Home > Economics - General > Further adventures on Intrade

Further adventures on Intrade

February 11th, 2012

As I mentioned last time I wrote about my adventures on Intrade, I’m sceptical of the claim, a special case of the (semi-strong version of the) Efficient Markets Hypothesis, that the odds in betting markets provide the best estimate of the probability of political outcomes. I managed to double my small stake betting on Newt Gingrich, and might have made more if I had not overestimated the efficiency with which the Republican electorate processes information. I sold on the news of his work for Fannie Mae, and thereby missed the peak of the market when he won South Carolina.

Having made my point and learned a bit about the practical operation of markets, I meant to cash out my winnings, but that turned out to be a complicated process, and I couldn’t resist another flutter. Rick Santorum was trading at 100-1, and while I didn’t think much of his chances, those are pretty good odds in a four-horse race, especially one with no particularly attractive candidates.

He’s now 17.9 per cent (nearly 4-1 in the old language, if I recall it correctly), so I’ve now made a pretty substantial gain. There’s a bit of a cognitive consistency problem here – I didn’t really mean to make money backing Santorum, so now I need some suggestions as to an appropriate use for the money, one which would offset any damage done by backing him when he was down where he belonged. Orientation can be US, Australian or global.

 

 

Posted via email from John’s posterous

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  1. Martin
    February 11th, 2012 at 18:29 | #1

    Planned parenthood or similar?

  2. Ron E Joggles
    February 11th, 2012 at 18:43 | #2

    Ripper tune, Boris! I need a tractor, badly.

  3. Fran Barlow
    February 11th, 2012 at 23:31 | #3

    I suppose you could make a really big donation to the teaching of science to science teachers south of the Mason-Dixon line. AIUI, many of the schools down there have near illiterates teaching the subject.

    Either that or a donation to The Yes Men. As far as I can tell, they do the best performance art in America ridiculing the idiocracy.

  4. Sam
    February 12th, 2012 at 00:23 | #4

    Perhaps donate it to the Santorum campaign itself, on the principle that he’d be unelectable in November. I understand this would be a high stakes bet, and that Reagan and Bush II were both seen to be gifts to the Democrats during their primary runs. On the other hand, fortune favours the brave!

  5. Sam
    February 12th, 2012 at 00:25 | #5

    Plus 1 on the planned parenthood by the way Martin.

  6. Ikonoclast
    February 12th, 2012 at 08:57 | #6

    How would you do any damage by backing Santorum in a betting ring? Given all the other powerful influences and sinister vested interests affecting US politics this would be akin to thinking you could damage the sun with a pea-shooter. I guess you were being ironic.

    Give it to an aboriginal cause in Australia, assistance for the tent embassy perhaps. Long may they be a thorn in the right-wingers’ side. And if they embarress the opportunist Gillard, that’s a bonus.

    http://www.aboriginaltentembassy.net/

  7. Matt Hardin
    February 12th, 2012 at 14:57 | #7

    Given Santorum’s politics, if he becomes president all gay rights groups in the US are going to need all the help they can get. That’s where I would suggest

  8. Dan
    February 12th, 2012 at 15:23 | #8

    Is there a way of donating to the Occupy movement? Otherwise CounterPunch.

  9. TerjeP
    February 12th, 2012 at 16:47 | #9

    Somebody should regulate the betting markets. We don’t want middle aged economists taking these sort of risks unsupervised. They might hurt themselves.

  10. Ikonoclast
    February 12th, 2012 at 19:14 | #10

    Somebody should unregulate weapons and armaments sales. That way arm-chair libertarians could test their macho individualism against some real competition. Or they could fly to the nearest anarchic failed state and enjoy all that freedom from onerous democratic social order and shared concern for the common good.

    (Irony alert. The above is irony.)

  11. Ikonoclast
    February 12th, 2012 at 19:33 | #11

    To follow up in a more serious way, it’s worth noting this. TrejeP’s underlying assumptions (about the issue of societal regulations designed to counter common human weaknesses) are flawed in that they show a lack of understanding of both individual human psychology and group psychology. This lack of understanding seems to centre on an inflated view of individual strength and will power acting entirely solo.

