Month: October 2004

Prediction Markets Have Arrived!

Donald Luskin writes:

There is now no question whatsoever that the Bush re-election futures contract at is being manipulated. Yesterday the price of the futures were sold down from about 55 (indicating the market’s estimate of a 55% probability of Bush’s re-election) to 10 (indicating a 10% probability) with a single 10,000-lot order entered by a single trader. An order that size represents twice the normal volume of an entire typical day’s trading. Within moments after the order was completed, the price recovered back to the low-mid-50’s.

According to sources at Tradesports, yesterday’s order was entered by the same individual who has heavily sold the Bush futures three times over the past month. The first instance was on September 14, when this trader sold the futures down from the mid-60’s to 49.6. The second instance was in the middle of the second presidential debate on October 8, when the futures were sold down from the high 50’s to 51.5. The third instance was right after the third presidential debate on October13. As the debate began the futures were priced at 57, and by the end of the debate they had risen to 60. Then a few moments later they were beaten down to 54 in a matter of minutes.

Luskin hints that George Soros might be at work. Wouldn’t that be cool! What I see as most interesting is a) an order twice the normal volume of an entire day’s trading had virtually no influence on the market price and b) prediction markets are now so widely followed that someone finds it worthwhile to try to manipulate them.

Should Luskin be worried that his candidate is being sold down? Not at all. A surprising result in these markets is that manipulators subsidize information traders. Think about it this way, by definition manipulators aren’t trying to predict the true outcome so they are likely to take losses and the more they try to manipulate the bigger the losses. Now if the manipulators are taking losses who is making money? The information traders! Manipulators, therefore, encourage and support the information traders. Manipulation isn’t impossible but it’s surprising how little information other trader’s need to not only avoid the manipulation but to profit from it.

Our colleague, Robin Hanson, has written a paper explaining the theory (warning, not for the mathematically faint hearted) and an experimental paper showing that the theory works in practice.

Thanks to Newmark’s Door for the link.

What Gets Out the Vote?

Alan Krueger writes:

Door-to-door canvassing, though expensive, yields the most votes. As a rule of thumb, one additional vote is cast from each 14 people contacted. That works out to somewhere between $7 and $19 a vote, depending on the pay of canvassers – not much different from the cost of that three-pack of underwear. Canvassers who matched the ethnic profile of their assigned neighborhoods were more successful.

The effect of leaflets on turnout has not been evaluated as thoroughly as canvassing, but results from two partisan campaigns indicate that one vote was generated for every 66 leaflets hung on doors. In another experiment, just one vote was added for every 200 nonpartisan leaflets. Over all, leafletting costs $14 to $42 a vote. (A salutary aspect of the book is that one, two or three stars are placed next to the central findings to signify the degree of confidence the authors have in the results. This is only a one-star result.)

Direct mail is less cost-effective than leaflets. Mailing costs totaled around $60 for each additional vote cast. Telephone calling is also not highly effective, with the cost per vote ranging from $200 for heavily scripted calls to $45 for more personalized calls. Even worse, recorded messages and e-mail had no detectable impact on turnout.

Some candidates mail negative messages to their opponent’s supporters to discourage voting. Mailing a negative message depresses votes, but at a very low rate. The cost per vote diminished was about $300. (This is another one-star finding.)

Here is The New York Times link. The results are drawn from this Brookings book.

Do as I say…

For antiglobalization demonstrators, Nike came to symbolize everything that was wrong with the emerging capitalist world order. Yet this animus toward Nike did create occasional moments of embarrassment. During the famous Seattle riots of 1999, the downtown Niketown was trashed by protestors, but videotape recorded at the scene showed several protestors kicking in the front window wearing Nike shoes. It occurred to many people that if you think Nike is the root of all evil, you really shouldn’t be wearing their shoes.

Here is the link, which offers further arguments against Adbusters magazine. It is an advertisement for a forthcoming book entitled The Rebel Sell, Amazon lists it under its old title.

Alex and the FDA in Forbes

This week’s Forbes (the Nov. 1 issue) has a feature story on Alex’s work to make drug regulation more sensible.

Alex notes that off-label drug uses are largely unregulated. No proof of efficacy is required, and off-label drug prescriptions bring a net health gain; see this paper. Yet to get a new drug approved it must go through, in addition to Phase I trials,

…Phase II and Phase III trials, which typically take years and focus on efficacy as well as safety. The long wait can cost lives and runs up new-drug costs–to an estimated $900 million per successful drug.

Tabarrok says this system makes little sense; the FDA demands costly, time-consuming efficacy tests for some uses and no tests for others. And while the FDA allows off-label prescribing by docs, it strictly limits the drugmakers’ promotion of such uses to doctors and permits none at all to patients.

Alex argues that FDA regulation ought to be reduced, making the regulation of new and old drugs more consistent. But that is not all:

Tabarrok and [Dan] Klein also offer some alternative proposals at One is to make all FDA testing optional. Drugs that didn’t go through the process would be labeled “Not FDA Approved.” Under this approach, they say, “the FDA would become a genuinely voluntary institution, much like Underwriters Laboratories.” Another idea is for the FDA to award letter grades, A to D, to claims made by drugmakers, much as it is considering doing for health claims for foods and dietary supplements. The FDA could still have its say, but wouldn’t be able to impose long delays, since a new drug could be marketed at first as “unrated.”

At the least, Tabarrok argues, the FDA should permit drug companies to sell any drug that has been approved by other sophisticated drug regulators, such as those in Canada, Australia or the European Union. Under such a system U.S. patients would get speedier access to new medicines without losing out on safety protection.

Kudos to Alex, the only sorrow is that the on-line version does not reproduce the excellent photo of him in the magazine. But you can see that at your local Borders.

Please, please, no

I can’t take it again.

Within hours of the opening of advance polls in the American presidential election, problems were being reported in the state of Florida…

Within an hour, a Democratic state legislator reported getting an incomplete absentee ballot in Palm Beach County…..

And in Orange County, voting ground to a halt after the touch-screen voting system crashed for about ten minutes.

A senior deputy elections supervisor could not explain the brief outage, but speculated a faulty Internet connection may have been to blame.

Even before voting began, there were reports election offices across the state had been tossing out thousands of incomplete voter registration forms. Sparking fears this year’s registration forms could become the equivalent of the notorious “hanging chads” of four years ago…

Kramnik retains his chess title

He won the last point against Peter Leko (who?) in dramatic fashion to retain his world championship title. Here is a full account of the contest.

The match we all want to see, of course, is Kasparov against Vishwanathan Anand.

But hey, the FIDE world champion is Rustam Kasimdzhanov (who?), he will soon play a match against Kasparov for yet another world chess championship. In case you didn’t know, there are competing titles, as has often been the case in boxing.

Kramnik, of course, beat Kasparov fair and square in 2000 but Kasparov is still the world’s most highly rated player and considered the greatest player of all time. Unless of course you count these guys.

Sports leagues are often accused of exercising too much monopoly power. But they are also needed to define proper champions, generate publicity, and ensure that contests have some finality and achieve universal acceptance. The world of chess proves that these are not easy tasks.

Social security privatization, continued

Brad DeLong writes:

There is a bigger, unmentioned reason to be against private accounts. Ten years down the road or so, there will be pressure on Congress to allow people to borrow against their private accounts, or to withdraw them to buy a house, or to use them to meet unexpected medical expenses. Congress will bow to that pressure–it’s their money, after all. And in the end a lot of people will hit 70 having drained their Social Security private account dry. The rest of us will then have to decide whether to let them starve on the street, or tax ourselves a second time to give them Social Security benefits. As Dick Schmalensee says, “You have to ask yourself not just, ‘Is this good policy?’ but ‘Will this still be good policy after Congress does its worst to it?'” The Medicare drug benefit and the corporate tax boondoggle are powerful evidence that the Bush administration holds no leashes to use to control what this Congress does to policy proposals, while lobbyists can make this Congress roll over and beg.

Brad also takes on whether the government could finance the transition to a more private system by borrowing (also read Bruce Webb’s comment, number two in the list). After all, government debt would be higher but government long-term implicit obligations are lower. Would this simply be a wash? (Arnold Kling believes “yes”). I am skeptical. When it comes to government, measured nominal flows tend to be sticky. So say our government increases its borrowing today but lowers its SSA obligations for tomorrow. Even if the transaction can balance without a current increase in interest rates, the increased rate of borrowing (or taxation) will tend to stick in the long run. Plus there is a time consistency problem. If the new debt is placed smoothly, government has an incentive, ex post, to accept some new unfunded liabilities for the future. Knowing this in advance, the bond market will be suspicious about the new debt offering.

What should we do? Here is my previous post on social security privatization.

Reality People

The Suskind article is a must-read. It begins with a courageous and devastating analysis by Bruce Bartlett.

Bruce Bartlett, a domestic policy adviser to Ronald Reagan and a treasury official for the first President Bush, told me recently that ”if Bush wins, there will be a civil war in the Republican Party starting on Nov. 3.” The nature of that conflict, as Bartlett sees it? Essentially, the same as the one raging across much of the world: a battle between modernists and fundamentalists, pragmatists and true believers, reason and religion.

”Just in the past few months,” Bartlett said, ”I think a light has gone off for people who’ve spent time up close to Bush: that this instinct he’s always talking about is this sort of weird, Messianic idea of what he thinks God has told him to do.” Bartlett, a 53-year-old columnist and self-described libertarian Republican who has lately been a champion for traditional Republicans concerned about Bush’s governance, went on to say: ”This is why George W. Bush is so clear-eyed about Al Qaeda and the Islamic fundamentalist enemy. He believes you have to kill them all. They can’t be persuaded, that they’re extremists, driven by a dark vision. He understands them, because he’s just like them. . . .

