John Podhoretz engaged my proposed nuclear Iran bet on Twitter. Highlights of the exchange:
@bryan_caplan I’ll bet you but why such long odds?
— John Podhoretz (@jpodhoretz) July 28, 2015
.@jpodhoretz I propose long odds because you claim very high confidence (“effectively ensures”). I don’t.
— Bryan Caplan (@bryan_caplan) July 28, 2015
@bryan_caplan Already hedging your bet and there isn’t even one! Bock bock bock!
— John Podhoretz (@jpodhoretz) July 28, 2015
.@jpodhoretz I’m not too chicken to admit my ignorance. Are you?
— Bryan Caplan (@bryan_caplan) July 28, 2015
@bryan_caplan I’m too bored to play Twitter with you
— John Podhoretz (@jpodhoretz) July 28, 2015
.@jpodhoretz Betting is a great substitute for fruitless argument. Sign here and the bet is on.
— Bryan Caplan (@bryan_caplan) July 28, 2015
My offer remains open. And I’m happy to negotiate the terms. O ye of great knowledge, come take my money!
READER COMMENTS
BC
Jul 29 2015 at 3:48am
The “long odds” offered are not fair. JP believes the probability that Iran will obtain a nuclear weapon is high. BC (Caplan, not me) believes that the probability is lower. If BC is right, then the long odds give his bet a high, positive expected value, JP a negative expected value. If JP is right, then BC’s (and JP’s) expected value is about zero (because the long odds reflect the high probability of a nuclear Iran). That JP does not want to accept such terms does not reflect a lack of confidence in his beliefs.
Suppose a stock had a market price of $100 and some analyst said the he thought the stock price would hit $150 in one year. That doesn’t mean that the analyst would agree to buy the stock at $150. He would still want to buy the stock at the market price of $100 to benefit from his predicted price appreciation of $50. The fair odds for the bet are odds that reflect *consensus views*, i.e., the “market price”, of the probability of a nuclear Iran.
Kendall
Jul 29 2015 at 7:46am
Maybe a more appropriate bet would be to agree to go spend a week at ground zero if Iran ever sets off a nuclear weapon in Israel. This seems to me to be one of Taleb’s (sp) fat tail events. I think it is unlikely to happen but it is possible based on the statements of some leaders in Iran and the results would be disastrous.
Sieben
Jul 29 2015 at 9:00am
Nice.
If JP insists on being difficult, which looks to be the case, maybe he could propose a different set of odds ratios?
… on the condition that he post it alongside his original article and unequivocally explain that he is not 10:1 certain.
Ron
Jul 29 2015 at 9:24am
BC, even if JP estimates the net value of the bet at only $1, shouldn’t he take the bet? The only thing that would stop him is placing a value of more than $1 on avoiding the embarrassment of losing.
Njnnja
Jul 29 2015 at 9:28am
I like BC’s comparison to stocks, above. If you want to make a bet for the sake of making a bet, then you are basically a market maker and have to deal with the “market consensus price”. And since everybody knows that this deal is terrible and has maybe a 50/50 change of actually preventing Iran from getting a nuclear weapon, then you have to give even odds.
Just because there is one person out there who thinks that a stock should be $150, doesn’t mean that you can ignore the rest of the market and trade directly with him for $150. You have to give JP the fair, market rate. No more, no less. And there is no way that the fair value of this deal is 10:1.
Peter H
Jul 29 2015 at 1:15pm
BC,
The correct response then is for haggling to happen, so that they can come to a market price.
If we wanted to really formalize it, Bryan could make out one or more futures contracts which pay out $n+purchase price if Iran gets the bomb, and auction them off, setting a reserve at the multiple of $n where he thinks his EV is zero.
_NL
Jul 29 2015 at 1:45pm
If “effectively ensures” means something like “over 90% chance” of the condition being fulfilled, then the expected value of the bet to Podhoretz is higher than the expected cost. At 10:1 odds, in 9 iterations out of 10, he wins and in 1 iteration he loses. 1/10 times 1000 is 100, so that makes them reasonable odds.
So if “effectively ensures” means something higher, like 99% chance, there’s a 1% chance he pays 1,000 or $10 expected cost.
Of course, part of the cost is the embarrassment of losing. And of losing to an economist, not to a foreign policy expert. So the cost of losing may be some unknowable higher amount and it is not offset by the accolades from winning and beating an economist at a prediction outside his area.
awp
Jul 29 2015 at 1:55pm
It is about certainty/risk
If I am risk neutral
And effectively sure (p > 91%) that if the deal is signed Iran will get a bomb, then this bet has a positive expected value.