    There is this idea that individuals should counter temptation with individual will power alone and that people should never cooperate voluntarily to set up group behaviour guidlines laws to defend each member against excessive temptation or manipulation. Further there is this idea that organised opportunist manipulators and tempters (for example casino operators) should never be countered by group effort but that each individual should be left lone and lonely to fight the most sophisticated temptations often now devised by corporations with psychologists, advertisers etc. in pay.

  12. Dan
    February 12th, 2012 at 23:00 | #12

    I don’t think libertarians have an issue with voluntary cooperation, Ikonoclast.

  13. Ikonoclast
    February 13th, 2012 at 09:00 | #13

    Dan :
    I don’t think libertarians have an issue with voluntary cooperation, Ikonoclast.

    Yet libertarians seem to have a great issue with the highest and best form of cooperation yet devised by humans, namely social democracy. We must decode libertarian statements for they are subtle and gloze over many proper considerations. “Voluntary cooperation” when uttered by libertarians almost always seems to infer an opposite to formal government. Even cooperation with one’s own formal democratic government is never or very seldom considered voluntary in principle by the libertarian whereas other forms of cooperation are apparently genuinely voluntary in principle. Yet any kind of voluntary mutual cooperation, which when joined into then imposes certain rights and duties on its constituent members (even if minimally formalised) must begin to look like a government. This is the paradox and contradiction that belies the heart of libertarian thought.

    Government, even democratic government, is always seen as coercive by the libertarian. But the exercise of individual (libertatian) will is never seen as coercive, at least not in the economic sphere.

    The notion that a democracy is not overall a voluntary cooperation does not hold up to scrutiny. A democracy is a formal voluntary cooperation. The initial setting up and the ongoing extension of a democracy involve a series of cooperative steps formalising the institutional structures and organically evolving societal norms, expectations and behaviours via education, the cultivation of civic mores and continuing dialogues about what constitutes civic virtue, civic rights and civic responsibilities.

    So where a mature democratic polity decides as a majority that certain unconscionable activities which harm and exploit weak and vulnerable persons should be regulated or proscibed, the libertarian (who really wants nothing more than to be free to profit from the unaided weakness and stupidity of some members of society) dances the “freedom jig” and claims that his freedoms, usually the freedom to exploit, are being infringed.

    Libertarians have a solipsistic definition of voluntary cooperation which mirrors the social development of a two year old. This solipsistic definition comprises a recognition of the self and an inistence of the self’s rights but no recognition of the other and the rights of the other. It has no sympathy or empathy for the other. It depersonalises others so is correctly (in some senses) referred to as an “it”, as depersonalisation of others rebounds and creates a depersonalistion of the self.

    What libertarians don’t seem to understand is that even in a democracy, an individual cannot have things all his or her own way. Living in society involves both rights and responsibilities. The need to develop and maintain cooperation and to avoid both exploitation and free-riding imposes duties on the citizen as well as conferring rights.

  14. Dan
    February 13th, 2012 at 09:08 | #14

    You’re preaching to the converted – obviously I think libertarianism is for children of all ages.

    Having said that, being in a 49% (or a 38%, or a 1%) that does not get its way is indeed being coerced. At this libertarians wail and gnash their teeth (though seem to do less so for, say, the homeless, who presumably aren’t getting their own way a whole lot). I say hard luck, democracy is by far the least worst coherent alternative available to groups (especially large groups) making decisions.

  15. Sam
    February 13th, 2012 at 10:32 | #15

    @Dan @Ikonoclast

    I’m happy to consider policies that constrain one group if they help another. I am unsympathetic to suggestions we should force people to do what we think is best for them. That’s my 2 cents.

    Also @TerjeP ,
    if I were a right/libertarian, I would be feeling pretty disgusted with the Republican choices on offer at the moment. Far from making snarky comments on the blogs of social democrats, I would be trying to work out how my side of politics had imploded intellectually.

  16. NickR
    February 13th, 2012 at 11:19 | #16

    @Ikonoclast
    To me the libertarian hostility towards government and love for individualism always seemed a little self contradictory. Isn’t government just a society formed by people acting of their own free will?

