Sep
30th
Tue
30th
The inequality in these fields, where incomes have a power law distribution, is not bug, it’s a feature. The presence of superstars, whose income and status is so high, is the offsetting basis of the dreams for those in the industry, why they are willing to accept less ‘on average’. In dreams without such opportunities, you need security, or some other offset to compensate. If this is true, it suggests there is a general hope premium in industries, and even assets. Many financial assets that have the highest volatilities have below average returns, if not negative returns: out-of-the-money call options, Junk bonds, highly volatile stocks, extreme-odds at the racetrack. We pay to dream, and it can be frivolous, as with the $1 I recently spent on a $206MM lotto ticket Saturday (odds: 1 in 130 million, I did not win), but it can also be a significant part of one’s investment portfolio (not wise, in my opinion, but real).
