EDIT: I was wrong. Theo the French Whale was the sharp. From the Kelly formula and his own statements his all things considered probability was 80-90% - he would need to possess an enormous amount of private information to justify such a deviation from other observers. It turns out he did. He commissioned his own secret polls using a novel polling method to compensate for the shy Trump voter.
Problem is, unlike financial markets prediction markets are zero sum. That limits how much informed traders—”sharps”- are incentivized.
In theory this could be remedied by subsidizing the market by a party that is willing to pay for the information. The information is public so this suffers from standard tragedy of the commons.
Mister Theo bought 75 million dollars worth of Yes Trump. He seems to have no inside information. In expectation then he is subsidizing prediction markets, providing the much needed financial incentive to attract the time, effort and skills of sophisticated sharps.
Perhaps we should think of uninformed “noise traders” on prediction markets as engaging in prosocial behaviour.
Their meta-epistemic delusion and gambling addiction provide the cold hard cash to finance accurate pricefinding in the long-run.
EDIT: to hit the point home, if you invest 50% of your capital (apparently the guy invested most of his ?money) at the odds that Polymarket was selling the Kelly-rational implied edge would mean that the guy’s true probability is 80% [according to gpt]. And that’s for Kelly betting, widely considered far too aggresive in real life. Most experts (e.g. actual poker players) advice fractional Kelly betting.
All-in-all his all things-considered probability for a Trump win would have be something like >90% to justify this kind of investment. I don’t think anybody in the world has access to enough private information to rationally justify this kind of all-things-considered probability on an extremely noisy random variable (US elections).
Looks likely that tonight is going to be a massive transfer of wealth from “sharps”(among other people) to him. Post hoc and all, but I think if somebody is raking in huge wins while making “stupid” decisions it’s worth considering whether they’re actually so stupid after all.
1. there might no be any real sharps (=traders having access to real private arbitragiable information that are consistently taking risk-neutral bets on them) in this market at all.
This is because a) this might simple be a noisy, high entropy source that is inherently difficult to predict, hence there is little arbitragiable information and/or b) sharps have not been sufficiently incenticiz
2. The transfer of wealth is actually disappointing because Theo the French Whale moved the price so much.
For an understanding of what the trading decisions of a verifiable sharp looks like one should take a look at Jim Simons’ Medaillon fund. They do enormous hidden information collection, ?myssterious computer models, but at the end of the day take a large amount of very hedged tiny edge positions.
You are misunderstanding my argument (and most of the LW commentariat with you). I might note that I made my statement before the election result and clearly said ‘win or lose’ but it seems that even on LW people think winning on a noisy N=1 sample is proof of rationality.
but it seems that even on LW people think winning on a noisy N=1 sample is proof of rationality
It’s not proof of a high degree of rationality but it is evidence against being an “idiot” as you said. Especially since the election isn’t merely a binary yes/no outcome, we can observe that there was a huge republican blowout exceeding most forecasts(and in fact freddi bet a lot on republican pop vote too at worse odds, as well as some random states, which gives a larger update) This should increase our credence that predicting a republican win was rational. There were also some smart observers with IMO good arguments that trump was favored pre-election, e.g. https://x.com/woke8yearold/status/1851673670713802881
“Guy with somewhat superior election modeling to Nate Silver, a lot of money, and high risk tolerance” is consistent with what we’ve seen. Not saying that we have strong evidence that Freddi is a genius but we also don’t have much reason to think he is an idiot IMO.
That’s why I said: “In expectation”, “win or lose”
That the coinflip came out one way rather than another doesnt prove the guy had actual inside knowledge. He bought a large part of the shares at crazy odds because his market impact moved the price so much.
But yes, he could be a sharp in sheeps clothings. I doubt it but who knows. EDIT: I calculated the implied private odds for a rational Kelly bettor that this guy would have to have. Suffice to say these private odds seem unrealistic for election betting.
Point is that the winners contribute epistemics and the losers contribute money. The real winner is society [if the questions are about socially-relevant topics].
I disagree with “He seems to have no inside information.” He presented himself as having no inside information, but that’s presumably how he would have presented himself regardless of whether he had inside information or not. It’s not like he needed to convince others that he knows what he’s doing, like how in the stock market you want to buy then pump then sell. This is different—it’s a market that’s about to resolve. The smart play from his perspective would be to aggressively trash-talk his own competence, to lower the price in case he wants to buy more.
Yes, this is possible. It smells a bit of 4d-chess. As far as I can tell he already had finalized his position by the time the WSJ interview came out.
I’ve dug a little deeper and it seems he did do a bunch of research on polling data. I was a bit too rash to say he had no inside information whatsoever. Plausibly he had some. The degree of the inside information he would need is very high. It seems he did a similar Kelly bet calculation since he report his all-things-considered probability to be 80-90%:
“With so much money on the line, Théo said he is feeling nervous, though he believes Trump has an 80%-90% chance to win the election.
“A surprise can always occur,” Théo told The Journal.”