    It is true that governments have great coercive power, but it is not as if it is exclusively government domain. If people don’t like the government they can always refuse to pay taxes and join a gang or something. As such people are ‘free’ to drop out of society if they wish. True there are no other good alternatives, but a libertarian should argue that it is not the government’s role to provide an alternative if some people don’t like what is being offered.

  17. Troy Prideaux
    February 13th, 2012 at 12:18 | #17

    Over the weekend there was a good debate over these points on golemxiv with a handful of American free market libertarians rising up to argue their case, which unfortunately for them is (and was shown to be) very flawed in the real world reality.

  18. Dan
    February 13th, 2012 at 12:24 | #18

    ‘The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.’ – JK Galbraith; it applies even more so to libertarians.

  19. NickR
    February 13th, 2012 at 13:35 | #19

    Also Terje’s comment seems to highlight a misunderstanding of the progressive POV on these issues. I know it was light-hearted but he was still making a political point.

    I think just about all lefties acknowledge that state paternalism has a downside, however this in isolation is not terribly important in assessing a policy.

    What is important is whether or not the benefits of regulation outweigh the costs.
    Is JQ’s speculation on intrade causing any serious negative externalities? Almost certainly not. Is JQ taking on large risks to himself that he doesn’t understand? Again almost certainly not.

    For this reason any regulation is likely to be counterproductive.

    However large-scale financial transactions certainly appear to have the potential to introduce significant externalities and thus should be regulated while the benefits exceed the costs.

    Similarly for issues such as seat belts and helmets for bike riders, we know from Daniel Kahneman that people are unlikely to be making sensible assessments of the risks. For that reason, there are probably gains in welfare if a regulation is put in place. Sure none of us like to be told what to do, but the mild frustration from this felt by most of us is likely to be less than the intense unhappiness coming from serious accidents.

  20. Sam
    February 13th, 2012 at 14:02 | #20

    @NickR
    It’s the seat-belts and helmet stuff that are indefensible to me. No profit-minded corporate conspiracy exists to trick us into being unsafe for their financial gain. No one is being threatened with injury except the adult who chooses to take the risk. If you don’t think they’re rational enough to decide for themselves, you shouldn’t think they’re rational enough to vote for a government which decides. There’s no good preference utilitarian reason to advocate the restriction of personal liberty to reduce personal risk, and a very strong concern about increased police powers to oppose it.

  21. Troy Prideaux
    February 13th, 2012 at 14:36 | #21

    Sam :
    @NickR
    It’s the seat-belts and helmet stuff that are indefensible to me. No profit-minded corporate conspiracy exists to trick us into being unsafe for their financial gain. No one is being threatened with injury except the adult who chooses to take the risk. If you don’t think they’re rational enough to decide for themselves, you shouldn’t think they’re rational enough to vote for a government which decides. There’s no good preference utilitarian reason to advocate the restriction of personal liberty to reduce personal risk, and a very strong concern about increased police powers to oppose it.

    Unless you’re (as a tax payer) paying for their rehabilitation and/or have a genuine concern for their wellbeing or even a duty of care for it.

  22. NickR
    February 13th, 2012 at 14:42 | #22

    @Sam
    Not at all Sam. I will have to lend you ‘Thinking Fast and Slow’ which will make the argument far better than I can. BTW recall we have debated this before. You managed to convince me that we shouldn’t worry about externalities with respect to an individual hurting themselves, which I think demonstrates both that I understand your POV and also am prepared to change my mind when I see a better argument.

    This time I don’t think you have a better argument.

    The issue has nothing to do with some ‘evil corporation’ distorting the perception of risk – this argument is superfluous as the risks are misunderstood as is.

    You say…

    “If you don’t think they’re rational enough to decide for themselves, you shouldn’t think they’re rational enough to vote for a government which decides”

    Pretty sure this is wrong. It is not that humans can’t be ‘rational’, it is rather that being rational is slow and painful (the slow part from TFAS) and people generally prefer to use quick but flawed heuristics instead. So there is no contradiction between somebody making a silly decision not to wear a helmet, and a thoughtful decision at the ballot box (although I am sure there are plenty of thoughtless votes as well).

