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Tuesday, April 30, 2019

Freedom and the value of options for humans

The value of a human is the aggregate value of options held by her. Puts such as insurance and calls such as jobs, influence the overall value of the human portfolio. But this presumes that options are devoid of counterparty risks and timing constraints. Lack of freedom for the individual and society will impose constraints on the exercise of options held by humans. Thus, freedom is not just conceptually attractive but it is the basis of the value of humans.

Freedom is foundational to human societies for, without it, the value of humans will decline sharply. As they roamed out of Southeastern Africa with infinite horizons in front of them, freedom was important for humans. Those who object to capitalism on symptoms related to contemporary inefficient implementations should think more broadly about how value is created and disbursed. Humans create value by exercising options optimally and any constraint on this will reduce the value of the individual and society.

The autocrats, who span from the West to the East, substantially reduce the value of societies by imposing arbitrary constraints on individuals. Policies that reduce freedom are unambiguously value destroying but what the politicians do not have the capability to understand is that freedom is a multifactorial construct. A fickle greenhouse afforded to nearly 8 billion human specimens could be destroyed in a matter of decades, substantially extinguishing all option values held by humans. Progress made in over a century to assimilate populations, cultures, and colors could be arrested by ignorant leaders, substantially reducing freedom for humanity.

An advanced society will maximize the value of options held by its members - all of them. It is a portfolio maximization problem, something politicians are unlikely to appreciate. Stuck in a trough, humans may find it hard to climb out.

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