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Post a Comment On: Steve Sailer: iSteve

"Failure of prediction markets"

26 Comments -

1 – 26 of 26
Blogger DCThrowback said...

A 9-10% drop (from, say 80 to 70% the day of) is still quite significant. In fact, one might say it was similar to the Pacquiao/Bradley odds, which dropped from Pacquiao being -600 (laying $600 to win $100) to being -400 (laying $400 to win $100) the day before the fight. One could argue, reasonably, that "somebody knew something" and that may have led to the "wise guy steam" that moved the line. I know when I found out that the upheld on intrade dropped from 80% to 70%, I had a sneaking suspicion that a Pacquiao/Bradley-like upset was on the horizon. The line drop (sharp money) tells you all you need to know (most of the time).

7/7/12, 4:32 PM

Anonymous Anonymous said...

intrade is thin, you typically can't make real money on inside trading.

7/7/12, 4:44 PM

Blogger nazgulnarsil said...

How is this a failure? People can doubt the veracity of insider info.

7/7/12, 4:58 PM

Anonymous AL said...

It's ancillary to the thrust of Steve's post, but Leonhardt is incorrect in concluding that "the market... turned out to be wrong." If I were about to roll two dice, the market would give me less than a 3% chance of throwing a twelve. If the roll in fact turned out to be twelve, it wouldn't mean the market was wrong. Likewise, if a stock traded at $20 yesterday, but today closed at $25 after strong earnings were revealed, that doesn't mean that yesterday's price was wrong. Yesterday's price incorporated the information available yesterday, and now we have more information.

Under Leonhardt's system, a market would be "wrong" if it priced the likelihood of the eventually-realized outcome at anything other than 100%!

7/7/12, 5:04 PM

Anonymous Anonymous said...

In fact, Oliver Wendell Holmes Jr.'s view of the law said that the chief aim of the law should be predictability rather than justice.

Technical point that probably no one but a lawyer will care about: The above is a mischaracterization of Holmes's view and the so-called "prediction theory of law." The prediction theory is not about predictability. On the contrary, it's about the inescapable "judge-iness" of law. It's based on the insight (or assertion) that law doesn't exist until a judge makes it by deciding a case. Thus, in Holmes's aphorism, "the law" is just "a prediction of what some judge will do."

I should add that when Holmes wrote that, most law was still judge-made law, as opposed to law made by legislatures and bureaucrats. Now, about a century later, the opposite is the case.

- A Solid Citizen

7/7/12, 5:45 PM

Anonymous Henry Canaday said...

Economists get a bad rap because they are often bad at predicting close calls that involve many imperfectly understood relationships and variables, such as exactly how the economy is going to behave over the next quarter or two. But economists could provide, if not predictions, very useful perspectives on such larger and important subjects as the reason for Tijuana-San Diego difference. But this would require economists to integrate their models with research from other fields, and these other fields involve people, which can be a very sensitive subject.

Consider this contrast: Yale economist Robert Nordhaus has for a long time been building increasingly ambitious models that integrate long-run macroeconomic performance, a tough challenge in itself, with the highly complex effects of fuel use, carbon emissions, climate change and the economic effects of climate change. His work is highly useful and widely respected. But how many economic models have you heard of that connect macroeconomic performance with: a) the demographic composition of the population; and b) the decline in two-parent families, even at birth, and the effects of this decline on adult behavior?

7/7/12, 6:07 PM

Blogger Clutch cargo cult said...

Re: AL's comment, leonhardts statement about the market being wrong is just another plug for government intervention not about the veracity of the bet.

7/7/12, 6:32 PM

Anonymous Daybreaker said...

People and things that you are tacitly but effectively forbidden to talk about in the wrong way are problematic for making good predictions. Not only do you miss out on the predictions covered by forbidden utterances, but people who can make things forbidden and keep them forbidden tend to be powerful and driving events.

If you the great seer are performing in Rome during the reign of the Emperor Little-boots, all predictions based on the emperor being violently insane are right out. Predictions that involve the Praetorian Guard, what it may do soon, and the long term effects of praetorianism are if anything even more forbidden.

If you were performing in London in the court of the Virgin Queen, you would be badly advised to lay out an accurate history of England up to the Glorious Revolution. The consequences of the ruler's failure to produce an heir and a working dynasty (and her unwillingness to let people talk this through and come up with alternative arrangements) were so big that you might be reduced to saying that you knew the future and (except for the parts you couldn't talk about) it was pretty dull.

It's worse if you are a social scientist rather than a performer with a crystal ball and a flashy silk robe, because then you have to "show your working," still without any reference to forbidden things and forbidden people. Your an analysis has to start by omitting key disruptive factors, and follow through with unswerving consistency, and be correct, a tough trick.

