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

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 d...

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Bibliographic Details
Published in:Ecological economics 2022-03, Vol.193, p.107322, Article 107322
Main Authors: Emmett, Ross B., Grabowski, Jesse
Format: Article
Language:English
Subjects:
Asset Allocation
Economics and Finance
Humanities and Social Sciences
Julian Simon
Non-renewable resource prices
Paul Ehrlich
Portfolio Performance
Portfolio Selection
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Summary: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. •Julian Simon would have lost the majority of 10-year bets on resource prices over the 20th century.•Paul Ehrlich could have won the bet by more carefully constructing his portfolio of resources.•The outcome of the bet does not reflect the reality of trends in resource prices.
ISSN:0921-8009
1873-6106
DOI:10.1016/j.ecolecon.2021.107322