This is very helpful.
Might you have a rough estimate for how much the bar has gone up in expected value?
E.g. is the marginal grant now 2x, 3x etc. higher impact than before?
Hey, I missed the lottery this year. Do you know when the next one will be?
Is this also the only one running in EA right now? Does it replace the one run by the EA Funds in the past?
That makes sense. It just means you should decrease your exposure to bonds, and not necc buy more equities.
I'm skeptical you'd end up with a big bond short though - due to my other comment. (Unless you think timelines are significantly shorter or the market will re-rate very soon.)
I think the standard asset pricing logic would be: there is one optimal portfolio, and you want to lever that up or down depending on your risk tolerance and how risky that portfolio is.
In the merton's share, your exposure depends on (i) expected returns of the optimal portfolio (ii) volatility / risk (iii) the risk free rate over your investment horizon and (iv) your risk aversion.
You're arguing the risk free rate will be higher, which reduces exposure.
It seems like the possibility of an AI boom will also increase future volatility, also reducing exposure.
Then finally there's the question of expected returns of the optimal portfolio, which you seem to think is ambiguous.
So it seems like the expected effect would be to reduce exposure.
Sorry for making you repeat yourself, I'd read the appendix and the Cochrane post :)
To summarise, the effect on equities seems ambiguous to you, but it's clearly negative on bonds, so investors would likely tilt towards equities.
In addition, the sharpe ratio of the optimal portfolio is decreased (since one of the main asset classes is worse), while the expected risk-free rate over your horizon is increased, so that would also imply taking less total exposure to risk assets.
What do you think of that implication?
One additional piece of caution is that within investing, I'm pretty sure the normal assumption is that growth shocks are good for equities e.g. you can see the Chapter in Expected Returns by Anti Ilmanen on the growth factor, or read about risk parity. There have been attempts to correlate the returns of different assets to changes in growth expectations.
On the other hand, I would guess theta is above one for the average investor.
What effect do you think an AI boom would have on inflation?
It seems like it would be deflationary, since it would drive down the cost of goods and labour, though it might cause inflation in finite resources like commodities and land, so perhaps the net effect could go either way?
(I partly ask because a common framework in investing for thinking about the what drives asset prices is to break it into growth shocks, inflation shocks, changes in investor risk appetite and changes in interest rate policy. If AI will cause a growth shock and deflation shock, then normally that would be seen as positive for equities, ambiguous for real assets and nominal bonds, and negative for TIPs.)
I think we should go back to having a community tab.
The default front page would be for discussing how to actually use our resources to do the most good (i.e. a focus on the intellectual project of EA and object level questions).
All posts about the nature of EA as the particular group of people trying to work together would go in community. This would include criticisms of EA as a community (while criticisms of specific ways of doing good would go on the front page). It could also include org updates etc.
I think the key point is just equities will also go down if real interest rates rise (all else equal) and plausibly by more than a 20 year bond.
Just a quick addition that I think there's been too much focus on VCs in these discussions. FTX was initially aimed as a platform for professional crypto traders. If FTX went down, these traders using the platform stood to lose a large fraction of their capital, and if they'd taken external money, to go out of business. So I think they did have very large incentives to understand the downside risks (unlike VCs who are mainly concerned with potential upside).
Yeah I agree that the AGI could also make you want to save more. One factor is that higher interest rates can mean it's better to save more (depending on your risk aversion). Another factor is that it could increase your lifespan, or make it easier to convert money into utility (making your utility function more linear). That it could reduce the value of your future income from labour is another factor.