How to Explain “efficient frontier” to child?
"I would let them get their hands dirty, learn by practicing. Below you can find a simple program to generate your own efficient frontier, just 29 lines' python. Depending on the age, adult could help in the activity but I would not make it too lecturing. With child-parent relationship, I would make it a challenge, no easy money anymore -- let-your-money work-for-you -attitude, create the efficient portfolio!  If there are many children, I would do a competition over years' time-span or make many small competitions. Winner is the one whose portfolio is closest to some efficient portfolio such as lowest-variance-portfolio, I have the code to calculate things like that but it is trivial so build on the code below. Because the efficient frontier is a good way to let participants to investigate different returns and risk between assets classes like stocks, bonds and money, I would make the thing more serious. The winner could get his/her designed portfolio (to keep it fair in your budget, you could limit choices to index funds starting with 1EUR investment or to ask bottle-price-participation-fee, bring me a bottle and you are in. No money issue.). Since they probably don't have much money, I would choose free software.  Have fun! Step-by-step instructions for your own Efficient Frontier Copy and run the Python script with $ python simple.py > .datSimple Plot the data with $ gnuplot -e ""set ylabel 'Return'; set xlabel 'Risk'; set terminal png; set output 'yourEffFrontier.png'; plot '.datSimple'"" or any spreadsheet program. Your first ""assets"" could well be low-risk candies and some easy-to-stale products like bananas -- but beware, notice the PS.  Simple Efficient-frontier generator P.s. do not stagnate with collectibles, such as candies and toys, and retailer products, such as mangos, because they are not really good ""investments"" per se, a bit more like speculation. The retailer gets a huge percentage, for further information consult Bogleheads.org like here about collectible items." I know you really like bananas, but don't you think you would get tired of them after a while?  Better stock up on some kiwi and mango just to mix it up a bit. I wouldn't want to risk eating only banana sandwiches, banana ice cream and banana bread for the rest of my life.  I have don't think I could take it.  Same goes for mango and kiwi, but I think if I had all three I could probably get along just fine.
You do know that since the shale gas boom started the cost of energy declined significantly, don't you? Your theory is a bit simplistic and had more than a few holes.   GDP growth is not that contingent on energy prices. How do you factor in increasing fuel efficiency in your theory? This creates high levels of efficiency, but is efficiency really what we need?  A robot is very efficient, and increases income, but for who?  When a corporation absorbs another, it does so *with the expectation* that redundant jobs will be shed, and that the income from those jobs will go to the shareholders.  And so one can see where income inequality has it's roots. "From his other work he certainly buys the truism that the markets are efficient at a 0-th approximation.  But not entirely efficient. See e.g. Schleifer ""The limits to arbitrage"".  Most if not all the money made by managed funds is at the expense of customers, not from outperforming the market. Ripping customers' faces off is a lot easier than beating the market." I don't know what you are asking. Can you give me an example of what fits the question?   That you use phrases like profit extraction make me think we have a different assumption base, so I think we have to find common syntactic ground before we can exchange ideas in a meaningful way. I would like to do so, though, so I hope you respond. "Translation : Funds managers that use traditionnal methods to select stocks will have less success than those who use artificial intelligence and computer programs to select stocks.  Meaning : The use of computer programs and artificial intelligence is THE way to go for hedge fund managers in the future because they give better results.  ""No man is better than a machine, but no machine is better than a man with a machine."" Alternative article : Hedge-fund firms, Wall Street Journal. A little humour : ""Whatever is well conceived is clearly said, And the words to say it flow with ease."" wrote Nicolas Boileau in 1674." Another suggestion I heard on the radio was to give the child the difference between the name brand they want, and the store brand they settle on.  Then that money can be accumulated as savings. Saving money is as important a feature of the family economy as earning money. Be careful with what you have a child do for reward vs what you have them do as a responsibility.  Don't set a dangerous precedent that certain work does not need to be done unless compensation is on the table.  You might have a child who relies on external motivations only to do things, which can make school work and future employment hard. I would instead have my child do yard work, but while doing it explain opportunity costs of doing the work yourself vs hiring out.  I would show my kid how saving money earns interest, and how that is essentially free money. "The raw question is as follows:  ""You will be recommending a purposed portfolio to an investment committee (my class). The committee runs a foundation that has an asset base of $4,000,000. The foundations' dual mandates are to (a) preserve capital and (b) to fund $200,000 worth of scholarships. The foundation has a third objective, which is to grow its asset base over time.""   The rest of the assignment lays out the format and headings for the sections of the presentation.  Thanks, by the way - it's an 8 week accelerated course and I've been out sick for two weeks. I've been trying to teach myself this stuff, including the excel calculations for the past few weeks." "In the UK there is a School Rewards System used in many schools to teach kids and teens  about finance and economy. In the UK there is a framework for schools called ""Every Child Matters"" in which ‘achieving economic well-being’ is an important element. I think is important to offer to offer a real-life vehicle for financial learning beyond the theory." Well if your looking to explain inflation to children, I would use this example. Take two fruits they like IE: Apples and Oranges. Give them both 2 of each. Ask them how many of your apples would you give for 1 orange and how many apples would you want to get 1 orange(most likely they will say 1). Now give them 5 more apples each. Then ask them the same question. In economics and finance many things can not be proven, so to tell you what QE will do for a fact can't be said, you can only be told theories. There are to many variables. "This is the best tl;dr I could make, [original](http://blogs.lse.ac.uk/politicsandpolicy/book-review-after-piketty/) reduced by 93%. (I'm a bot) ***** &gt; In After Piketty: The Agenda for Economics and Inequality, editors Heather Boushey, J. Bradford DeLong and Marshall Steinbaum bring together contributors to reflect on the influence of Thomas Piketty&amp;#039;s Capital in the Twenty-First Century and to draw attention to topics less explored in Piketty&amp;#039;s analysis.  &gt; After Piketty: The Agenda for Economics and Inequality, edited by Heather Boushey, J. Bradford De Long and Marshall Steinbaum, further explores the &amp;#039;process by which wealth is accumulated&amp;#039; and the &amp;#039;powerful forces&amp;#039; that shape the divergence.  &gt; Even if, as described by Piketty, the process of accumulation and the forces of power that render wealth inequality prove correct - that is, r &amp;gt; g - even then, for Branko Milanovic, high inequality is avoidable.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/758ftg/after_piketty_the_agenda_for_economics_and/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~224779 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **Piketty**^#1 **Capital**^#2 **Inequality**^#3 **wealth**^#4 **work**^#5" Context: assessed project as part of a tech internship in an investment bank, working in small groups, task: to design an app using a financial solution that has an ethical impact.  We came up with (what I hope) is the smart sounding idea of an app for impoverished farmers in developing countries who lack the information and market access that larger or unionised farmers would have. The app would use some kind of decision tree (which may grow with machine learning) to assess the best kind of crops to grow given the region and local conditions for max profitability, and would provide access to some kind of derivatives market, and insurance, allowing the farmers a consistent income.  Struggling with the specifics of how the business/finance side of things would work. Let's assume the bank builds the app and puts it on the app-store as part of some charitable initiative. 1) Would the farmers go directly to the bank to price and purchase derivatives on their crops? 2) Options/futures/forwards - which is most appropriate, or would it make sense to offer all three? 3) Is there any way this could be adjusted to provide regular payments, with a lump sum at the end? Would this be something the bank chooses to do, or is there an existing financial instrument for this kind of setup? 4) How does this tie in with the commodities markets (or is that what the derivatives already are?) 5) Probably a long-shot but any chance of know-your-customer implementations for countries with terrible infrastructure?  6) (probably a dumb question) Say the farmer sells an option on his crops, would this be sold directly to the bank or a 3rd party who'd be more interested in actually buying the crop? Or is this a far too simplistic view? Basically who would the farmer actually deliver the crops to? 7) Any other issues/oversights? Any ideas to make this sound somewhat viable?  It doesn't have to strictly be realistic in any sense, but it also can't be flat-out incorrect!  tyvm in advance, edited to make questions clearer Thanks for the correction it was just a story my dad would tell me so the details have likely blurred.  My point is that even if we could automate all physical jobs there could still be work to do, distribution of resources would likely need to be handled differently then now some sort of utopian communism or something not really the main point though. "No, there's no justification for saying that the resource ""needs to be used in a way which is most productive"". That's not consistent with either capitalism (which does not take a moral stance, but observes that it goes to the highest bidder) or with social welfare (which is concerned with maintaining a reasonable rate of employment). And we were not discussing govt employment." "A kid can lose everything he owns in a crap shoot and live. But a senior citizen might not afford medical treatment if interest rates turn and their bonds underperform. In modern portfolio theory, risk/""aggression"" is measured by beta and you get more return by increasing risk. Risk-adjusted return is measured by the Sharpe ratio and the efficient frontier shows how much return you get for each level of risk. For simplicity, we will assume that choosing beta is the only investment choice you make. You are buying a house tomorrow all cash, you should set aside that much in liquid assets today. (Return = who cares, Beta = 0) Your kids go to college in 5 years, so you invest funds now with a 5 year investment horizon to produce, with a reasonable level of certainty, the needed cash then. (Beta = low) You wish to leave money in your estate. Invest for the highest return with a horizon of your lifetime. (Return = maximum, Beta = who cares) In other words, you set risk based on how important your expenses are now or later. And your portfolio is a weighted average. On paper, let's say you have sold yourself into indentured servitude. In return you have received a paid-up-front annuity which pays dividends and increases annually. For someone in their twenties: This adds up to a present value of $1 million. When young, the value of lifetime remaining wages is high. It is also low risk, you will probably find a job eventually in any market condition. If your portfolio is significantly smaller than $1 million this means that the low risk of future wages pulls down your beta, and therefore: Youth invest aggressively with available funds because they compensate large, low-risk future earnings to meet their desired risk appetite." Growth and efficiency can occur independently of each other.  For instance, if an economy consists of one inefficient business and then a second more efficient business opens to compete agains the first the overall efficiency increases while the economy grows. New industries tend to be inefficient at the beginning (since initiation is more important than optimisation) and then become more efficient over time.  Agriculture is an amazingly efficient business if you consider how many people now produce the amount of food we consume in comparison to only 100 years ago. Plus, efficiency is not only about producing extra widgets.  You could produce the same number of widgets for lower cost.  Outsourcing to China (taking advantage of their lower cost of production) increases the efficiency of the US economy, but also increases the efficiency of the Chinese economy (since extra work is created producing more things).  Lower costs in the US lead to increased investment in other production.  Increased production in China leads to the rising wages there. Growth can be achieved in both places for very different reasons. So, no, growth doesn't have to come about through less efficiency.