Market Reaction to the Election

Posted by Peter on November 19, 2004
Posted in: Economics, Investing, U.S. Politics.

The stock market rose in reaction to Bush’s victory, which wasn’t much of a surprise. What was moderately unusual was that the dollar sank relative to many other currencies and relative to gold, and a steady sinking trend seems to be continuing. In fact, measuring the S&P 500 relative to gold, it went down the day after the election and is a tiny bit lower now than before the election. I doubt that this indicates any belief that Kerry would have been better than the typical Democrat at reducing inflation. It seems to imply that the Bush (or the Republicans in general) have abandoned the fiscal responsibility that we used to associate with Republicans.

The decline of the dollar seems to be overwhelming the Chinese attempts to prop up the dollar to the extent that it is stable relative to the yuan. It seems strange that government officials think they can manage a gradual and widely anticipated change in the exchange rate. If interest rates on dollar-denominated holdings was higher than yuan-denominated holdings, people might expect the two to be equally good investments. But dollar interest rates seem to be a good deal lower, which makes it obvious to anyone who believes the official hints that yuan holdings are a better investment. And there are reports that China has bought increasing amounts of dollars from people who realize this. This suggests to me that a sudden collapse in the dollar relative to the yuan is not too far off when the Chinese government realizes a slow decline is expensive.

Charity Angels

Posted by Peter on November 18, 2004
Posted in: Economics. Tagged: .

Marginal Revolution summarizes an idea of Robin Hanson about how to overcome the problem of poor information regarding who is worthy of what charity (which I agree is a serious problem).

Unfortunately, I doubt it will work, because it suffers from very similar information problems as direct charity does. It requires donors to have good information about what a prototypical worthy recipient looks like (but having this information seems like a large part of the problem we are trying to solve), or else be able to hire someone who has better information about that than the donor (but Robin provides some strong reasons to doubt that is possible in his more recent paper He Who Pays The Piper Must Know The Tune).

I can imagine (but am unconvinced) that donors can describe the appropriate criteria for worthiness, and that the main information problem is distinguishing honest claims of meeting those criteria from dishonest claims. But the charity angels scheme rewards people for failing to distinguish honest claims, which makes me doubt that the giving that this scheme would encourage has much to do with truly worthy causes.

The “Tell Off A Jerk” variant on this theme seems closer to a workable idea, but it risks producing flame wars where people polarize into groups each of which uses charitable donations to encourage retaliation for the other group’s rude attempts at deterring jerkdom.

Book Review: Rare Earth by Peter Ward, Donald Brownlee

Posted by Peter on November 17, 2004
Posted in: Book Reviews, Fermi Paradox. Tagged: , , , , .

Rare Earth : Why Complex Life Is Uncommon in the Universe provides some fairly strong (and not well known) arguments that animal life on earth has been very lucky, and that planetary surfaces are typically much more hostile to multicellular life than our experience leads us to expect.

The most convincing parts of the book deal with geological and astronomical phenomena that suggest that earth-like conditions are unstable, and that it would have been normal for animal life to have been wiped out by disasters such as asteroids, extreme temperatures, supernovae, etc.

The parts of the book that deal with biology and evolution are disappointing. The “enigma” of the Cambrian explosion seems to have been explained by Andrew Parker (see his book In the Blink of an Eye) in a way that undercuts Rare Earth’s use of it (dramatic changes of this nature seem very likely when eyes first evolve). This theory was apparently first published in a technical journal in 1998 (i.e. before Rare Earth).

They often assume that intelligence could only develop as it has in humans, even suggesting that it couldn’t evolve in the ocean, which is rather odd given how close the octopus is to qualifying. But the various arguments in the book are independent enough that the weak parts don’t have much affect on the rest of the arguments.

I was surprised that they never mentioned the Fermi Paradox, which I consider to be the strongest single argument for their position. Apparently they don’t give it much thought because they don’t expect technological growth to produce effects that encompass more than our planet and are visible at galactic distances.

Their concern over biodiversity seems rather misplaced. I can understand why people who overestimate mother nature’s benevolence think that preserving the status quo is a safe strategy for humanity, but it seems to me that anyone sharing Rare Earth’s belief that nature could wipe us out any time now should tend to prefer a strategy of putting more of our effort into creating technology that will allow us to survive natural disasters.

I am disappointed that they rarely attempt to quantify the range of probabilities they would consider reasonable for the risks they discuss.

Stephen Webb has written a book on roughly the same subject called Where is Everybody? that is more carefully argued, but less entertaining, than Rare Earth.

Accelerating Change Conference

Posted by Peter on November 11, 2004
Posted in: Freedom, Investing, Virtual Worlds. Tagged: , .

The 2004 Accelerating Change Conference focused much more on current changes than last year’s attempts at providing long-term visions led me to expect.

The one topic that excited me was a virtual world called Second Life. While it might sound superficially like just a virtual Burning Man, the designers are serious enough about their nationbuilding to encourage commerce, both within the system and via currency exchanges such as The Gaming Open Market with other worlds. Their VP of Product Development Cory Ondrejka described Hernando de Soto’s book The Mystery of Capital as "must reading". They have been careful to insure that people have few incentives to take disputes arising in the virtual world to meatspace courts. For instance, they once banned a vandal from the game who owned a fair amount of land; they auctioned off the land and sent him a check for most of the proceeds – $1600.

Some of their customers are doing well enough in the virtual world that the company that runs Second Life has trouble offering them a salary good enough to compete with what they’re making in virtual life.