    However even this argument is unnecessary as we don’t govern with impulsively decided referendums, but rather representative democracy. I can decide my vote with a random number generator and the winning party will still probably appoint a representative who (with access to all the expert opinion and the incentive to understand it) is likely to understand the risks of behavior such as not wearing seat belts or helmets much better than you or I.

    A compromise position is the ‘libertarian paternalism’ advocated by Richard Thaler, a guy I really like. You should check out his Nudge Blog http://nudges.wordpress.com/

    The idea is not to ban self-defeating behavior explicitly but to try to nudge people in the right direction. For the issue of bike helmets this could involve things like spending money on advertising campaigns, or requiring that bike shops also sell helmets or other such things. Obviously the best policy is the one that is minimally intrusive but still achieves good results.

  23. Tom
    February 13th, 2012 at 14:53 | #23

    @Sam

    Not really, as you have to know that nobody in the world can say to anyone that every decision they make is rational. In fact people makes irrational decisions nearly every single day. From one perspective, yes you are right about corporations attempting to spread fear in order to gain financial benefits for themselves; but it is also true those products they promote saves lifes everyday.

    About the sit belt and helmet issue, it is somewhat similar to mandatory precommitment poker reforms; except the part about corporate profit. Those two laws or proposed law are designed because it is believed that people are incapable of making reasonable decisions.

    One argument might be that some people know wasting money on poker machines are irrational but they can’t control it themselves. However that goes to the same as risk managing, there is no evidences what so ever when it comes to a rational person should be a risk averse, a risk taker or risk neutral. Also have you seen people jumping off roof tops not because they want to die but simply because they want to feel how it feels like? There are also other factors such as peer pressure e.g. being risk averse is being a chicken so it make people take risks even when they know it is dangerous for their lives.

    Hence I do suggest when you’re accessing laws and regulations, do take into consideration of other factors. If in your case “If you don’t think they’re rational enough to decide for themselves, you shouldn’t think they’re rational enough to vote for a government which decides” then to be honest no country in the world should be a democratic country.

  24. Troy Prideaux
    February 13th, 2012 at 15:17 | #24

    @NickR
    “For this reason any regulation is likely to be counterproductive.”

    Most regulations are introduced from actual crisis events .Governments and regulators have historically begrudgingly introduced new regulations despite the perception to the contrary. It’s normally their constituents and media that pressure such regulations to be introduced.
    You have to ask yourself, you to mind buying pharmaceutical medication from China that’s untested and non certified if it means a cheaper product?
    Do you mind a private nuclear power plant constructed 2 blocks away from your house constructed on minimal design standards with the transport of the fuel rods and waste along your street using the minimal design standards? It could mean cheaper energy prices.
    Do you mind your local bay or lake to be infested with toxic waste products? It could mean cheaper household building materials.
    Do you mind your neighbours practicing their drums all night 4 nights a week or storing their fishing TNT alongside your fence?
    Do you mind bridges and aircraft to be constructed from minimal design standards if it relates to cheaper taxes and transportation costs?

    You don’t have to look hard to see the consequences of when regulations are eased or removed on big business whom only care about bottom lines and shareholder interests. Need I mention the GFC or BP?

    No doubt, there is over-regulation in many instances. Wernher von Braun famously quipped that his rockets weren’t ready for flight until the height of the stacked paperwork exceeded that of the upstanding rocket. However, like everything in life, and like all aspects of our existence – good health = good balance.

  25. NickR
    February 13th, 2012 at 15:28 | #25

    @Troy Prideaux
    Troy you misunderstand me – I would very likely be in favor of regulation in all these cases for the sort of reasons you outlined.

    Sam, I have a response that is in moderation…

  26. Ikonoclast
    February 13th, 2012 at 15:29 | #26

    @Sam

    “No profit-minded corporate conspiracy exists to trick us into being unsafe for their financial gain.”

    This statement is as wrong as any statement could be. A little knowledge of automative manufacturing history would disabuse Sam of such naievity.

    http://en.wikipedia.org/wiki/Unsafe_at_Any_Speed

    Profit minded corporates conspired internally and with each other to avoid and resist the calls for safer automobile design.

