Politimetrics (associated with the Westminster Business School) has sponsored some additional Intrade contracts which will provide information about the impact of the presidential election on the country if they ever get enough liquidity. So far, there’s been no sign that much liquidity will exist.
One reason I (and presumably other traders) haven’t placed many orders is that the contracts deal with individual candidates. Since the value of the new contracts should fluctuate with the probability of the relevant candidate’s winning, and those fluctuations are currently much larger than any other factor affecting the prices, trading them would require any trader who doesn’t accept the market price to frequently monitor the prices of the underlying contracts. Nobody wants to do that unless the contracts already have significant volume.
Even if they had some liquidity, there’s a good deal of risk that the long-shot bias which appears to be common on Intrade would limit my confidence in the value of the information provided by those prices for all but the two or three candidates who are most likely to win in November (i.e. I’d probably believe what they said about Clinton relative to Obama, but I’d doubt they would be useful for voters in Republican primaries).
When it becomes clear who will win each party’s nomination, these problems will be reduced, and I’ll probably place a moderate number of orders on some of these contracts.
It should be possible to design a better user interface for decision markets of this nature so that users could place orders purely on the probable impact of a candidate’s election. Shock response futures come closer to doing that than contracts of the form “X wins and Y happens”, but can probably only indicate the direction of the impact.
I’ve created web pages at https://bayesianinvestor.com/amm/implied.html and https://bayesianinvestor.com/amm/implied4.html (which are currently being updated 4 times a day) which show implied prices (i.e. the price of the conditional contract as a percent of the price of the underlying candidate’s contract) that ought to represent what the markets think the probable effects would be if that candidate wins. Ideally traders could place orders expressed in terms of those implied prices, but that’s nontrivial to implement, and unlikely to happen unless someone pays Intrade a fair amount to create.
I’ve commented on Jed Christiansen’s blog about why I doubt the conditional contracts I’m subsidizing have had enough trading yet to produce valuable information. But the trends suggest there will be enough trading within a few weeks.
U.S. Politics
I have implemented subsidies to encourage trading of some conditional prediction market contracts that may provide useful information about the consequences of the 2008 presidential election, via a simple automated market maker (using an algorithm described near the end of http://hanson.gmu.edu/ifextropy.html). The subsidized market maker ought to provide incentives for traders to devote more thought to these contracts than they would if the liquidity was less predictable.
Intrade has agreed not to charge any trading or expiry fees on these contracts.
Some places to look for extensive description of the motivations behind these subsidies are here and here.
The contracts are:
-
Oil Futures and PRESIDENT.DEM2008 prices will move in same direction on Election Day
This will use the change in the December 2011 Light Sweet Crude Oil futures
contract from the close before the election (Monday) to the close after the election (Wednesday). A price higher than 50 should suggest that a Democratic victory will cause oil prices to be higher than they otherwise would be, while a price below 50 should suggest that a Democratic victory will cause lower oil prices.
PRESIDENT.DEM2008 refers to the Intrade contract for "Democratic Party Candidate to Win 2008 Presidential Election". -
Treasury bond interest rate futures and PRESIDENT.DEM2008 prices will move in same direction on Election Day
This will use the change in the December 2008 30-year US Treasury Bond futures contract from the close before the election (Monday) to the close after the election (Wednesday). A price higher than 50 should suggest that a Democratic victory will cause bond prices to be higher (and long term interest rates lower) than they otherwise would be, while a price below 50 should suggest that a Democratic victory will cause lower bond prices (and long term interest rates higher) . - Number of US troops in Iraq on 30 June 2010 if a Democrat is elected president in 2008
- NONDEM.PRES-TROOPS.IRAQ: Number of US troops in Iraq on 30 June 2010 if a non-Democrat is elected president in 2008
These are scaled claims whose value will range from 0 if the troop levels are zero to 100 if the troop levels are 200,000 (or more).
- Increase in US Government debt if Democrat elected president in 2008
- Increase in US Government debt if non-Democrat is elected president in 2008
Note that the change in debt is usually quite different from what
is reported as the budget deficit. The debt numbers will be taken from a
source such as the
St. Louis Fed
Series GFDEBTN, Federal Government Debt
These are scaled claims whose value will range from 0 if the debt does not increase to 100 if the debt increases by $1 trillion (or more).
Please read the detailed specifications at Intrade before trading them, as one-line descriptions are not sufficient for you to fully understand them.
For the first two of those contracts, the market maker will enter bids and asks of 38 contracts, and can lose a maximum of $5187.76 on each contract. For the other four contracts, the market maker will enter bids and asks of 115 contracts, and can lose a maximum of $7906.25 on each contract.
I will maintain a web page here devoted to these contracts.
See also this more eloquent description on Overcoming Bias.
Bernie Sanders has introduced a bill to replace patent monopoly protection for drugs with awards based in part on Quality Adjusted Life Years added by the drugs.
This would eliminate the harm due to monopoly pricing. It might also cause some research to be redirected from “me-too” drugs to more innovative drugs. But I suspect that it’s common enough for what initially looks like a “me-too” drug to end up having valuable advantages that such an effect will be minor.
