losing all of them.
Diminishing marginal utility means these two events are pretty different. According to the standard assumption of constant relative risk aversion, losing all your assets produces -infinity utility. I don’t think this is a realistic assumption, but it’s required to make the optimal consumption problem have an analytic solution. I’ve done some rough numeric analysis where the utility function is bounded below at 0 instead of at -infinity, and based on what I’ve seen, it generally recommends about the same consumption schedule. (I only did a super preliminary analysis, so I’m not confident about this.)
Similarly, organizations that avoid value drift will tend to gain power over time relative to those that don’t.
Perhaps it would be more accurate to say that an organization that avoids value drift and also consumes its resources slowly (more slowly than r - g) will gain resources over time.
Perhaps it would be more accurate to say that an organization that avoids value drift and also consumes its resources slowly (more slowly than r - g) will gain resources over time.
To check I’m understanding, is the key mechanism here the idea that they can experience compounding returns that are greater than overall economic growth, and therefore come to control a larger portion of the world’s resources over time?
Great post, thanks very much for writing.
Could you give some sense for why you think this is the case? Naively I would have thought that a double chance of getting half your assets expropriated would be approximately as bad as losing all of them. There will be diminishing marginal utility, but surely not enough to totally neglect this issue.
This seems like an upper bound for what we care about. Many countries and institutions that have existed for centuries have done so at the cost of wholesale change in their values. The 21st century catholic church promotes quite different things than it did in the 11th century, and the US federal government of 2020 doesn’t have that much in common with the articles of confederation.
I’m not sure this is true in the sense you need it to be. Consider evolution—we haven’t seen species that have low rates of change (like sharks) come to dominate the world. They have gained power relative to proto-mammals (as the latter no longer exist) but have lost power relative to the descendants of those proto-mammals. Similarly, a human organisation that resisted memetic pressure remained true to its values will find itself competing with other organisations that do not have to pay the value-integrity costs, despite outlasting its rivals of yesteryear.
Diminishing marginal utility means these two events are pretty different. According to the standard assumption of constant relative risk aversion, losing all your assets produces -infinity utility. I don’t think this is a realistic assumption, but it’s required to make the optimal consumption problem have an analytic solution. I’ve done some rough numeric analysis where the utility function is bounded below at 0 instead of at -infinity, and based on what I’ve seen, it generally recommends about the same consumption schedule. (I only did a super preliminary analysis, so I’m not confident about this.)
Perhaps it would be more accurate to say that an organization that avoids value drift and also consumes its resources slowly (more slowly than
r - g) will gain resources over time.To check I’m understanding, is the key mechanism here the idea that they can experience compounding returns that are greater than overall economic growth, and therefore come to control a larger portion of the world’s resources over time?
That is correct.