AGI and the EMH
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Section X

If markets are not efficient, you could be earning alpha and philanthropists could be borrowing

While our prior in favor of efficiency is fairly strong, the market could be currently failing to anticipate transformative AI, due to various limits to arbitrage.

If you think markets are wrong Bet rates rise “get rich or die trying” — earn alpha as real rates climb
Either way Borrow now to give “impatient philanthropy” — fund good while money is cheap

However, if you do believe the market is currently wrong about the probability of short timelines, then we now argue there are two courses of action you should consider taking:

  1. Bet on real rates rising (“get rich or die trying”)
  2. Borrow today, including in order to fund philanthropy (“impatient philanthropy”)

1. Bet on real rates rising (“get rich or die trying”)

Under the logic argued above, if you genuinely believe that AI timelines are short, then you should consider putting your money where your mouth is: bet that real rates will rise when the market updates, and potentially earn a lot of money if markets correct. Shorting (or going underweight) government debt is the simplest way of expressing this view.

Indeed, AI safety researcher Paul Christiano has written publicly that he is (or was) short 30-year government bonds.

If short timelines are your true belief in your heart of hearts, and not merely a belief in a belief, then you should seriously consider how much money you could earn here and what you could do with those resources.

Implementing the trade. For retail investors, betting against treasuries via ETFs is perhaps simplest. Such trades can be done easily with retail brokers, like Schwab.

(i) For example, one could simply short the LTPZ ETF, which holds long-term real US government debt (effective duration: 20 years).

(ii) Alternatively, if you would prefer to avoid engaging in shorting yourself, there are ETFs which will do the shorting for you, with nominal bonds: TBF is an ETF which is short 20+ year treasuries (duration: 18 years); TBT is the same, but levered 2x; and TTT is the same, but levered 3x. There are a number of other similar options. Because these ETFs do the shorting for you, all you need to do is purchase shares of the ETFs.

Back of the envelope estimate. A rough estimate of how much money is on the table, just from shorting the US treasury bond market alone, suggests there is easily $1 trillion in value at stake from betting that rates will rise.

Alternatively, returning to the LTPZ ETF with its duration of 20 years, a 3 percentage point rise in rates would cause its value to fall by 60%. Using the 3x levered TTT with duration of 18 years, a 3 percentage point rise in rates would imply a mouth-watering cumulative return of 162%.

While fully fleshing out the trade analysis is beyond the scope of this post, this illustration gives an idea of how large the possibilities are.

The alternative to this order-of-magnitude estimate would be to build a complete bond pricing model to estimate more precisely the expected returns of shorting treasuries. This would need to take into account e.g. the convexity of price changes with interest rate movements, the varied maturities of outstanding bonds, and the different varieties of instruments issued by the Treasury. Further refinements would include trading derivatives (e.g. interest rate futures) instead of shorting bonds directly, for capital efficiency, and using leverage to increase expected returns.

Additionally, the analysis could be extended beyond the US government debt market, again since changes to real interest rates would plausibly impact the price of every asset: stocks, commodities, real estate, everything.

(If you would be interested in fully scoping out possible trades, we would be interested in talking.)

Trade risk and foom risk. We want to be clear that – unless you are risk neutral, or can borrow without penalty at the risk-free rate, or believe in short timelines with 100% probability – then such a bet would not be a free lunch: this is not an “arbitrage” in the technical sense of a risk-free profit. One risk is that the market moves in the other direction in the short term, before correcting, and that you are unable to roll over your position for liquidity reasons.

The other risk that could motivate not making this bet is the risk that the market – for some unspecified reason – never has a chance to correct, because (1) transformative AI ends up unaligned and (2) humanity’s conversion into paperclips occurs overnight. This would prevent the market from ever “waking up”.

However, to be clear, expecting this specific scenario requires both:

  1. Buying into specific stories about how takeoff will occur: specifically, Yudkowskian foom-type scenarios with fast takeoff.
  2. Having a lot of skepticism about the optimization forces pushing financial markets towards informational efficiency.

You should be sure that your beliefs are actually congruent with these requirements, if you want to refuse to bet that real rates will rise. Additionally, we will see that the second suggestion in this section (“impatient philanthropy”) is not affected by the possibility of foom scenarios.

2. Borrow today, including in order to fund philanthropy (“impatient philanthropy”)

If prevailing interest rates are lower than your subjective discount rate – which is the case if you think markets are underestimating prospects for transformative AI – then simple cost-benefit analysis says you should save less or even borrow today.

An illustrative example. As an extreme example to illustrate this argument, imagine that you think that there is a 50% chance that humanity will be extinct next year, and otherwise with certainty you will have the same income next year as you do this year. Suppose the market real interest rate is 0%. That means that if you borrow $10 today, then in expectation you only need to pay $5 off, since 50% of the time you expect to be dead.

It is only if the market real rate is 100% – so that your $10 loan requires paying back $20 next year, or exactly $10 in expectation – that you are indifferent about borrowing. If the market real rate is less than 100%, then you want to borrow. If interest rates are “too low” from your perspective, then on the margin this should encourage you to borrow, or at least save less.

Note that this logic is not affected by whether or not the market will “correct” and real rates will rise before everyone dies, unlike the logic above for trading.

Borrowing to fund philanthropy today. While you may want to borrow today simply to fund wild parties, a natural alternative is: borrow today, locking in “too low” interest rates, in order to fund philanthropy today. For example: to fund AI safety work.

We can call this strategy “impatient philanthropy”, in analogy to the concept of “patient philanthropy”.

This is not a call for philanthropists to radically rethink their cost-benefit analyses. Instead, we merely point out: ensure that your financial planning properly accounts for any difference between your discount rate and the market real rate at which you can borrow. You should not be using the market real rate to do your financial planning. If you have a higher effective discount rate due to your AI timelines, that could imply that you should be borrowing today to fund philanthropic work.

Relationship to impatient philanthropy. The logic here has a similar flavor to Phil Trammell’s “patient philanthropy” argument (Trammell 2021) – but with a sign flipped. Longtermist philanthropists with a zero discount rate, who live in a world with a positive real interest rate, should be willing to save all of their resources for a long time to earn that interest, rather than spending those resources today on philanthropic projects. Short-timeliners have a higher discount rate than the market, and therefore should be impatient philanthropists.

(The point here is not an exact analog to Trammell 2021, because the paper there considers strategic game theoretic considerations and also takes the real rate as exogenous; here, the considerations are not strategic and the endogeneity of the real rate is the critical point.)