It would probably be a bigger help to people in developing nations than all the government spending misleadingly labeled as foreign aid.
Because politics will ensure that the idea is implemented suboptimally, I would prefer that something similar (e.g. patent buyouts) be implemented by a more responsible institution such as the Gates Foundation. But the patent system has enough problems that even this imperfectly written bill might improve on the status quo.
One strange effect of political reality is that the rewards are apportioned according to either benefits to U.S. patients or world patients, and the bill provides an awfully vague description of which rule will apply to which drug.
The bill allocates 10% of the rewards to orphan drugs, presumably because the lives of people with those diseases are worth more than those with common diseases.
The bill claims generics cost 85% less than patented drugs, but gets that figure from comparing overall generic prices with overall patented prices. If the cost of manufacturing drugs differs for old and new drugs, that will be misleading. The estimates I’ve found for same-drug price declines after generic competition starts suggest the price decline is more like 30% to 50%. So the bill’s claim that it can be financed by the reduced Federal government drug spending appear to be fiction.
Besides, if it were self-financing that way, wouldn’t it indicate a big reduction in the rewards to drug development? I want to see a good analysis of why $80 billion a year is adequate to substitute for patent exclusivity. My crude attempts at analyzing it suggests it’s too low, but not by a large amount.
(HT Alex Tabarrok)
Support U.S. troops by paying attention to their views on the presidential candidates and voting accordingly.
Ron Paul has received the most donations from people identified as current and retired military personnel of any presidential candidate, followed by Obama and McCain. That suggests withdrawal from Iraq may be more popular with the military than it is with other voters. McCain’s strength might be a response to his military experience and/or his opposition to torture. (HT Andrew Sullivan).
Book review: Black Rednecks And White Liberals by Thomas Sowell.
Thomas Sowell is a pretty smart guy. It’s unfortunate that he wastes his skills on reinforcing peoples’ existing political opinions. Much of what he says in this book is right, but the new ideas it offers don’t seem like they ought to change the political opinions of anyone who has thought much about racial politics. And the old but wise arguments are written in a style that seems designed to turn off anyone who isn’t already a fan of Sowell’s ideas.
He presents interesting evidence that the culture of black ghettos came from parts of Britain that were uncivilized at the time its bearers moved to the southern U.S. This is the kind of subject where it’s virtually impossible for most readers to tell whether he’s being objective or selecting evidence to fit his biases. More importantly, it’s hard to tell why it matters. Some people pay lip service to the authenticity of black culture, but I find it hard to believe that the origins of the culture several centuries ago plays an important role in peoples’ choice to adopt the culture.
One interesting aspect of Sowell’s story is that the large migration from the rural south to the urban north after WWII did not result in the usual assimilation of the migrants into the culture of the area they moved to. How much of that was due to the number of migrants, to their culture, or to their race? Sowell ignores this subject.
Sowell’s argument that western civilization was responsible for the nearly worldwide abolition of slavery seems mostly right, but I’m disturbed by his exaggerations. He misleads readers into thinking that the first abolitionists were western, but a quick web search told me that Cyrus the Great wanted to abolish slavery worldwide two millennia earlier.
There are several places in the book where he makes confident, unsupported assertions as if they were certain, when I doubt anyone has enough evidence to make anything better than a rough guess. For instance, he thinks George Washington couldn’t have gotten a prohibition on slavery into the constitution without driving the south out of the union (plausible, but it depends on hard-to-verify assumptions about his powers of persuasion), and that slavery would have lasted longer without the union (a controversial enough claim that abolitionists such as William Lloyd Garrison seemed to reject it, claiming the north would be a better haven for runaway slaves if it seceded and repealed the Fugitive Slave Law). There are probably some leftists who unfairly attack Washington for failing to accomplish more than he could possibly accomplish, but I don’t see signs that they get respect from anyone who would listen to Sowell.
I’m quite suspicious of Sowell’s claim that Hitler’s pretenses of having been provoked into military action were intended only to fool people in Germany. Even if people in other countries had enough information to know Hitler was lying, it’s easy to imagine that a fair number of them were looking for a way to rationalize neutrality, and that Hitler was helping them to fool themselves.
The jury system in the U.S. originated in times when most communities were small enough that jurors were likely to feel close enough to defendants to have tribal/friendship/etc desires not to convict someone without cause, and to be sufficiently at risk from a defendant’s future crimes to take some care not to acquit the guilty. But today, those motives have broken down in many urban and suburban places, and trials are often decided by those who are too dumb to get off jury duty.
I don’t have good ideas for ensuring that jurors are chosen so that they feel like they’re part of the same small community as the defendant, so I’m hoping instead to create new incentives for jurors to care about verdicts.
Simply increasing the pay for serving on a jury would help to avoid the problem of jurors being selected for low intelligence, but I can’t tell how much of the problem that would solve.
I propose a additional ways of rewarding jurors based on results. If the jurors acquit, the jurors could get some large payment in 5 or 10 years if the defendant commits no crimes during that time, but no further payment if the defendant commits a crime. If the jurors convict, the jurors could get some large payment in 5 or 10 years unless the defendant has been exonerated or the conviction reversed on appeal.