I have difficulty believing one can get this kind of certainty for all-things-considered-probability for something as noisy and tight as US presidential election. [but he won both the electoral college and popular vote bet]
I agree with you that people like him do a service to prediction markets: contributing a huge amount of either liquidity or information. I don’t agree with you that it is clear which one he is providing, especially considering the outcome. He did also win his popular vote bet, which was hovering around, I’m not sure, ~20% most of the time?
I think he (Theo) probably did have a true probability around 80% as well. That’s what it looks like at least. I’m not sure why you would assume he should be more conservative than Kelly. I’m sure Musk is not, as one example of a competent risk-taker.
The true probability would be more like >90% considering other factors like opportunity costs, transactions cost, counterparty risk, unforeseen black swans of various kinds etc.
Bear in mind this is all things considered probability not just in-model probability, i.e. this would have to integrate that most other observers (especially those with strong calibrated prediction ) very strongly disagree*. Certainly, in some cases this is possible but one would need quite overwhelming evidence that you had a huge edge.
I agree one can reject Kelly betting—that’s pretty crazy risky but plausibly the case for people like Elon or Theo. The question is whether the rest of us (with presumably more reasonably cautious attitudes) should take his win as much epistemic evidence. I think not. From our perspective his manic riskloving wouldn’t be an much evidence for rational expectations.
*didn’t the Kelly formula already integrate the fact that other people think differently. No, this is an additional piece of information one has to integrate. The Kelly betting gives you an implicit risk-averseness even conditioning on your beliefs being true (on average).
EDIT: Indeed it seems Theo the French Whale might have done a Kelly bet estimate too, he reports his true probability at 80-90%. Perhaps he did have private information.
“For example, a hypothetical sale of Théo’s 47 million shares for Trump to win the election would execute at an estimated average price of just $0.02, according to Polymarket, which would represent a 96% loss for the trader. Théo paid an average price of about $0.56 cents for the 47 million shares.
Meanwhile, a hypothetical sale of Théo’s nearly 20 million shares for Trump to win the popular vote would execute at an average price of less than a 10th of a penny, according to Polymarket, representing a near-total loss.
With so much money on the line, Théo said he is feeling nervous, though he believes Trump has an 80%-90% chance to win the election.
“A surprise can always occur,” Théo told The Journal.”
EDIT: I was wrong. Theo the French Whale was the sharp. From the Kelly formula and his own statements his all things considered probability was 80-90% - he would need to possess an enormous amount of private information to justify such a deviation from other observers. It turns out he did. He commissioned his own secret polls using a novel polling method to compensate for the shy Trump voter.
https://x.com/FellowHominid/status/1854303630549037180
The French rich idiot who bought 75 million dollar of Trump is an EA hero win or lose.
LW loves prediction markets. EA loves them. I love them. You love them.
See: https://worksinprogress.co/issue/why-prediction-markets-arent-popular/
Problem is, unlike financial markets prediction markets are zero sum. That limits how much informed traders—”sharps”- are incentivized.
In theory this could be remedied by subsidizing the market by a party that is willing to pay for the information. The information is public so this suffers from standard tragedy of the commons.
Mister Theo bought 75 million dollars worth of Yes Trump. He seems to have no inside information. In expectation then he is subsidizing prediction markets, providing the much needed financial incentive to attract the time, effort and skills of sophisticated sharps.
Perhaps we should think of uninformed “noise traders” on prediction markets as engaging in prosocial behaviour. Their meta-epistemic delusion and gambling addiction provide the cold hard cash to finance accurate pricefinding in the long-run.
EDIT: to hit the point home, if you invest 50% of your capital (apparently the guy invested most of his ?money) at the odds that Polymarket was selling the Kelly-rational implied edge would mean that the guy’s true probability is 80% [according to gpt]. And that’s for Kelly betting, widely considered far too aggresive in real life. Most experts (e.g. actual poker players) advice fractional Kelly betting. All-in-all his all things-considered probability for a Trump win would have be something like >90% to justify this kind of investment. I don’t think anybody in the world has access to enough private information to rationally justify this kind of all-things-considered probability on an extremely noisy random variable (US elections).
Looks likely that tonight is going to be a massive transfer of wealth from “sharps”(among other people) to him. Post hoc and all, but I think if somebody is raking in huge wins while making “stupid” decisions it’s worth considering whether they’re actually so stupid after all.
>> ‘a massive transfer of wealth from “sharps” ’.
no. That’s exactly the point.
1. there might no be any real sharps (=traders having access to real private arbitragiable information that are consistently taking risk-neutral bets on them) in this market at all.
This is because a) this might simple be a noisy, high entropy source that is inherently difficult to predict, hence there is little arbitragiable information and/or b) sharps have not been sufficiently incenticiz
2. The transfer of wealth is actually disappointing because Theo the French Whale moved the price so much.
For an understanding of what the trading decisions of a verifiable sharp looks like one should take a look at Jim Simons’ Medaillon fund. They do enormous hidden information collection, ?myssterious computer models, but at the end of the day take a large amount of very hedged tiny edge positions.