7/7/12, 7:19 PM

Blogger Anne said...

Slightly OT, it would make more sense from a Canadian or European viewpoint to just hold a referendum on healthcare rather than leave it to nine individuals parsing the US Constitution in a Talmudic way.

(I am Canadian).

7/7/12, 7:56 PM

Blogger sunbeam said...

The Supreme Court decision didn't surprise me. At least not Roberts' decision.

The rest of the eight justices were pretty predictable honestly.

As far as Roberts go, I wasn't surprised, because I believe he is some kind of ... I don't know what... corporatist maybe?

I can't really see him as a Randian, nor a Libertarian for sure.

He will vote conservative (whatever that means exactly) a fair percentage of the time, because "conservative" correlates with his core beliefs to a fair percentage right now.

But at the end of the day, this decision was for the best for the insurance companies. And I believe that is why he voted the way he did.

And that is the sum total of his principles. Not for insurance companies specifically, but for companies in general.

I really thinks he puts the friendly in fascism, and yes I'm not just throwing that out there. I think Giuliani would be his ideal President.

He is a lot more like Mitt Romney than the rest of the court I think. If things had been different he might have been a character in "Wall Street."

BTW, I have the world's worst gaydar, and I know about his dancing kid (Adopted, from Ireland. You can take the kid our of Riverdance, but you can't take the Riverdance...) at his swearing in. But I do think he is gay.

BTW I am curious Steve. Did you ever read any of the "Masked Political Consultant's" three posts on the late Joe Bageant's website? Opinions differ, but he pretty much nailed what I believe about current American Politics.

Of course old Joe was on the left side of the fence, but damn those were some insightfult posts over there. I guess I need to google and save them, I think that website is caput now.

At least I still have Fred Reed.

7/7/12, 8:16 PM

Anonymous Silver said...

In fact, a few years ago I came up with the dullest breakthrough insight in the history of the philosophy of science. Namely, the reason the social sciences are universally believed to have a poor track record of making predictions is that the kind of things that people are most interested in predictions about are those things are most likely to go either way.

By "a poor track record of making predictions," do you mean

(a) the track record of the predictions they have made is poor, ie they are too often wrong?

or

(b) that they have a poor track record of making predictions, ie of going to the trouble to make a prediction, ie they don't make enough predictions, ie they could presumably be making many more?

or

(c): (a) and (b)?

Whatever the case, I fail to see how the reason/explanation for any of (a), (b) or (c) is that "the kind of things that people are most interested in predictions about are those things are most likely to go either way."

So I don't understand what the actual "insight" here is.

The closer something is to being a coin-flip toss-up, the more exciting it is to speculate about what will happen.

True, but the possibility that the probability of longshot events occurring could be greater than is commonly believed also generates excitement. Eg Could Rocky Balboa really have a chance against Apollo Creed?

7/7/12, 9:28 PM

Anonymous Aaron in Israel said...

Your dullest insight seems wrong. "Likely" and "probability" must be subjective here, if the statement means anything. So "likely to go either way" means according to somebody's (or many somebodies') subjective opinion. But social sciences get the most scorn when they fail to predict things that were not seen as likely to go either way: the fall of the Soviet Union, economic disasters, etc. Of course, I'm not talking about predictions like, "Something bad is going to happen sooner or later."

It's forgivable to miss close calls like presidential elections (which social science is pretty good at anyway). That's just a matter of accuracy. People wouldn't mind if social science were just inaccurate. Physics was a lot less accurate two centuries ago, but no less scientific. And as far as predicting that San Diego will be nicer than Tijuana, that's something that can be predicted without social science, so it seems unimportant, just as it's unimportant that physics predicts that an apple will fall down, not up.

7/7/12, 10:02 PM

Anonymous Orthodox said...

The insider with the information was Justice Roberts because he switched his vote very late, and I don't think he or his staff play InTrade.

7/7/12, 10:51 PM

Anonymous Anonymous said...

http://www.davekehr.com/?p=1382#comments

7/8/12, 1:33 AM

Anonymous Anonymous said...

Well the point is that any reasonably informed observer can make shrewd guesses about the likelihood of certain trends in the world coming to pass - no different to betting on horses really.
The breakthroughs in the real, hard sciences are distinguished by the fact that they were never obvious to our ancient forbears, and the ramifications from those discoveries were truly earth shattering - the breakthroughs were the fruit of painstaking observation, invsetigation and theorizing - the idea was to get to the underlying 'truth' of natural phenomena.
One small example think of the development of current electricity in the 19th century. Oersted observed that there was a linkage between electricity and magnetism, a few decades later James Clerk Maxwell published his work on electro magnetic waves - hence we got the theoretical speed of light and radio and television as a by product.
All the economists have beem able to do is to stink up the world economy and turn millions of worthy US citizens into paupers.

