2008/06/22

Apophis & carpe diem & how to save the world with a billion keychains

There's a 0.0023% chance that asteroid Apophis will impact earth in 28 years. Who cares about a 1 in 45,000 chance? Believe it or not, it is useful information.

For example, you could use this information when negotiating a 30-year loan -- structure it so payments are more heavily weighted to the last two years! At what cost? Of course the world won't end, but if there's a chance... you can precisely calibrate your degree of carpe diem. You should be willing to pay up to $1 for every extra $45,000 (plus additional interest) that is deferred to the last two years. Many people spend $1 on a lottery ticket where you have a 1 in 689,065 chance of winning $10,000. And of course a big loan with a small chance you won't have to pay it back is the same as a lottery ticket -- in fact even better since a) this one pays upfront and b) the normal lottery ticket is overpriced by an order of magnitude.

Back to Apophis. Here's another, less selfish, example of how this information can be useful. We want to know how much money it makes sense for us (earth, one world united!) to spend defending against Apophis. The answer is 0.0023% times the present value of world GDP, cumulated from 2036 forward. Oops that's infinity... Wait not necessarily. If we assume GDP stops growing at some point (e.g. the point where all material needs of humanity would be easily met), and we assume a a discount rate strictly greater than zero, the present value of all future GDP is a finite number. So we should multiply that number by 0.0023% and invest it in a laser beam.

Laser beam schematic:



Take that, make it a billion times more powerful, with a nuclear battery, put it in a satellite with some stuff for aiming and we should be ok! Seriously though, we do have 28 years to work on the technology, so no biggie. But how do we create the political will to spend money on it now?

Societies seem to have a hard time making really long-term investments, whether they are democracies or whatever. But they all love lotteries! Let's revisit the deferment of debt idea. The borrower will be willing to pay a premium to take some debt and push it back past the 28th year. The lender is neutral since they get extra fees to compensate for the risk. Thus we have an efficient transaction between a rational borrower and a rational lender. OK and what has that got to do with asteroids? Recall this is essentially a lottery, one that's better than the usual ones, and we know people are willing to pay 10 times the rational price for lottery tickets. Therefore it should be possible to satisfy the lender with just 1/10th of the fee collected from the buyer! And the remaining 9/10th can be used to build a giant laser beam!!! Everyone's happy. In fact, since the beam also works to eliminate or reduce that very risk, the rational lender might even be willing to contribute part of their one tenth. And then everyone's even more happy. Let's call this the GAALBMF: global anti-asteroid laser beam mortgage fund.