In general I’m more inclined the trust the market value than any particular prognosticator. Why shouldn’t I be?
edit: The arguments here have convinced me to bet some money on Biden (on Betfair), but today the odds are still moving against him (down to just under 60% on electionbettingodds.com). This does leave me rather confused—surely the “dumb money” can’t outweigh the “smart money” so heavily? Especially not on Betfair which doesn’t have PredictIt’s limitations.
Yeah, I think the OP’s argument requires a good explanation of why the markets have failed to adequately price in Silver’s prediction. I’m not saying markets are always right and impossible to beat no matter what, but the EMH is a pretty good default starting point, requiring strong evidence to overcome in any specific case. ‘I trust this guy’s public prediction, based on equally public information about his methods and track record’ doesn’t seem nearly enough.
The efficient market hypothesis is an overrated and dubious hypothesis when applied to the stock market (a market which could plausibly have the necessary conditions for EMH to be reasonable), betting market’s like predictit though are nothing like the stock market and significantly more inefficient. The necessary conditions for a market to be efficient require the market to be heavily/majority used by profit maximizing investors and this just isn’t the case for most gambling markets.
In general betting on a gambling market is a much worse idea than betting on stocks, since the transaction costs are a lot higher and you are betting on a zero-sum game instead of a historically positive-sum one. That being said there are some notable examples of the market completely failing. Take the Mayweather vs McGregor fight where the best boxer in the world for a decade only had a −400 edge against someone who had never had a professional boxing match (the line started at a much more reasonable −2500). If I had more money back in 2017 I would have bet that line heavily. Just because you are betting on a usually subpar market doesn’t mean there aren’t still good deals to be had on occasion.
My argument doesn’t require the EMH to be true in any strong sense, just true enough that you can’t beat a big, liquid market by a large margin via easy analysis of very public information. Predictit’s price is similar to Betfair’s—in fact Betfair is currently slightly less favourable to Biden—and presumably won’t diverge too far in either direction due to arbitrage. Betfair has matched about $180 million on its ‘next US President’ market. Of course a lot of its users are wild gamblers, but it is big enough to attract serious professionals (and smart opportunists with plenty of capital) too.
I’ve been told that the election is considered a massive and rare opportunity among professional gamblers, which that person thought was the ‘smart money’.
Anyone who thinks that betting market prices are rational will not bet on them. Why would you tie up your capital (even for a few weeks) and pay fees if the prices are fair?
Can you elaborate? I’m not sure what the point of disagreement is here.
For a big market like this, on an exchange like Betfair, my rough mental model is that there is a combination of recreational/compulsive gamblers, more serious professional/wannabe professional gamblers, and (given that the US election captures the attention of a great portion of the world) people who don’t bet for a living but will keep an eye on the market and take any obviously profitable bets on offer.
So a lot of the bets that get matched will be between unserious players (who either don’t care or don’t think carefully about whether the price is rational) and serious players (who do). Others will be matched within the group of serious players, who of course can disagree with each other about the ‘correct price’. But if there’s a mispricing obvious enough that you or I can detect it just by reading 538 or Less Wrong, and large enough to be hugely +EV after transaction and opportunity costs, my default assumption is that it will probably self-correct before I get a chance to take advantage. Not all the money in the market is rational, but there are rational bettors with enough capital to keep the prices roughly where they should be.
edit to clarify why I’m focusing on Betfair: I don’t know a lot about Predictit, but I believe it heavily limits the amount any individual user can bet. In isolation, that could be enough to allow it to stay surprisingly irrational for surprisingly long. But I assume its prices for any significant market will stay relatively close to those of a big exchange like Betfair, because of the easy arbitrage opportunities when they diverge. And the 65-66c you quote is very close to the Betfair price of about a day ago (though the latter has since tightened to the equivalent of about 62c).
At least a couple of people have downvoted this without replying. One of the things I usually like about LW and similar spaces is that good-faith comments get a reply, not just a silent dismissal.
I get that the comment is not exactly punchy or brilliantly written, but I was trying to do the right thing and explain some of my own assumptions, rather than write the equivalent of ‘wat?’ and leave deluks917 to do all the work of bridging our communication gap.
The arguments here have convinced me to bet some money on Biden
Which ones convinced you? I still haven’t seen a serious explanation for why everyone is apparently leaving so much expected value on the table. It seems to me that the market is big enough to be worth the attention of serious people, but not so big that it would take a huge number of them to snap up all the ‘dumb money’ and push the odds somewhere reasonable.
The main factors were Nate Silver’s record of good calibration, and (alleged) “smart money” successful bettors (including local Zvi) being onto it. I’m still uncertain why the market could be so inefficient in this case, so I’m not betting a lot of money, but it’s possible that institutional factors prevent large amounts of smart capital coming in—perhaps directly betting on the election is still too weird for a large investment firm.
