One of the weird perks about being an economist is that acquaintances often want to tell me their investment strategies, and then that conversation weirdly turns into a deep dive into that acquaintance's psyche (thread (1/7))
One acquaintance told me he was putting his money into gold bars because he believed the economy would collapse under a Trump presidency. He didn’t trust the US government to even remain solvent, so he was holding his gold bars in Southeast Asia. (2/7)
One acquaintance told me he was putting his money in diamonds. He didn’t trust the Fed, but also thought that gold was overvalued. (I told him about Debeers and how the value of a diamond is mostly tied to an artificially restricted supply, but he was unswayed) (3/7)
Many have told me about their investments in cryptocurrencies. Sometimes it seems to be driven by a distrust in the Fed. Sometimes it seems to be driven by a belief the dollar is antiquated and crypto currencies are part of our inevitable techno-futurist destiny. (4/7)
Economics teaches us that the best investment strategy is to maximize expected utility. In layman’s terms: you should assume the most likely future will happen, and you have the best return in that future, but also make sure you are doing OK if an unlikely future occurs. (5/7)
But a lot of people I talk to fixate on being the best off in a very unlikely future. And I think that’s because a lot of people aren’t driven by absolute returns but returns relative to everyone else, i.e., status. (6/7)
And that makes investment strategies where you are the best off in a very unlikely future really attractive because you can fantasize about that unlikely future where you are on-top even if it never materializes. (7/7)
Addendum: I think this desire for status is also what's behind the psychology of preppers (people who prepare for an apocalypse). Even though everyone would be worse off in an apocalypse there is something intoxicating about being the most relatively well off during an apocalypse
