Simon–Ehrlich wager

The Simon-Ehrlich Wager describes a 1980 scientific wager between business professor Julian L. Simon and biologist Paul Ehrlich, betting on a mutually agreed-upon measure of resource scarcity over the decade leading up to 1990. The widely-followed contest originated in the pages of Social Science Quarterly, where Simon challenged Ehrlich to put his money where his mouth was. In response to Ehrlich's published claim that "If I were a gambler, I would take even money that England will not exist in the year 2000"—a proposition Simon regarded as too silly to bother with—Simon countered with "a public offer to stake US$10,000 ... on my belief that the cost of non-government-controlled raw materials (including grain and oil) will not rise in the long run."

Simon challenged Ehrlich to choose any raw material he wanted and a date more than a year away, and he would wager on the inflation-adjusted prices decreasing as opposed to increasing. Ehrlich chose copper, chromium, nickel, tin, and tungsten. The bet was formalized on September 29, 1980, with September 29, 1990 as the payoff date. Ehrlich lost the bet, as all five commodities that were bet on declined in price from 1980 through 1990, the wager period.[1]

Background

In 1968, Ehrlich published The Population Bomb, which argued that mankind was facing a demographic catastrophe with the rate of population growth quickly outstripping growth in the supply of food and resources. Simon was highly skeptical of such claims, so proposed a wager, telling Ehrlich to select any raw material he wanted and select "any date more than a year away," and Simon would bet that the commodity's price on that date would be lower than what it was at the time of the wager.

Ehrlich and his colleagues picked five metals that they thought would undergo big price increases: chromium, copper, nickel, tin, and tungsten. Then, on paper, they bought $200 worth of each, for a total bet of $1,000, using the prices on September 29, 1980, as an index. They designated September 29, 1990, 10 years hence, as the payoff date. If the inflation-adjusted prices of the various metals rose in the interim, Simon would pay Ehrlich the combined difference. If the prices fell, Ehrlich et al. would pay Simon.

Between 1980 and 1990, the world's population grew by more than 800 million, the largest increase in one decade in all of history. But by September 1990, the price of each of Ehrlich's selected metals had fallen. Chromium, which had sold for $3.90 a pound in 1980, was down to $3.70 in 1990. Tin, which was $8.72 a pound in 1980, was down to $3.88 a decade later.[2]

As a result, in October 1990, Paul Ehrlich mailed Julian Simon a check for $576.07 to settle the wager in Simon's favor.

Analysis

Julian Simon won because the price of three of the five metals went down in nominal terms and all five of the metals fell in price in inflation-adjusted terms, with both tin and tungsten falling by more than half.[3][4] In his book Betrayal of Science and Reason, Ehrlich wrote that Simon "[asserted] that humanity would never run out of anything". Ehrlich added that he and fellow fellow scientists viewed renewable resources as more important indicators of the state of planet Earth, but that he decided to go along with the bet anyway.[3] Afterward, Simon offered to raise the wager to $20,000 and to use any resources at any time that Ehrlich preferred. Ehrlich countered with a challenge to bet that temperatures would increase in the future.[3] The two were unable to reach an agreement on the terms of a second wager before Simon died.

Ehrlich could have won if the bet had been for a different ten-year period.[5][6][7] Ehrlich wrote that the five metals in question had increased in price between the years 1950 to 1975.[3] Asset manager Jeremy Grantham wrote that if the Simon–Ehrlich wager had been for a longer period (from 1980 to 2011), then Simon would have lost on four of the five metals. He also noted that if the wager had been expanded to "all of the most important commodities," instead of just five metals, over that longer period of 1980 to 2011, then Simon would have lost "by a lot." [7] Economist Mark J. Perry noted that for an even longer period of time, from 1934 to 2013, the inflation-adjusted price of the Dow Jones-AIG Commodity Index showed "an overall significant downward trend" and concluded that Simon was "more right than lucky".[8] Economist Tim Worstall wrote that "The end result of all of this is that yes, it is true that Ehrlich could have, would have, won the bet depending upon the starting date. ... But the long term trend for metals at least is downwards."[6]

