Great post! This is a fascinating argument and makes me think quite a bit.
A couple of tests pitting EMH against mortality risk since nuclear war would have similar ramifications (with a similar amount of uncertainty given that it occurs!)
What happened to bond prices during the Cuban missile crisis? How complete did the public think nuclear war would annihilate society? Was nuclear winter a thing? You can make the argument that the public thought P(death) per year rose from ~2% to 20%-50%? What would this theory suggest happen to bond prices?
What about following the collapse of Soviet Union? After settling down, this arguably lowered the probability of nuclear war by 1%/year. That gives us (1- pbinom(0, 30, .01)) = 26% reduction of existential risk over 30 years. Should still be measurable in long-term treasury rates.
Great post! This is a fascinating argument and makes me think quite a bit.
A couple of tests pitting EMH against mortality risk since nuclear war would have similar ramifications (with a similar amount of uncertainty given that it occurs!)
What happened to bond prices during the Cuban missile crisis? How complete did the public think nuclear war would annihilate society? Was nuclear winter a thing? You can make the argument that the public thought P(death) per year rose from ~2% to 20%-50%? What would this theory suggest happen to bond prices?
What about following the collapse of Soviet Union? After settling down, this arguably lowered the probability of nuclear war by 1%/year. That gives us (1- pbinom(0, 30, .01)) = 26% reduction of existential risk over 30 years. Should still be measurable in long-term treasury rates.