Russ, I think that if you take the example literally, the price would be 91%, not 50%, and you wouldn’t expect to make money.
Eliezer, the PS definitely clarifies matters.
Although I also think the example is actually instructive if taken literally too. In particular, if you see nine heads in a row, each additional head means you expect a higher chance of heads next flip. But you do not expect an increase in the price of the contract that pays $1 if heads comes up. THAT still has an expected price change of zero, even thought we expect more heads going forward.
In other words, future EVENTS can be predictable, but future PRICES cannot.
Russ, I think that if you take the example literally, the price would be 91%, not 50%, and you wouldn’t expect to make money.
Eliezer, the PS definitely clarifies matters.
Although I also think the example is actually instructive if taken literally too. In particular, if you see nine heads in a row, each additional head means you expect a higher chance of heads next flip. But you do not expect an increase in the price of the contract that pays $1 if heads comes up. THAT still has an expected price change of zero, even thought we expect more heads going forward.
In other words, future EVENTS can be predictable, but future PRICES cannot.