In this paper, we outline a simple thought experiment around active management which shows that the investment industry is sub-optimally structured from the perspective of the end saver.

It is clearly rational for an individual investor to hire an active manager to try and do better than all other investors. In the same way that it is rational for one person to graze an extra cow on common land. Unfortunately this just launches an escalating arms race, and the eventual, assured conclusion is a societally-sub-optimal outcome as noted in the thought experiment. We can find no logical flaw in the warehouse argument. We should have less active management. Not none, but less.