Categories:
Economic Methods
Politics and Economics
In early February, noted journalist and GMU professor Steve Pearlstein bet me $50 at even odds that Ted Cruz would win the Republican nomination. I have now officially won.
Why did I make this bet? Simple: At the time, betting markets gave Cruz about a 10% chance of winning. Pearlstein claimed to know Cruz was very likely to win, so I bet him. Soon after we made the bet, Cruz rebounded, peaking at 34% in mid-April, marginally shaking my confidence. But nothing came of it in the end.
My final assessment: I have great respect for Pearlstein’s knowledge of American politics. I think he did know more than betting markets. But he didn’t know enough to see a 10% probability in the market and conclude the true probability exceeded 50%.
READER COMMENTS
Nick
Jul 21 2016 at 10:26am
Or maybe he did know and the real odds were greater than 50%. But something with a true 49% or less chance of happening occurred to your benefit.
How can you ever know? Another question is why he would make a bet with you instead of on the prediction market where he was receiving better odds. Perhaps there is an additional benefit of merely making a bet with you that skews odds in your favor: namely you publish the results on a large platform and link to that person’s profile…
A
Jul 21 2016 at 11:31am
Nick, are people who market their intellectual skills really excited to be introduced as a bet loser?
Jonathan Davis
Jul 21 2016 at 12:43pm
Efficient market hypothesis strikes again! Professor Pearlstein reminds me of the talking heads on CNBC: I know more than market, trust me–no wait I don’t.
Patrick
Jul 21 2016 at 1:02pm
I came to comment, but Nick said it perfectly:
1) There is a difference between decisions and outcomes. You’re retroactively judging prior probabilities based on outcomes…
2) Steve should never have made that bet with you. He could have been compensated significantly higher odds by trading away. Curious.
Nick
Jul 21 2016 at 2:41pm
A- What is your alternative answer as to why Pearlstein bet with Caplan as opposed to placing a wager in an anonymous prediction market on the same subject, when the odds Caplan gives are far worse?
My basic point is that there is some additional value above and beyond the mere bet with Caplan and that should be priced in. It’s essentially the same argument that casinos price in entertainment value in their gambling odds.
Colombo
Jul 21 2016 at 3:59pm
Ron Paul was not allowed to speak in 2012, because he would not endorse Romney. Now, Cruz was allowed to speak even though he did not endorse Trump. This means that Trump has something in common with Bryan Caplan: winning with elegance is better than just winning. Better for everyone.
Nathan
Jul 22 2016 at 5:21am
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Matt
Jul 22 2016 at 9:07am
Why does somebody who is supposedly so smart make a $50 bet at even odds when he could get 10-1 by betting through a prediction market?
Comments are closed.