IMC Colloquium Series: "Portfolio Theory and Ecology?"

Abstract

Biologists and economists have always borrowed from each other. Darwin famously credited Malthus for inspiration in The Origin of Species. Marshall argued persuasively that economists should strive to be more like biologists, and less like physicists. More recently, since the 1970s game theorists in both biology and economics have jointly developed many useful ideas and concepts.

This talk will discuss an even more recent example of cross-fertilization, namely, the application of ideas from portfolio theory to quantify the benefits of biodiversity. The analogies seem obvious - species can be viewed as "stocks", which yield a flow of "returns". Due to genetic, environmental, and climatic idiosyncrasies, these returns are imperfectly correlated, yielding potential gains from diversification, i.e., gains from biodiversity.

Most of the talk will discuss the dangers of pushing this analogy too far, by highlighting some of the implicit assumptions in traditional portfolio theory that may be questionable in a biological context. However, the talk will conclude by discussing recent efforts by economists to formalize the concepts of ambiguity and robustness, which may lead to a more reasonable application of portfolio theory in biology.