Aftermath

The price of raw and other natural commodities such as oil, gold, and uranium have risen substantially in recent years, due to increased demand from China, India, and other industrializing countries. However, Simon has argued that this price increase is not necessarily contrary to his cornucopian theory.[9] Ehrlich has dismissed the bet as a side issue and stated that the main worry is environmental problems like the ozone hole, acid rain, and global warming.[10]

The proposed second wager

Understanding that Simon wanted to bet again, Ehrlich and climatologist Stephen Schneider counter-offered, challenging Simon to bet on 15 current trends, betting $1000 that each will get worse (as in the previous wager) over a ten-year future period.[3]

The trends they bet would continue to worsen were:

Simon declined Ehrlich and Schneider's offer to bet, and used the following analogy to explain why he did so:[11]

Let me characterize their offer as follows. I predict, and this is for real, that the average performances in the next Olympics will be better than those in the last Olympics. On average, the performances have gotten better, Olympics to Olympics, for a variety of reasons. What Ehrlich and others says is that they don't want to bet on athletic performances, they want to bet on the conditions of the track, or the weather, or the officials, or any other such indirect measure.

Other wagers

In 1996, Simon bet $1000 with David South, professor of the Auburn University School of Forestry, that the inflation-adjusted price of timber would decrease in the following five years. Simon paid out early on the bet in 1997 (before his death in 1998) based on his expectation that prices would remain above 1996 levels (which they did).[12]

In 1999, when The Economist headlined an article entitled, "$5 a barrel oil soon?" and with oil trading in the $12/barrel range, David South offered $1000 to any economist who would bet with him that the price of oil would be greater than $12/barrel in 2010. No economist took him up on the offer. However, in October 2000, Zagros Madjd-Sadjadi, an economist with The University of the West Indies, bet $1000 with David South that the inflation-adjusted price of oil would decrease to an inflation-adjusted price of $25 by 2010 (down from what was then $30/barrel). Madjd-Sadjadi paid South an inflation-adjusted $1,242 in January 2010. The price of oil at the time was $81/barrel.[13]

See also

References

  1. ↑ Gorelick, Steven M. (2009). Oil Panic and the Global Crisis: Predictions and Myths. Wiley-Blackwell. p. 104. ISBN 978-1405195485.
  2. ↑ Regis, Ed (February 1997). "The Doomslayer". Wired.com (Issue 5.02). Archived from the original on 2008-05-18. Retrieved 2008-05-18.
  3. 1 2 3 4 5 Ehrlich, Paul; Ehrlich, Anne (1998). Betrayal of Science and Reason: How Anti-Environmental Rhetoric Threatens Our Future. pp. 100–104. ISBN 978-1610912501.
  4. ↑ Archived July 3, 2007, at the Wayback Machine.
  5. ↑ Sabin, Paul (September 7, 2013). "Betting on the Apocalypse". Retrieved 24 October 2013.
  6. 1 2 Worstall, Tim (2013-01-13). "But Why Did Julian Simon Win The Paul Ehrlich Bet?". Forbes. Retrieved 24 October 2013.
  7. 1 2 Grantham, Jeremy (July 2011), "Resource Limitations 2: Separating the Dangerous from the Merely Serious" (PDF), GMO Quarterly Letter, GMO LLC, p. 12, retrieved 2013-06-05
  8. ↑ Perry, Mark J. (January 12, 2013). "Julian Simon: Still more right than lucky in 2013". American Enterprise Institute. Retrieved April 28, 2017.
  9. ↑ Simon, Julian (1996). The State of Humanity. Wiley–Blackwell. p. 24. ISBN 978-1-55786-585-4.
  10. ↑ John Tierney (December 2, 1990). "Betting on the Planet". The New York Times Magazine.
  11. ↑ http://jasoncollins.org/2011/05/20/the-simon-ehrlich-bet/
  12. ↑ "The Simon South Bet On Pine Sawtimber". Forestry.auburn.edu. 1998-02-08. Retrieved 2009-09-07.
  13. ↑ "The Madjd-Sadjadi South Bet On Oil". Forestry.auburn.edu. 2010-01-31. Retrieved 2012-01-29.

Further reading

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