Thanks Harrison! Indeed, the “holding the bag” problem is what removes the incentive to “short the world”, compared to any other short positions you may wish to take in the market (which also have a timing problem—the market can stay irrational even if you’re right—but where there is at least a market mechanism creating incentives for the market to self-correct. The “holding the bag” problem removes this self-correction incentive, so the only way to beat the market is to consume more, and so a few investors won’t unilaterally change the market price
Thanks Harrison! Indeed, the “holding the bag” problem is what removes the incentive to “short the world”, compared to any other short positions you may wish to take in the market (which also have a timing problem—the market can stay irrational even if you’re right—but where there is at least a market mechanism creating incentives for the market to self-correct. The “holding the bag” problem removes this self-correction incentive, so the only way to beat the market is to consume more, and so a few investors won’t unilaterally change the market price