The size of the payments would need to be carefully calibrated so that the average award is the same for juries that convict as it is for those that acquit.
Since it would take forever for the government to work out all the details needed to translate these ideas into a fair and predictable system, I’m wondering whether a private charity could implement them. Presumably there are significant legal obstacles to many kinds of payments to jurors, since it’s easy for such payments to be intended to serve the interests of one party to the trial. I can’t tell whether the relevant laws are broad enough to prohibit desirable incentives, or if so whether it’s feasible to relax those restrictions.
Book review: Whose Freedom?: The Battle Over America’s Most Important Idea by George Lakoff.
This book makes a few good points about what cognitive science tells us about differing concepts associated with the word freedom. But most of the book consists of attempts to explain his opponents’ world view that amount to defending his world view by stereotyping his opponents as simplistic.
Even when I agree that the people he’s criticizing are making mistakes due to framing errors, I find his analysis very implausible. E.g. he explains Bush’s rationalization of Iraqi deaths as “Those killed and maimed don’t count, since they are outside the war frame. Moreover, Bush has done nothing via direct causation to harm any Iraqis and so has not imposed on their freedom”. Anyone who bothers to listen to Bush can see a much less stupid rationalization – Bush imagines we’re in a rerun of World War II, where the Forces of Evil have made it inevitable that some innocent people will die, and keeping U.S. hands clean will allow Evil to spread.
Lakoff’s insistence that his opponents are unable to understand indirect, systematic causation is ironic, since he shows no familiarity with most of the relevant science of complex effects of human action (e.g. economics, especially public choice economics).
He devotes only one sentence to what I regard as the biggest single difference between his worldview and his opponents’: his opponents believe in “Behavior as naturally governed by rewards and punishments.”
His use of the phrase “idea theft” to describe uses of the word freedom that differ from his use of that word is objectionable both due to the problems with treating ideas as property and with his false implication that his concept of freedom resembles the traditional U.S. concept of freedom (here’s an example of how he rejects important parts of the founders’ worldview: “One of the biggest mistakes of the Enlightenment was to counter this claim with the assumption that morality comes from reason. In fact, morality is grounded in empathy”).
If his claims of empathy are more than simply calling his opponents uncaring, then it may help explain his bias toward helping people who are most effective at communicating their emotions. For example, a minimum wage is part of his concept of freedom. People who have their wages increased by a minimum wage law tend to know who they are and often have labor unions to help spread their opinions. Whereas a person whom the minimum wage prevents from getting a job is less likely to see the cause or have a way to tell Lakoff about the resulting harm. (If you doubt the minimum wage causes unemployment, see http://www.nber.org/papers/w12663 for a recent survey of the evidence.)
This is symptomatic of the biggest problem with the book – he assumes political disagreements are the result of framing errors, not differences in understanding of how the world works, and wants to persuade people to frame issues his way rather than to use scientific methods when possible to better measure effects that people disagree about.
The book also contains a number of strange claims where it’s hard to tell whether Lakoff means what he says or is writing carelessly. E.g. “Whenever a case reaches a high court, it is because it does not clearly fit within the established categories of the law.” – I doubt he would deny that Hamdi v. Rumsfeld fit clearly within established habeas corpus law.
This is a book which will tempt people to believe that anyone who agrees with Lakoff’s policy advice is ignorant. But people who want to combat Lakoff’s ideology should resist that temptation to stereotype opponents. There are well-educated people (e.g. some behavioral economists) who have more serious arguments for many of the policies Lakoff recommends.
I’ve been wondering for a while whether I should blog about the net neutrality legislation that is being debated. At last, Brad Templeton has come up with a good analysis which covers much of what I wanted to say about why the belief that net neutrality is a good rule is not sufficient to tell us whether we should try to have that written into law.
Lessig’s book The Future of Ideas does a good job of explaining why net neutrality is a desirable rule – a commons can be a good thing, and net neutrality is a rule that’s important to keeping the internet functioning as a commons.
If we’re going to hope that legislation can be useful at protecting commons, then I suspect we need a concept of the commons that contains as much of a standardized bundle of rules as most versions of the concept of property rights contains. That way we could ask legislators to just apply this standardized bundle of rules to each new commons we want it to protect, without giving special interests much of a chance to write the details in such a way as to protect their special situation.
Unfortunately, I can’t think of a good set of rules which would be as intuitive as the rules which apply property rights to physical objects. I suspect that the best we can hope for is a set of rules like those describing what you own when you buy shares of corporate stock. We might even end up with rules as messy as those use for patents, in which case it’s unclear whether it would be worth the effort.
“I do not need to explain why I say things. That’s the interesting thing about being the president. Maybe somebody needs to explain to me why they say something, but I don’t feel I owe anybody an explanation,” – president George W. Bush (via Andrew Sullivan).
Next time you hear someone implying that commercial development is the primary enemy of the environment, remember stories such as this one about how much harm a single wasteful Army Corps of Engineers project is doing to wetlands.