Apocalyptic thinking appears to have no place in the world of money. For if the doomsday predictions are fulfilled and the world does come to an end, then all the money in the world — even if it be in the form of gold coins or pieces of silver, stored in a locked chest in the most remote corner of the planet — would prove of no value, because there would be nothing left to buy or sell. Apocalyptic investors will miss great opportunities if there is no apocalypse, but ultimately they will end up with nothing when the apocalypse arrives. Heads or tails, they lose. …A mutual fund manager might not benefit from reflecting about the danger of thermonuclear war, since in that future world there would be no mutual funds and no mutual fund managers left. Because it is not profitable to think about one ’s death, it is more useful to act as though one will live forever.
Since it is not profitable to contemplate the end of civilization, this distorts market prices. Instead of telling us about the objective probabilities of how things will play out, prices are based on probabilities adjusted by the anthropic logic of ignoring doomed scenarios:
Let us assume that, in the event of [the project of civilization being broadly successful], a given business would be worth $ 100/share, but that there is only an intermediate chance (say 1:10) of that successful outcome. The other case is too terrible to consider. Theoretically, the share should be worth $ 10, but in every world where investors survive, it will be worth $100. Would it make sense to pay more than $10, and indeed any price up to $100? Whether in hope or desperation, the perceived lack of alternatives may push valuations to much greater extremes than in nonapocalyptic times.
None other than Peter Thiel wrote a huge essay about investing while under anthropic shadow, and I wrote a post analyzing said essay! It is interesting, although pretty abstract in a way that probably makes it more relevant to organizations like OpenPhilanthropy than to most private individuals. Some quotes from Thiel’s essay:
Since it is not profitable to contemplate the end of civilization, this distorts market prices. Instead of telling us about the objective probabilities of how things will play out, prices are based on probabilities adjusted by the anthropic logic of ignoring doomed scenarios:
See my post for more.