Abstract
No matter what it is that people want, it sometimes seems that there is inevitably a market for it. Got an old cell phone you want to unload but don’t want to haggle? Done . Interested in a paternity test but don’t want to go to a doctor to get one? Get it from the paternity testing truck . Got a rambunctious cat but are too frail or otherwise unwilling to corral it yourself? There is someone in New York who will, for a fee of course, do it for you. So perhaps we should not be surprised that there are extensive markets that allow people to engage in trade across time. Such markets, which are among the oldest in continuous existence, sprout up because people with different goals in certain circumstances find it worthwhile to forgo using their resources now or to acquire the use of resources now that they don’t currently possess. To understand how some of these markets function, this chapter discusses the ideas of investment, trading across time, attitudes of individuals toward risk, and the markets that these opportunities and attitudes generate.
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4In general, if an event has two possible outcomes with monetary outcomes A and B, the expected value of the event is p A A + p B B. In the example here, A is +100 and B is –100, whereas p A = p B = 1/2. A one-third chance of winning $200 and a two-thirds chance of losing $100 would also be a fair bet.
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5Ironically, as the number of flips goes up the chances of getting exactly 50% heads goes down. The chance of getting exactly 50% with only one flip is one in two, whereas the chance of getting exactly 500 heads in 1,000 flips is very small. However, the chance of getting less than 25% heads or less than 25% tails with 500 flips is also very small, and the chances of getting somewhere between 480 and 520 heads is fairly high.
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6Not always of course; many entrepreneurs already possess wealth from prior business ventures, and many employees, for reasons of highly specific human capital or generally depressed economic conditions, may actually have very poor alternatives to their current job.
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© 2013 Evan Osborne
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Osborne, E. (2013). Time and Risk. In: Reasonably Simple Economics. Apress, Berkeley, CA. https://doi.org/10.1007/978-1-4302-5942-8_8
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DOI: https://doi.org/10.1007/978-1-4302-5942-8_8
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Publisher Name: Apress, Berkeley, CA
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Online ISBN: 978-1-4302-5942-8
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