The version that sort of works are “existence futures” (that’s not the standard name, unless I happened to reinvent it). Eli pays someone $1 now, and that person pays Eli $N dollars in M years. N is a combination of the interest rate and the person’s belief that they and Eli will still exist in M years. If I think there’s a 50% chance that the world will end at the start of 2016, and Eli thinks the chance is 0%, both of us would see a deal where he gives me a dollar now and I give him $1.50 on Feb 1st as profitable.
The trouble with them is that if I really think the world is likely to end on Jan 1st, I’m probably making a host of similar decisions that make it unlikely that I’ll actually be able to repay him on Feb—if I’m selling everything and playing video games until the world ends, then when the world doesn’t end, where is the money going to come from to repay Eli?
Right, but the only way this makes sense for Eli is if he’s paying me less money now than I’ll pay him in the future, and the only way it makes sense for me is if I get to spend the money before the world ends. If I have to put $1.50 into escrow in order to get access to $1, then I’m losing money, not getting it.
You might be able to get it to work with durable assets—if I want to use my car and house up until the world ending, then I can ask Eli to pay me for them now in order to get them after I think the world will end. But it’s not clear this works out any better for the endtimer than taking out a standard 30-year loan that they don’t expect to have to repay.
The version that sort of works are “existence futures” (that’s not the standard name, unless I happened to reinvent it). Eli pays someone $1 now, and that person pays Eli $N dollars in M years. N is a combination of the interest rate and the person’s belief that they and Eli will still exist in M years. If I think there’s a 50% chance that the world will end at the start of 2016, and Eli thinks the chance is 0%, both of us would see a deal where he gives me a dollar now and I give him $1.50 on Feb 1st as profitable.
The trouble with them is that if I really think the world is likely to end on Jan 1st, I’m probably making a host of similar decisions that make it unlikely that I’ll actually be able to repay him on Feb—if I’m selling everything and playing video games until the world ends, then when the world doesn’t end, where is the money going to come from to repay Eli?
The usual answer is escrow.
Right, but the only way this makes sense for Eli is if he’s paying me less money now than I’ll pay him in the future, and the only way it makes sense for me is if I get to spend the money before the world ends. If I have to put $1.50 into escrow in order to get access to $1, then I’m losing money, not getting it.
You might be able to get it to work with durable assets—if I want to use my car and house up until the world ending, then I can ask Eli to pay me for them now in order to get them after I think the world will end. But it’s not clear this works out any better for the endtimer than taking out a standard 30-year loan that they don’t expect to have to repay.
I see. Yes, you point out a valid problem.