How to bet on bad futures
By Garett Jones
How can these prophets of doom cash in on their confidence? After all, they think that the state of the world where they’re proven right is a state of the world where nobody can reward them for being right. Aside from the self-congratulation, how can they benefit?
By signing a contract right now. If you’re reasonably sure Treasuries will be worthless in a dozen years, you should find somebody who disagrees, and convince them to give you $1 today. If you’re right, then 12 years later you get to keep the money. If you’re wrong, you have to pay the other party the normal rate of return on the $1, plus a little extra. $2 should be plenty if you can back the contract with some collateral; maybe $4 otherwise.
Notice what you’re doing here: You’re writing an uninsurance policy. You get the premiums up front, and you pay out only if things turn out fine. Since the other party is pretty sure things will turn out fine, the deal you’re offering from their point of view is about the same as any other investment. That’s why you only have to offer about the normal rate of return.
The hard part here, of course, is convincing the other party you’ll repay in the future–your barrier to riches isn’t the apocalypse, it’s your own trustworthiness. That’s where attorneys and insurance companies come in. Lloyd’s is happy to offer hole-in-one insurance, so the industry has no problem writing policies that pay out upon joyous events.
With some work, a person should be able to write uninsurance policies up to the value of their net worth (higher in some counties than others). For those confident of disaster, this is money right there on the sidewalk–and they should pick it up before disaster strikes.
Let’s hope that every one of these uninsurance policies pays off.