Here’s another way of putting things, that I’ll post here for reference:
Suppose I think Google is undervalued, because it is going to have a $1T dividend in 2030, and the market doesn’t realize this.
1. I buy Google today at some cheap price.
2. Possibility 1: before 2030, the market “corrects” and realizes that it was undervaluing Google. The stock price rises, and I receive capital gains.
3. Possibility 2: the market does not “correct” before 2030. I still get the big dividend in 2030, and was able to get it for a cheap price in 2023.
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The above seems exactly analogous to the case with existential risk.
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Suppose I think bonds are overvalued, because in 2030 the world is going to blow up.
1. I short real rates today.
2. Possibility 1: before 2030, the market “corrects” and realizes that it was overvaluing bonds. Rates rise, and I receive capital gains.
3. Possibility 2: the market does not “correct” before 2030. I still was able to take out a cheap loan in 2023 (i.e. by selling short bonds), and don’t have to pay it off in 2030 when the world ends.
Here’s another way of putting things, that I’ll post here for reference:
Suppose I think Google is undervalued, because it is going to have a $1T dividend in 2030, and the market doesn’t realize this.
1. I buy Google today at some cheap price.
2. Possibility 1: before 2030, the market “corrects” and realizes that it was undervaluing Google. The stock price rises, and I receive capital gains.
3. Possibility 2: the market does not “correct” before 2030. I still get the big dividend in 2030, and was able to get it for a cheap price in 2023.
---
The above seems exactly analogous to the case with existential risk.
---
Suppose I think bonds are overvalued, because in 2030 the world is going to blow up.
1. I short real rates today.
2. Possibility 1: before 2030, the market “corrects” and realizes that it was overvaluing bonds. Rates rise, and I receive capital gains.
3. Possibility 2: the market does not “correct” before 2030. I still was able to take out a cheap loan in 2023 (i.e. by selling short bonds), and don’t have to pay it off in 2030 when the world ends.