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Rik Keating
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Good article, and agree that the lack of private sector (rent seeking?) incentives do inhibit financial innovation for socially useful markets such as GDP linked bonds and house price futures. However I think there are potentially some positive things to say in respect of the crypto space here. Although we're still at pretty early days in terms of the technology / adoption, I think there's reason to be optimistic that these could actually spawn useful innovation. A couple of examples: firstly - remittances. With more widespread adoption / increased internet access, it's conceivable that FX / remittance fees could be cut considerably versus current levels. There's already some evidence of this with Bitcoin, but the volatility / convertibility issues limit this currently. Still, this seems to be more of a technical issue as opposed to a binding constraint (think of a well regulated stablecoin for example) and considering the scale of global remittances (World Bank estimates $551B in 2019), this is potentially a big win. Secondly - smart contracts hosted on the blockchain (eg those that currently exist on Ethereum). These already allow for pretty specific events to be hedged / speculated on (eg will Donald Trump be declared the eventual winner of the 2020 election / will 2020 GDP be above x%). These are still pretty early stage markets, and there are important technical issues to be ironed out (eg the Oracle problem), but these don't seem insurmountable considering the potential gains. The question / extent of government involvement is a tough one though...
Interesting stuff, as always. Although the Scientific American article (linked to on 'hot') is actually proving the existence of a hot-hand and so is a direct rebuke to Tversky and Kahneman? Dunno if the same reasoning would extend to unit trusts though...
Toggle Commented Jul 3, 2020 on What football teaches us at Stumbling and Mumbling
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Jul 3, 2020