    “No one is being threatened with injury except the adult who chooses to take the risk.” Another statement that is as wrong as any statement could be. Children (especially young children) do not choose to take the risk when negligent adults fail to use proper restraints for children. Also, an adult responsible for the care or well being of others takes a risk for those others as well as for him or herself when choosing to take an avoidable risk. It is particularly egregious when the avoidable risk is often easily ameliorated by a measure of relatively low cost and trivial personal inconvience like having a seat belt and buckling it up.

    “There’s no good preference utilitarian reason to advocate the restriction of personal liberty to reduce personal risk…” I’m not entirely sure what this piece of jargon means but it consistent with the libertarian propensity to complain about trivial personal inconceniences and remain indifferent to widespread serious avoidable harm and exploitation of others.

    It is so often the case with libertarians that this grandiose phrase “personal liberty” is invoked hyperbolically to complain about the most petty and trivial personal inconveniences. Freud once enjoined his students to remember that “there is neurotic suffering and there is real suffering.” Similarly, we need to remind libertarians that there are petty inconveniences like being required to wear a seatbelt or a bicycle helmet and then there are real infringements of personal liberty like wrongful imprisonment, torture, criminal violence and assault and so on.

    Libertarians for the most part are simply being petty, self-absorbed and neurotic about the “personal liberty” issue.

  27. Fran Barlow
    February 13th, 2012 at 15:32 | #27

    @Sam

    No profit-minded corporate conspiracy exists to trick us into being unsafe for their financial gain.

    True. In this case, the externality is imposed by the non-seatbelt or helment wearer on others. The non-seatbelt wearer, even if driving alone, invites, nay demands, that the public health system subsidise his/her freedom to non-restraint by imposing an unliquidated liability on the system. Plainly, the first duty of the system is to treat injury, regardless of how it happened and whether the person has the means to meet his or her medical costs. It’s in the collective interest for the system to foreclose costs that can be foreclosed at reasonable cost. Seatbelts and helmets easily meet this test. It should be noted to that driving is not a right in any fundamental sense. It’s a privilege granted under specified conditions. With the arguable exception of minor children nobody is compelled to ride in a road vehicle or on a motor cycle. A person not wanting to wear a belt or a helmet is entitled to walk, or use a scooter, or take the train or some combination. Most think belts and helmets a minor imposition.

    My own view would be that the regime attending private motor vehicle usage is entirely too lax. We ought to set the bar a good deal higher, so that far fewer people were travelling in cars or on motor cycles.

  28. Ikonoclast
    February 13th, 2012 at 20:16 | #28

    @Fran Barlow

    Correct, Fran Barlow. Although, I have a post still in moderation that points out that “profit-minded corporate conspirac(ies)” have acted and do act “to trick us into being unsafe for their financial gain.”

    I mention the automobile industry and Ralph Nadar’s “Unsafe at any Speed” expose. I could have also mentioned the tobacco industry’s conspiratorial campaign to supress the evidence of the cancer causing nature of smoking.

  29. Sam
    February 13th, 2012 at 21:26 | #29

    I’m mindful that I’m derailing another thread here. Sorry everyone who doesn’t care about this, but I was provoked!

    Regarding the societal burden of medical costs; I’ll give my weakest arguments first.

    1) By how much do seatbelts and helmets really reduce total costs? Some people with brain injuries (acquired during an accident while wearing a helmet) would otherwise have cheaply died, costing society nothing. It’s a macabre thought, but if this is the argument you want to make, you have to look at both sides of the ledger.

    2) Suppose we could internalise the cost via some Pigovian tax (service charge, for Fran!). Make the cyclist easily pay the expectation value of the medical burden they place on society each time they fail to wear a helmet. In this thought experiment, let’s assume a thoroughly unrealistic zero transaction cost. People would still sometimes elect to pay this, because life is messy and helmets can be unavailable or unfeasible to use. If the Pigovian tax was set correctly, this would lead to the efficient rate of helmet use.

