Nov 19, 2020
On today’s show, we explore rational explanations for pricing bubbles, how the concept of human capital relates to financial decisions, and a whole lot more! We kick things off with a discussion of Ashley Whillans’ book Time Smart, which explores proven strategies for improving your ‘time affluence’. Diving into this week’s portfolio topic, we use a previous discussion about Carlota Perez’s model for technological revolutions as a springboard to introduce Lubos Pastor and Pietro Veronesi’s mathematical arguments that present a rational explanation for pricing bubbles. Perez maintains that prices get bid up too high during technological revolutions due to ‘frenzy’ but we unpack two papers by Pastor and Veronesi where they argue differently, drawing on the concepts of uncertainty and discount rates. From there, we dive into the relationship between human capital, life insurance and asset allocation for our planning topic. We provide some definitions for the term ‘human capital’ and discuss how it differs from other forms of capital. A key idea we explore here is that the more risky your human capital is, the less life insurance you should take out. Along with this, you’ll hear a few quick suggestions for how you should approach life insurance and bonds depending on age, financial wealth, risk aversion, and other factors. Tune in today!
Key Points From This Episode: