Bryan Caplan  

Two Election Bets

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1. Steve Pearlstein bets $50 at even odds that Ted Cruz wins the Republican nomination.  I bet against.

2. Nathaniel Bechhofer bets $40 at 2:1 that Hillary Clinton wins the 2016 presidential election.  I bet against.

My reasoning, in both cases, is that betting markets are more accurate than the people I eat lunch with.


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COMMENTS (9 to date)
marke writes:

there is almost always value with betting against people who are using their hearts vs. thier heads so...identify the source and wager accordingly and responsibly!

James Reade writes:

But if that's so (and undoubtedly it is), then you'll also of course be aware of the phenomenon of the favourite-longshot bias, for which evidence suggests is stronger in political betting markets than sporting ones, then why are you betting against the candidate that is currently at 50% to win the Presidency?

David R. Henderson writes:

@James Reade,
But if that's so (and undoubtedly it is), then you'll also of course be aware of the phenomenon of the favourite-longshot bias, for which evidence suggests is stronger in political betting markets than sporting ones, then why are you betting against the candidate that is currently at 50% to win the Presidency?
Ooh, ooh, teacher, I know this one. It’s because he was given 2 to 1 odds. Even adjusting for long-shot bias, Clinton’s probability is likely no more than 60%. So Bryan got a good deal.

khodge writes:

In general I think this is accurate. In specific, I think betting and predictions more than two or three months out are not very accurate, even in the betting world. Refer to the book Superforecasting that you recommended in October (three months past).

BC writes:

*Regardless of one's views of market vs. lunch crowd predictions,* Pearlstein and Bechhofer should refamiliarize themselves with the No-Arbitrage Principle and Law of One Price.

I know that Caplan thinks betting is a good way to put one's money where one's mouth is but, in this case, he should really hedge his bets in the betting market. Right now, Cruz's betting odds are 14%, so Caplan can buy a $58.14 bet on Cruz for 0.14*58.14 = $8.14. (I think that's how the prices work.) If Cruz wins, Caplan will receive $58.14, exactly enough to offset the $50 owed to Pearlstein and the $8.14 spent in the betting markets. If Cruz loses, then Caplan will collect $50 from Pearlstein, more than enough to pay for the $8.14 bet in the betting markets. He can similarly hedge his bet with Bechhofer by betting on Hillary in the markets at roughly even odds (49.5%). Heads Caplan wins, tails he doesn't lose --- arbitrage!

Side note: apparently, the betting odds at the electionbettingodds.com site Caplan linked to are not available to Americans [https://www.electionbettingodds.com/about.html#whyBetfair]. Americans can bet, however, at predictIt.com. In that market, Cruz's buy price is 19%, and Clinton's general election buy price is 43%. So, Caplan definitely made the right bets!

Ignoto Fiorentino writes:

It doesn't matter whether or not the better markets are more accurate -- it only matters that you had a riskless arbitrage opportunity. Right?

I assume, by the way, that you immediately went onto IEM and hedged these two bets. Else, the private information possessed by your counterparties will not be priced into the market odds.

Maxim Lott writes:

@James Reade:
The notion of overvalued long shots is very questionable. If you believe it to be true, then are you trading on the market and making money off the inefficiency?

It is true that past markets (Intrade) have had some long-shot bias, and that was caused by the fee structure (e.g., it's not worth it for me to put $99 down to make $1 even on a certain bet, if there are fees that add up to around 1%.)

But Betfair, where the ElectionBettingOdds.com data is from, often has strikingly low near-zero odds... for example, Rand Paul has always traded at effectively zero, even though he often trades in the high single-digits on the more inefficient/high-fee/regulated PredictIt.com.

Sam writes:

If Nathaniel Bechhofer has more size available at the same odds, he should feel free to get in touch with me. :-)

@sflicht on twitter

Michael Bressler writes:

Gentle aside. John McCain was pilloried for his age. Nary a comment about Hillary and Bernie.

http://www.cc.com/video-clips/apb3z6/stand-up-chris-rock--uncensored---john-mccain-is-old

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