    My contention is that this would be a very minimal price indeed. There are hundreds of thousands of safe helmetless bike-rides for every accident where a helmet made the difference between a brain injury and not (and remember the negative contributions to this number from point 1). I doubt the cost would be more than a dollar. The expectation value in negative utility from the personal effects of such a crash (loss of life, severe injury) are much more important to the cyclist than one lousy dollar. This kind of price is so minimal, that even if it were applied, it would not change behavior much at all. On this basis, I say that a society without a helmet law (but with lots of public safety propaganda, especially during childhood) already comes closest to the efficient use rate. It comes much closer than the highly inflexible blanket ban.

    3 This point is a philosophical one, which disputes even the need to think about arguments in point 2. It’s simply not true that “The non-seatbelt wearer, even if driving alone, invites, nay demands, that the public health system subsidise his/her freedom to non-restraint by imposing an unliquidated liability on the system.”

    The non seatbelt wearer after an accident is likely unconscious, and is in no position to demand anything. It would be perfectly practical for paramedics to simply leave as soon as they notice that the seatbelt wasn’t on. The car still has to be towed of course, but that has to happen regardless of seatbelt use. It could be sold for scrap and the money used to pay the ambulance call-out fee if necessary. The non-seatbelt wearer doesn’t impose any necessary costs; society actively chooses to pay for something where not paying for it is a viable option. It’s not an externality like pollution, where the cost is unavoidable. Of course, as a citizen I choose to support the more generous option; it would be barbaric to do otherwise. We shouldn’t forget though, that emergency health care is a humane gift from society to individual. The gift is voluntary, and irrefusable; it cannot entitle society to impinge on the rights of the individual.

    4 Fran says “It should be noted to that driving is not a right in any fundamental sense. It’s a privilege granted under specified conditions.”
    Unless those specified conditions relate only to other people’s safety, I disagree with this. I think every possible action by an individual is a fundamental right, unless curtailing that action would help other people.

    5 “Most think belts and helmets a minor imposition.” It’s irrelevant what most people think. The law is immoral. This is tyranny of the majority.

  30. Sam
    February 13th, 2012 at 21:26 | #30

    I also have a post in moderation. Perhaps JQ is nudging us towards the sandpit!

  31. Sam
    February 13th, 2012 at 21:29 | #31

    @Ikonoclast
    I’ll be interested to hear about these corporations.

  32. Sam
    February 14th, 2012 at 12:35 | #32

    My responses in the sandpit

  33. Ikonoclast
    February 14th, 2012 at 13:21 | #33

    @Sam
    I’ll take this to the sandpit.

  34. Troy Prideaux
    February 14th, 2012 at 13:30 | #34

    I’m starting to gather where the moderation issues are stemming from and I think it’s primarily a software issue. If you reply to somebodies post using the quote option, your message will go through (with the various content provisos), but if they replied to somebody themselves with the little HTML tag embedded at the top, the messages appears to go into moderation.

    Just a hunch for now.

  35. Troy Prideaux
    February 14th, 2012 at 15:00 | #35

    Dan :
    Is there a way of donating to the Occupy movement? Otherwise CounterPunch.

    Dan, did you finish up finding out any more about that?

  36. Dan
    February 15th, 2012 at 09:06 | #36

    I thought someone here might already know. But a quick Google reveals:

    http://occupywallst.org/donate/

  37. February 15th, 2012 at 12:36 | #37

    I like the idea of donating to a particularly appropriate cause – something Santorum would particularly hate, rather than just an ordinary good cause. Given Santorum’s particularly form of reactionary politics this would be something to do with sexuality or abortion, rather than Occupy (which would be far more approriate for Romney).

    Planned Parenthood or the Human Rights Project would be obvious choices, but can I put in a bid for Scarleteen (www.scarleteen.com) it fights ignorance on sexuality issues, informs young people about choices on contraception and abortion, tackles domestic violence and relationship issues. Moreover, it does all this on a budget that is a minute fraction of other organisations. I’m used to NGOs that operate on the smell of an oily rag, but I’ve been to the Scarleteen office (the dining room table of the founder) and it would be fair to say you’d need a well trained beagle to even detect the smell of any rags in the vicinity. Your money will go further there than any other cause I know.

  38. Dan
    February 15th, 2012 at 13:05 | #38

    @Stephen Luntz

    Nice one, Stephen :)

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