Marty Weitzman on the equity premium

by John Quiggin on August 15, 2004

Brad de Long points to a piece on the equity premium by Marty Weitzman and says,

Marty Weitzman is smarter than I am …This is brilliant. I should have seen this. I should have seen this sixteen years ago. I *almost* saw this sixteen years ago.

Weitzman’s idea[1] is the replace the sample distributions of returns on equity and debt with reasonable Bayesian subjective distributions. These have much fatter tails, allowing for a higher risk premium, lower risk free rate and higher volatility, in the context of a socially optimal market outcome. Here are some of the reasons why this is important

My immediate reaction is the same as Brad’s. Something like this has occurred to me too, but I’ve never thought hard enough or cleverly enough about it how to work it out properly. This is a very impressive achievement, and Marty Weitzman is very, very smart (which we already knew).

[click to continue…]

Conferencing

by Kieran Healy on August 15, 2004

I don’t know when “conferencing” became a verb, but I guess I’m doing it all the same. I’m at the “ASA Meetings”:http://www.asanet.org/convention/2004/ in San Francisco, where the keynote speakers include well-known sociologist Paul Krugman. I’m off to the Economic Sociology Section reception soon, but I am nevertheless tempted by the Section on Alcohol Drugs and Tobacco reception. Meanwhile, the “storm damage in Florida”:http://www.nytimes.com/2004/08/15/national/15STOR.final.html?hp reminds me of the answer to “the stupidest question in the world”:https://www.crookedtimber.org/archives/000538.html.