***************************************************
You are misunderstanding my argument (and most of the LW commentariat with you). I might note that I made my statement before the election result and clearly said ‘win or lose’ but it seems that even on LW people think winning on a noisy N=1 sample is proof of rationality.
It’s not proof of a high degree of rationality but it is evidence against being an “idiot” as you said. Especially since the election isn’t merely a binary yes/no outcome, we can observe that there was a huge republican blowout exceeding most forecasts(and in fact freddi bet a lot on republican pop vote too at worse odds, as well as some random states, which gives a larger update) This should increase our credence that predicting a republican win was rational. There were also some smart observers with IMO good arguments that trump was favored pre-election, e.g. https://x.com/woke8yearold/status/1851673670713802881
“Guy with somewhat superior election modeling to Nate Silver, a lot of money, and high risk tolerance” is consistent with what we’ve seen. Not saying that we have strong evidence that Freddi is a genius but we also don’t have much reason to think he is an idiot IMO.
Okay fair enough “rich idiot” was meant more tongue-in-cheek—that’s not what I intended.
That’s why I said: “In expectation”, “win or lose”
That the coinflip came out one way rather than another doesnt prove the guy had actual inside knowledge. He bought a large part of the shares at crazy odds because his market impact moved the price so much.
But yes, he could be a sharp in sheeps clothings. I doubt it but who knows. EDIT: I calculated the implied private odds for a rational Kelly bettor that this guy would have to have. Suffice to say these private odds seem unrealistic for election betting.
Point is that the winners contribute epistemics and the losers contribute money. The real winner is society [if the questions are about socially-relevant topics].
I disagree with “He seems to have no inside information.” He presented himself as having no inside information, but that’s presumably how he would have presented himself regardless of whether he had inside information or not. It’s not like he needed to convince others that he knows what he’s doing, like how in the stock market you want to buy then pump then sell. This is different—it’s a market that’s about to resolve. The smart play from his perspective would be to aggressively trash-talk his own competence, to lower the price in case he wants to buy more.
Yes, this is possible. It smells a bit of 4d-chess. As far as I can tell he already had finalized his position by the time the WSJ interview came out.
I’ve dug a little deeper and it seems he did do a bunch of research on polling data. I was a bit too rash to say he had no inside information whatsoever. Plausibly he had some. The degree of the inside information he would need is very high. It seems he did a similar Kelly bet calculation since he report his all-things-considered probability to be 80-90%:
“With so much money on the line, Théo said he is feeling nervous, though he believes Trump has an 80%-90% chance to win the election.
“A surprise can always occur,” Théo told The Journal.”
I have difficulty believing one can get this kind of certainty for all-things-considered-probability for something as noisy and tight as US presidential election. [but he won both the electoral college and popular vote bet]
I agree with you that people like him do a service to prediction markets: contributing a huge amount of either liquidity or information. I don’t agree with you that it is clear which one he is providing, especially considering the outcome. He did also win his popular vote bet, which was hovering around, I’m not sure, ~20% most of the time?
I think he (Theo) probably did have a true probability around 80% as well. That’s what it looks like at least. I’m not sure why you would assume he should be more conservative than Kelly. I’m sure Musk is not, as one example of a competent risk-taker.
The true probability would be more like >90% considering other factors like opportunity costs, transactions cost, counterparty risk, unforeseen black swans of various kinds etc.
Bear in mind this is all things considered probability not just in-model probability, i.e. this would have to integrate that most other observers (especially those with strong calibrated prediction ) very strongly disagree*. Certainly, in some cases this is possible but one would need quite overwhelming evidence that you had a huge edge.
I agree one can reject Kelly betting—that’s pretty crazy risky but plausibly the case for people like Elon or Theo. The question is whether the rest of us (with presumably more reasonably cautious attitudes) should take his win as much epistemic evidence. I think not. From our perspective his manic riskloving wouldn’t be an much evidence for rational expectations.
*didn’t the Kelly formula already integrate the fact that other people think differently. No, this is an additional piece of information one has to integrate. The Kelly betting gives you an implicit risk-averseness even conditioning on your beliefs being true (on average).
EDIT: Indeed it seems Theo the French Whale might have done a Kelly bet estimate too, he reports his true probability at 80-90%. Perhaps he did have private information.
“For example, a hypothetical sale of Théo’s 47 million shares for Trump to win the election would execute at an estimated average price of just $0.02, according to Polymarket, which would represent a 96% loss for the trader. Théo paid an average price of about $0.56 cents for the 47 million shares.
Meanwhile, a hypothetical sale of Théo’s nearly 20 million shares for Trump to win the popular vote would execute at an average price of less than a 10th of a penny, according to Polymarket, representing a near-total loss.
With so much money on the line, Théo said he is feeling nervous, though he believes Trump has an 80%-90% chance to win the election.
“A surprise can always occur,” Théo told The Journal.”