”This is why he dispenses with people who confront him with inconvenient facts,” Bartlett went on to say. ”He truly believes he’s on a mission from God. Absolute faith like that overwhelms a need for analysis. The whole thing about faith is to believe things for which there is no empirical evidence.” Bartlett paused, then said, ”But you can’t run the world on faith.”

What can I say? Read the whole thing.

Vaccines and the Media

Dueling articles on the flu vaccine shortage today in the Washington Post and NYTimes. The Times article is much better. As Russ Roberts, points out you have to wade far into the Post article before you get to a decent explanation of the shortage. The Times article correctly pinpoints low prices, liability and regulation early on (the same factors I wrote about here).

In recent decades, many drug companies in the United States abandoned the manufacture of vaccines, saying that they were expensive to make, underpriced and not profitable enough. Flu vaccine can be a particular gamble, because the demand for it varies from year to year and companies throw away what they do not sell because a new vaccine must be made each year to deal with changing strains of the virus. Some companies dropped out because of lawsuits, and others because they determined that it would not pay to retool aging vaccine plants to meet regulatory standards.

Markets in Everything – Character Development

Acclaimed author Will Shetterly is auctioning the rights to be a character in his next novel.

If you win this auction, you or a character with a name and description of your choosing will make a cameo appearance in The Secret Academy, a novel that will be published by Tor Books. I’m Will Shetterly, award-winning author of novels and short stories. My best-praised book, Dogland, was called “A masterwork (that) deserves the widest possible audience” by Ellen Kushner, host of National Public Radio’s “Sound & Spirit.” Publisher’s Weekly said it was “A deceptively simple story, rich with complex characters and timeless themes.” And Kirkus called it, “Compelling, absorbing, hard-edged work, lit by glimpses of another, more fantastic reality … child-centered but tackling adult themes fearlessly and with great charm.”

I can’t promise that this book will be as good as Dogland. If you want to peek at what it looks like so far, I’m posting the current draft in installments at:

Your role may be brief, but I’ll do my best to make it memorable. The book is set around 1970, so you may have to be modified for the sake of the story. (It was a dangerous time for hair; be warned!) Most likely, you’ll end up being a student or a teacher. I wouldn’t make you an unlikeable character without getting your permission in writing first. (Alas, it’s not a melodrama, so you can’t be a villain, which is the part I would want in someone else’s book. Maybe another writer will provide the opportunity if this auction does well.)

Thanks to Cory Doctorow at Boing Boing Blog for the tip.

Democratic architectural destruction?

Channel 4 viewers will be asked to identify Britain’s worst building in a new four-part reality series which will culminate in a live broadcast of the building’s destruction.
The series, Demolition, beginning in 2005, will attempt to build on the success of BBC’s popular series Restoration, which was based around a contest to find the historic building that viewers most wanted to see restored.

But in Demolition, which is being supported by the Royal Institute of British Architects (RIBA), viewers will nominate the buildings they want to see destroyed rather than saved.

Nominations for Britain’s worst eyesore will be judged by a panel of experts, who will then decide the building’s fate.

The series will conclude with a kind of real-time architectural snuff movie – the live broadcast of the demolition of the building which the judges have condemned.

Surely I am missing something, presumably the TV station is unlikely to own the chosen building. Get this:

A spokeswoman for the RIBA said the logistics of the programme were unclear at this stage. But she added: “We would not have embarked on this if we did not think it was possible to demolish a building.”

Asked if the choice of building would be fixed, she said: “We are going to demolish a building.”

Here is the full story.

The decline in cultural exchanges

How do all you libertarians out there feel about cultural exchange programs? I know you don’t like government funding of the arts, but can this count as a legitimate tool of foreign policy? I am willing to favor these programs if they are applied in a revenue-neutral manner. American libraries abroad and musical performance exports have carried ideas of liberty and free expression across the world. Furthermore the arts programs themselves tend to be vital and customer-oriented, albeit for propagandistic motives.

But sadly cultural exchanges have been sinking in scope and importance:

…a new study, “Cultural Diplomacy: Recommendations and Research,” concludes that U.S. cultural diplomacy — the notion that by exporting American artists, we burnish our image around the world — has become a neglected facet of foreign and domestic policy, too.

Beginning in 2002, the Washington, D.C.-based Center for Arts and Culture, working with the Coalition for American Leadership Abroad, also headquartered in the nation’s capital, set out to assess the state of cultural exchanges. The study was published in July.

And the bottom line: “The annual number of academic and cultural exchanges has dropped from 45,000 in 1995 to 29,000 in 2001.” This means that far fewer American artists, including performing artists, are being given chances to ply their crafts on foreign soil. The study presumes that those figures have decreased even further in recent years.

Here is the full story. Here is a link to the original study, along with links to related material on the same topic.