If I am not effectively sure (p < 91%) then it does not have a positive expected value. There might be better deals available but that doesn't change whether this deal has a positive expected value. The odds change based on effectively ensures => p = ?????
Haggle on the terms to show us what you think effectively ensures means.
Jack PQ
Jul 29 2015 at 3:28pm
Since JP backed out rather than proposing different odds (“too bored”? seriously?), we can safely conclude his claim was just cheap talk, like most pundits.
TKO for Bryan C.
Michael Stack
Jul 29 2015 at 3:53pm
I think Jack PQ is correct. If Podhoretz were so sure of himself, then this would be an opportunity for free money AND an opportunity to ’embarrass’ Professor Caplan.
They can haggle about the conversion from “effectively ensures” to some P(x) but there is *some* value for which Podhoretz would make the bet. The fact that instead of suggesting different odds he tries to call Bryan “chicken” means he isn’t quite so sure of himself, but doesn’t want to admit it, so instead he changes the subject.
TKO indeed.
Glen
Jul 29 2015 at 9:09pm
TKO for an event that won’t payout for 10 years and 10:1 odds in your favor?
Sound more like typical Twitter bravado.
Nathan
Jul 29 2015 at 10:58pm
Jack PQ is 100% right and those saying the odds were too long are 100% wrong. Caplan made a good faith effort to estimate the certainty of his opponent and set odds that reflected that versus his own uncertainty and ignorance. If he overstated the case Podhoretz could have easily said “Well I’m not actually 10:1 certain but I’ll take the bet at 5:1,” and then Caplan could accept or reject and either way we would have information about their sincerely held views. Currently the information we do have is that A) Caplan sincerely believes the outcome from the deal is at least somewhat uncertain and B) Podhoertz’s expressed views are not sincere.
Anyone who wants to argue that Podhoretz had the right of it would prove their point better by proposing terms for a bet themselves.
Noah Carl
Jul 30 2015 at 8:24am
Byran, on an unrelated note, have you come across this paper on education and the timing of births? http://www.nber.org/papers/w21402
Brad
Jul 30 2015 at 9:12am
I am on the TKO side effectively ensures is pretty strong language. I actually think it implies worse than 10-1 odds. But Podhoretz refusal to clarify his position by offering his own odds means that he is afraid that those odds will show just how silly his words were.
I do think it would be helpful for Caplan to make a two way on these bets that would give us even more info on where his actual views were and what relative risk tolerance/uncertainty he had.
Jeff
Jul 30 2015 at 11:20am
Neoconservative pundits blustering on the internet? Well, I never!
Lupis42
Jul 31 2015 at 9:59pm
I noticed that, while I might be tempted to take the bet at those odds, but the transaction costs (shifting a liquid kilobuck to a long term low yield investment) are prohibitive. It therefore strikes me that finding a way to structure the offer so that you start by offering even odds might improve the take rate.
Probably wouldn’t help in this case, given the lack of meaningful follow-through.
Tom West
Aug 2 2015 at 11:13am
I think Bryan is being unfair.
We all realize that pundits are part of the entertainment industry, like magicians. And like magicians, their success in entertaining depends on a certain suspension of disbelief.
We “know” that a magician isn’t actually performing magic, but if there’s someone loudly declaring that this is simply a trick, and worse pointing out how the trick is done, the whole performance is vastly less appealing.
Likewise, the pundits job isn’t to make accurate predictions or nuanced evaluations – nobody would watch that. It’s to make bombastic predictions with ludicrous certainty. That’s what the audience wants, and they certainly aren’t going to be able to enjoy the performance if there’s someone loudly pointing out how often the pundits are wrong or that the pundits themselves don’t believe their predictions.
I don’t think total welfare would be enhanced by proving that wrestling is fake, and I doubt it’s enhanced by proving that pundits are the entertainers that we all realize they are.
As a population, we like wrestlers, magicians and pundits because they *aren’t* fact based. Why spoil everyone’s show?
(And of course it’s silly to expect JP to help attack the industry in which he’s employed…)
John T. Kennedy
Aug 4 2015 at 2:24am
Tom writes:
“Likewise, the pundits job isn’t to make accurate predictions or nuanced evaluations – nobody would watch that. It’s to make bombastic predictions with ludicrous certainty. That’s what the audience wants, and they certainly aren’t going to be able to enjoy the performance if there’s someone loudly pointing out how often the pundits are wrong or that the pundits themselves don’t believe their predictions.”
I’m not seeing the unfair part.
“I don’t think total welfare would be enhanced by proving that wrestling is fake, and I doubt it’s enhanced by proving that pundits are the entertainers that we all realize they are.”
Such pundits should be outed as fakes because they move public opinion which influences public policy often in gravely serious ways.
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