They don’t seem as concerned about the highly deflationary effects of their monetary policy as I expect they ought to be. Why will people buy their land (the sale of which seems to be their main source of income) if they can earn a safe and sure return by just holding the local currency?

The responsiveness of the company to citizen complaints (e.g. simplifying and later abolishing taxes in response to tax revolts) is fairly strong evidence that a non-monopolistic dictator is better than a democracy with monopoly power.

Tradesports compared to the pollsters

Posted by Peter on November 3, 2004
Posted in: Idea Futures, Investing, U.S. Politics. Tagged: , .

Once again, I feel somewhat humbled for underestimating the accuracy of presidential election markets. At least I was cautious enough to mainly bet against Bush winning states where he appeared to be behind, and against him winning 400 electoral votes, which made up for what I lost betting that Kerry would win the election and popular vote.

Assuming the preliminary results are accurately indicating the final results, Tradesports did quite well at predicting the elections (except for a few hours on Tuesday afternoon when it mistakenly reacted to exit polls). It’s Monday evening prices correctly indicated which presidential candidate would win each state. And it did a good job of indicating which states were closest (saying Iowa and Ohio were the least certain).

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Paper versus plastic voting

Posted by Peter on November 2, 2004
Posted in: U.S. Politics.

In spite of reports that poll workers in Santa Clara county may have been told not to inform voters about the option of a paper ballot instead of electronic, they were asking everyone when I voted in Mountain View. But after having the first worker record my choice of a paper ballot, I still waited a minute or two in a line for the electronic booth before getting the attention of the person who was supposed to have handed me the ballot. There was a line for electronic voting but essentially no line for paper voting, partly because one electronic machine had a problem due to what sounded like a voter trying to go back and change a vote, but had reached a point where it appeared to be too late to change it. It looked like between 10 and 20 percent of voters were using paper ballots. The paper ballot seemed simpler to use than what I recall of the electronic ballot 2 years ago. See PaperOrPlastic2004.org for info about California voting choices.

The Tradesports contracts showed Bush’s chances at just below 50% within the past hour, after having stated mostly in the 50s for the past few weeks.

Senators and Intelligence

Posted by Peter on November 1, 2004
Posted in: Idea Futures, U.S. Politics. Tagged: .

Voters in Oregon and the Dakotas should remember what their Senators said about the DARPA project to create a futures market designed to provide information about terrorism. Ask yourself whether our presidential election would be decided more intelligently if we had a futures contract that predicted how many people would die in terrorist attacks over the next four year if Bush stays, and a similar one for a Kerry presidency. Many press reports that describe the reactions of Ron Wyden (Oregon), Byron Dorgan (North Dakota), and Tom Daschle (South Dakota) to the DARPA project are available here.

Manipulating futures markets

Posted by Peter on October 29, 2004
Posted in: Idea Futures, Investing, U.S. Politics. Tagged: .

Alex Tabarrok writes about the apparent attempts to manipulate the Bush re-elected contract at Tradesports.com (which just dropped to exactly 50!), and CNBC has mentioned the same report today (with a denial from George Soros that he is responsible).

I want to warn people not to treat the failure of this manipulation as strong evidence that manipulation won’t have much effect on the reliability of the prices. If an experienced trader such as Soros tried to engage in this kind of manipulation, he would use a much more patient and cost-effective strategy than quickly driving the price down from 55 to 10.

To estimate the harm done by manipulation, we need to look at careful studies of how accurate markets have been, plus experiments such as the one Robin Hanson arranged. Note also that Robin’s attempt at a theoretical argument on this subject is unconvincing because it unrealistically assumes that traders aren’t risk-averse.

Seasteading

Posted by Peter on October 29, 2004
Posted in: Freedom. Tagged: .

I got a refreshing break from the gloomy election news at a talk on Wednesday by Patri Friedman, who seems determined to give his father some competition for the title of most effective advocate of freedom.

Mike Linksvayer (whose blog I ought to read more regularly) has a good summary of the talk. I’ll try to comment on this topic once I’ve read the online book on the subject, hopefully in time for the related talk by Spencer MacCallum at the Nov. 13 meeting of the Saturday Night Anarchy Club.

Badnarik for President

Posted by Peter on October 29, 2004
Posted in: U.S. Politics.

Wally Olson’s speeches in the Yale Political Union 30 years ago did more to make me comfortable with Libertarianism than any other single factor, so I’m disappointed to see him describe the Libertarian presidential candidate (Badnarik) as a "barking moonbat". I’m not entirely clear what that phrase means, but it seems to imply that the Libertarian Party ought to be rebuked for selecting him.

Badnarik does have some weird ideas and a general lack of brilliance that, in an ideal world, would mean that we should have expected better of the LP. But given the LP’s recent history, it deserves some modest rewards for selecting a candidate who does such basic things as buying advertising to spread Libertarian ideas. According to R.W. Bradford in Liberty Magazine (who may have been the first to publicize Badnarik’s strange ideas), Badnarik had spent 20 percent of the money he raised to buy ads as of mid-September. By comparison, Browne spent much less than 1 percent of his 1996 budget on buying ads. And as far as I can tell, Badnarik has enough sense to downplay his stranger ideas when campaigning.

Badnarik may be goofy and mediocre, but we’re stuck in a situation where that looks clearly better than what we should expect if we reject him.

I saw a great bumper sticker recently which (perhaps unintentionally) suggests the appropriate way to think about this election: Frodo failed – Bush got the ring. Tolkien wouldn’t want us to think that giving the ring to a Gollum or a Gandalf would be sufficient to solve the problem. Giving the ring to the least power-hungry person available is better than giving it to the smartest.