In general I’m more inclined the trust the market value than any particular prognosticator. Why shouldn’t I be?
edit: The arguments here have convinced me to bet some money on Biden (on Betfair), but today the odds are still moving against him (down to just under 60% on electionbettingodds.com). This does leave me rather confused—surely the “dumb money” can’t outweigh the “smart money” so heavily? Especially not on Betfair which doesn’t have PredictIt’s limitations.
Yeah, I think the OP’s argument requires a good explanation of why the markets have failed to adequately price in Silver’s prediction. I’m not saying markets are always right and impossible to beat no matter what, but the EMH is a pretty good default starting point, requiring strong evidence to overcome in any specific case. ‘I trust this guy’s public prediction, based on equally public information about his methods and track record’ doesn’t seem nearly enough.
The efficient market hypothesis is an overrated and dubious hypothesis when applied to the stock market (a market which could plausibly have the necessary conditions for EMH to be reasonable), betting market’s like predictit though are nothing like the stock market and significantly more inefficient. The necessary conditions for a market to be efficient require the market to be heavily/majority used by profit maximizing investors and this just isn’t the case for most gambling markets.
In general betting on a gambling market is a much worse idea than betting on stocks, since the transaction costs are a lot higher and you are betting on a zero-sum game instead of a historically positive-sum one. That being said there are some notable examples of the market completely failing. Take the Mayweather vs McGregor fight where the best boxer in the world for a decade only had a −400 edge against someone who had never had a professional boxing match (the line started at a much more reasonable −2500). If I had more money back in 2017 I would have bet that line heavily. Just because you are betting on a usually subpar market doesn’t mean there aren’t still good deals to be had on occasion.
My argument doesn’t require the EMH to be true in any strong sense, just true enough that you can’t beat a big, liquid market by a large margin via easy analysis of very public information. Predictit’s price is similar to Betfair’s—in fact Betfair is currently slightly less favourable to Biden—and presumably won’t diverge too far in either direction due to arbitrage. Betfair has matched about $180 million on its ‘next US President’ market. Of course a lot of its users are wild gamblers, but it is big enough to attract serious professionals (and smart opportunists with plenty of capital) too.
I’ve been told that the election is considered a massive and rare opportunity among professional gamblers, which that person thought was the ‘smart money’.
Anyone who thinks that betting market prices are rational will not bet on them. Why would you tie up your capital (even for a few weeks) and pay fees if the prices are fair?
Can you elaborate? I’m not sure what the point of disagreement is here.
For a big market like this, on an exchange like Betfair, my rough mental model is that there is a combination of recreational/compulsive gamblers, more serious professional/wannabe professional gamblers, and (given that the US election captures the attention of a great portion of the world) people who don’t bet for a living but will keep an eye on the market and take any obviously profitable bets on offer.
So a lot of the bets that get matched will be between unserious players (who either don’t care or don’t think carefully about whether the price is rational) and serious players (who do). Others will be matched within the group of serious players, who of course can disagree with each other about the ‘correct price’. But if there’s a mispricing obvious enough that you or I can detect it just by reading 538 or Less Wrong, and large enough to be hugely +EV after transaction and opportunity costs, my default assumption is that it will probably self-correct before I get a chance to take advantage. Not all the money in the market is rational, but there are rational bettors with enough capital to keep the prices roughly where they should be.
edit to clarify why I’m focusing on Betfair: I don’t know a lot about Predictit, but I believe it heavily limits the amount any individual user can bet. In isolation, that could be enough to allow it to stay surprisingly irrational for surprisingly long. But I assume its prices for any significant market will stay relatively close to those of a big exchange like Betfair, because of the easy arbitrage opportunities when they diverge. And the 65-66c you quote is very close to the Betfair price of about a day ago (though the latter has since tightened to the equivalent of about 62c).
At least a couple of people have downvoted this without replying. One of the things I usually like about LW and similar spaces is that good-faith comments get a reply, not just a silent dismissal.
I get that the comment is not exactly punchy or brilliantly written, but I was trying to do the right thing and explain some of my own assumptions, rather than write the equivalent of ‘wat?’ and leave deluks917 to do all the work of bridging our communication gap.
https://www.lesswrong.com/posts/y8RWtNBiksbSzm9j4/bet-on-biden?commentId=ENYJswSZy2DgrntEh seems like an ok guess.
I have a much higher confidence in this being a good bet than in any particular theory of why people are betting on Trump.
Which ones convinced you? I still haven’t seen a serious explanation for why everyone is apparently leaving so much expected value on the table. It seems to me that the market is big enough to be worth the attention of serious people, but not so big that it would take a huge number of them to snap up all the ‘dumb money’ and push the odds somewhere reasonable.
The main factors were Nate Silver’s record of good calibration, and (alleged) “smart money” successful bettors (including local Zvi) being onto it. I’m still uncertain why the market could be so inefficient in this case, so I’m not betting a lot of money, but it’s possible that institutional factors prevent large amounts of smart capital coming in—perhaps directly betting on the election is still too weird for a large investment firm.