7/8/12, 1:41 AM

Anonymous Anonymous said...

My own theory of why academic and government appointed economists fail, fail and fail again is that most of what they believe in and ractice is just simply falsehood and wrong, except they can't see it, being so blinded by their psuedo academicisim and unwarranted self belief.
Macro economics is, in general, a matter of feel, intuition, feeling and instinct - nothing to do with theory but being shrewd and informed enough to spot trends, expect trouble coming and knowing your own strengths and weaknesses, it's not a science at all in fact, but something a shrewd and cunning horse dealer or horse gambler would excell at.
Unforyunately, the pompous know-it-alls would scoff at such a notion (ie the best apprenticeship for the US chief economist position is 30 years as a used car dealer), and thus we get the dummies in charge who have stunk up and will continue to stink up the US economy.

7/8/12, 1:51 AM

Anonymous Anonymous said...

Intrade market on Obamacare was probably skewed by

1. a lot of rubes who don't understand how the supreme court works

2. a lot of rubes who really really wanted it to be overturned and made a weird kind of "i got money on this now, its gotta happen" voodoo bet

7/8/12, 5:33 AM

Blogger Steve Sailer said...

I had a friend in high school whose father was a prominent football bookie. About once a decade he'd go to prison for awhile, but was a popular member of the local community. My friend gave me a subscription to his dad's "Gold Sheet" one year and I tried picking out a few college football games a week where I disagreed with his point spread. My recollection is I beat his picks by a good margin over the course of the year, but I never tried it again and never for real money. It was kind of fun to be a dispassionate fan but it was a lot of work and dispassion isn't as much fun as passion.

7/8/12, 5:40 AM

Anonymous kaganovitch said...

Steve, Do you really mean Coase's theorem? Or did you mean "rational expectations" associated most prominently with Muth and Lucas?

7/8/12, 8:11 AM

Anonymous John A. MacDonald said...

Slightly OT, it would make more sense from a Canadian or European viewpoint to just hold a referendum on healthcare rather than leave it to nine individuals parsing the US Constitution in a Talmudic way.

(I am Canadian).


I don't see how this is a Canadian or European viewpoint at all. Canadians routinely sneer at Americans for all their referenda questions (how gauche to let the rubes decide! next thing you know, they'll be voting on who should be dog catcher).

As for Europe, perhaps I'm mistaken, but the EU has a pretty poor record of success when the transfer of national sovereignty has ever been put to the electorate in a referendum, and these days, they regularly bully anybody (say, Ireland or Greece) who has the effrontery to let the views of the electorate stand in the way of the "European project" being directed by the unelected geniuses in Brussels.

7/8/12, 8:26 AM

Anonymous Anonymous said...

"BTW I am curious Steve. Did you ever read any of the "Masked Political Consultant's" three posts on the late Joe Bageant's website? Opinions differ, but he pretty much nailed what I believe about current American Politics."

Sunbeam, based on your mentioning them I found them still posted on Mr. Bageant's site.

Very worth reading without a doubt.

Thanks for tipping me and other readers off.

7/8/12, 10:17 AM

Anonymous Tony said...

It makes me happy that InTrade could be wrong. They're predicting an obama victory.

7/8/12, 5:31 PM

Blogger beowulf said...

"Keynes himself made a sharp distinction between calculable risk and events which are inherently unpredictable. For instance, life expectancy is a calculable entity, while a terror attack or the performance of the stock market is not.
For Keynes, this absolute uncertainty was perhaps the most important element in economics. It replaced the completely rational actor with an actor who was often rational if presented with computable odds, but also often had to rely upon others and upon convention for guidance in how to act."
http://www.perspy.com/?p=401

7/8/12, 8:18 PM

Anonymous from Plame to Flame said...

"a record of discretion exceeding even that of some parts of the national security apparatus"--sounds impressive!

7/8/12, 9:11 PM

Blogger TGGP said...

Coase wrote about the effect of a legal decision assigning property rights (his background was in law, not economics), so I don't think Steve was confused. Rational expectations more often features agents who stymie the efforts of policy-makers by acting in response to what they expect policy to be.

7/9/12, 7:41 PM

Anonymous kaganovitch said...

TGGP I think I see your point, but Steve's restatement of Coase "if people can predict how the law will be applied, they will adjust their affairs accordingly" seems to have little to do with Coase's insight that the assignment of property rights is irrelevant to the final outcome absent transaction costs- or am I missing something here?

7/9/12, 8:52 PM

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