As regular readers of Econlog probably know, I had a bet with Bob Murphy a few years ago about inflation and I won. Bob is a good sport and he paid up. I follow this part of co-blogger Bryan Caplan's Better's Oath:
When I win a bet, I will not shame my opponent, for a betting loser has far more honor than the mass of men who live by loose and idle talk.
I bet for reasons similar to, but not exactly the same as, Bryan's reasons.
The reason we have in common is that we like inducing people to put their views to the test.
Another reason, which I think Bryan and I have in common, is that I like putting my own views to the test. It makes me less sloppy and more careful in predicting.
Another of my reasons that I haven't seen Bryan mention is that betting is just plain fun: more fun when I win but even fun when I lose.
With that introduction, I want to propose another bet to Bob Murphy. On his blog, Bob wrote the following:
Nobody knows the future, but I think the stock market is clearly in a bubble-with a little help from our friends at the Fed.
I propose to Bob the following bet:
I bet that by May 27, 2020, the S&P 500, adjusted for inflation measured by the CPI, will not be more than 10% lower than it was on May 27, 2015. Even odds with a bet of $500.
Of course, you could argue that Bob and I have already made much bigger bets than that. I haven't checked exactly, but about 45% or more of my net worth is in stock funds, both U.S. and international. I'm guessing that, given his views, well under 25% of his net worth is in stock funds.
So why bet with each other? The main reason is that it's fun. The other reason is that we save all the transactions costs that would be involved with buying, and renewing, puts and calls.