The New Financial Order: Risk in the 21st Century

  • “What kind of world, in the broad picture, we would like to live in if we could choose before we were born, assuming we had an equal probability of being born as anyone.”
  • Six ideas:
    1. Livelihood insurance
    2. Macro markets — claims on national incomes, real estate
    3. Income-linked loans
    4. Inequality insurance — make actual after-tax Lorenz curve equal to a legislated one ( = fix the Gini coeff)
    5. Intergenerational social security
    6. International agreements
  • Framing experiment:
    • Psych. student calls random people asking for willingness to collect money for the American Cancer Society.
    • 48% agree
    • Three days later representative of the society calls the same people: 31% of the ones questioned originally agree
    • 4% of a random sample agree
  • Macro securities (also see Longitude Inc. and parimutuel betting )
    • in pairs: “up macro” (price goes up when index goes down) & “down macro” (price goes down when index goes up)
    • cash account for each security, adjusted according to some index by reallocating across accounts
    • each macro pays dividends equal to interest on its cash account
    • example:
      1. index starts at 100, account for both up & down macro credited with $100.
      2. if index rises to 102, the custodian takes $2 from the down macro account and adds it to the up macro account
    • for real estate see Weiss Residential Research
  • Morals & Markets
  • Risk Identification — Indexes + Data
  • Cluster analysis to find groups of jobs that are similar to one another in terms of risks.

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