Results for “prediction market” 326 found
Assorted Links
- Predictions markets fail to win the gold. Blame it on Rio.
- "Inside the Wayne County morgue in midtown Detroit, 67 bodies are piled up, unclaimed, in the freezing temperatures. Neither the families nor the county can afford to bury the corpses. So they stack up inside the freezer…You can smell the plight of Detroit."
- A very good video profile of Tyler, who was honored yesterday at GMU for his many contributions to scholarship.
Why are some CDs longer than others?
Adam Smith, a loyal MR reader (yes that is his name), writes to me:
I had a very MResque thought today I wanted to share with you. Why are the typical lengths of albums across different music genres so different? In particular, I was thinking most of my rap albums are at least over the hour mark and many run all the way up to the 80-minute maximum. They're usually packed with intros, skits, and lots of 5 minute tracks that have extended intro and outro instrumental beat only sequences. My metal albums, on the other hand, have an average run length of no more than 40 mins. Most albums are between 8 and 10 tracks with little in the way of tangential material. These different run-times show up in other places too. For example, my older jazz albums (i.e. Kind of Blue, Time Out, Blue Train) typically run around 45 mins with a half dozen or so tracks yet my newer jazz albums like MMW's The Dropper run almost the whole 80 mins. Also, prog. rock bands tend to produce much longer albums than garage rock bands. Even adjusting for the fact that prog bands emphasize longer musical passages, they could compensate by just having fewer songs or garage rock bands could just have twice as many (like the White Stripes did on their first album).
Is there a relative price argument for these differences? Or even signaling? Perhaps there is a rat race among rappers to signal they're capable of coming up with enough material to fill out the maximum length, even if it includes lots of filler. Perhaps the recording costs are lower as instrumentation relies so heavily on sampling. Maybe metal runs into diminishing returns after 30 mins or so where the listener becomes numb to the intensity.
I'll offer a few points:
1. The average career of a rapper is short. A long CD increases the chance that something will "stick" and the rapper won't get too many other chances to try.
2. Some metal bands develop great loyalty among their followers and achieve durable franchises. That gives them a lower discount rate and they are more inclined to save up material for the future. Plus they are marketing an overall sound — rather than clever particular innovations — and if the first forty (five?) minutes don't convince you nothing will. Rap songs probably have a higher individual variance.
3. Many older albums are short for technological reasons, plus the albums were due in relatively rapid succession for contractual reasons. In the 1960s there was lots of technological advance in music, so if you sat on the sidelines for a few years you could become obsolete.
4. It is relatively easy for a contemporary jazz artist to tack on additional improvisations and he can choose standard compositions if necessary. Other forms of popular music cannot expand quantity so easily without hitting a wall in terms of quality. One prediction here is that "compositional jazz" albums should be shorter in average length than albums of jazz improvisation, contemporary that is.
5. If you wanted a somewhat strained explanation, you could argue that the longer CD is a more bundled product and it will make economic sense as a form of price discrimination, the more varied the valuations of the audience. This would require that rap CD buyers have a higher variance of marginal valuation.
Eric Falkenstein’s *Finding Alpha*
The subtitle is The Search for Alpha When Risk and Return Break Down. I definitely liked this book. It's the best readable summary I know of why CAPM fails (see my comments here). Market data do not, upon examination, show a close connection between risk and return, at least not once you start moving out on the risk spectrum beyond T-Bills and the like. It's not just the famous Fama and French papers, it is worse than you think. I also like the author's "relative status" theory for why many people enjoy risk; it reminds me of Reuven Brenner, a neglected economist to this day.
More controversially, Falkenstein believes the equity premium is zero or near zero. I see it as positive but equilibration does not occur for at least two reasons. First, people don't like the thought that they are losers, and second, their spouses can criticize their investment decisions when temporary nominal losses come and last for years. In this sense my non-EFM view differs from his.
I recall someone in the blogosphere asking why this book does not overturn modern finance. It is a very good book. For it to "stick" it would need a clear empirical test of the relative status model of risk-taking vs. other models. We don't yet have that and I am not sure we ever will. There are too many conjectures consistent with Beta not much mattering for stock market returns and I am not sure the relative status model offers unique predictions within the realm of financial theory. The relative status model offers plenty of testable, and often confirmed, predictions elsewhere, but once we drop EFM we're in a world where choice and risk are context-dependent and we still have to prove it is relative status-driven risk-taking which regulates equity returns. That's very hard to do.
Here is one summary of the book. Here is Eric Falkenstein's blog.
My Spanish article on Obama
Barack Obama has grown into a small industry. Some people are convinced
that he is a radical left-winger, while others claim he absorbed free
market economics during his time as a law professor at the University
of Chicago. Obama’s voting record in the Senate is left-wing, but
since he’s been planning on pursuing the Presidency for years, maybe
those votes were for public consumption.
My view of Obama’s economics is
straightforward one and it is consistent with his public
pronouncements. I view Barack Obama as an economic pragmatist who is
willing to borrow good ideas from many different sources. He stands
further to the left than do most Americans (myself included) but he has
lined up the very best centrist economic talent to advise him.
What’s
the reason for thinking that Obama is such a pragmatist? If you read’s
Obama first memoir (Dreams from My Father: A Memoir of Race and Inheritance),
which he wrote before he was famous, issues of identity dominate He is
acutely aware of being a mixed-race person in a community of largely
white American leaders. Most of all, I think Obama wants to do a good
job as President and he wants to be seen as having done a good job. That
would pave the way for improved race relations and, although Obama
would not use these words, it would bring higher status to
African-Americans. When it comes to his
subconscious, I see Obama as more attached to the notion of
excelling than to any particular view of economic policy. Keep in mind
that Obama was raised by a white mother (the father was absent) and he
“decided to be black,” and decided to marry a black woman and attend a
black church, only later in his life. Oddly, his hopes for improved
race relations are the hopes that would be held by a utopian white
liberal rather than the vision held by most African-Americans. That is
one reason why African-Americans were initially so slow to support him
and why so many educated white elites feel so at home with him.
Obama is also famously detached and
it seems he never loses his cool. He does not fixate on economic
ideology but instead he is focused on creating his own personal success. That implies a very strong ego but also it again leads to an economic and also a foreign policy pragmatism.
If Obama is elected, I expect the
major economic storyline to be Obama pushing policies in the national
interest (as he perceives it) and Congress pushing back with earmarked
expenditures and privileges for special interest groups. It won’t be about Democrat vs. Republican.
There is plenty of talk about Obama
being half-black but perhaps the more important fact is that Obama is
from Hawaii. Many Hawaiians barely think of themselves as North
Americans and they live thousands of miles from the continent. The
Hawaiian background is part of where Obama’s cosmopolitanism – which is
strong and sincere – comes from.
My description may sound like a very
favorable portrait of Obama on economics but he will likely encounter
serious problems if he wins the election. The
important American Presidents are those like Reagan who “know a few big
things” and push them unceasingly, without much regard for the
pragmatic or even the reasonable. Obama is not
used to connecting with mainstream America and if he wins it is because
the country is fed up with Republicans, not because the voters have
absolute confidence in him. Congress will test him. The chance that he makes big mistakes will be small, and that’s all for the better. But the best prediction is that he will be ineffective in tackling most of America’s biggest problems.
*Create Your Own Economy*, standing on one foot
A number of readers have asked me for a "one-sentence" review of my book to come. I don't so much like the Amazon summary, so let me try a short enumeration instead. The book offers:
1. A "big picture" analysis of how current economic, social, scientific, and political trends all fit together.
2. A new vision for how "autistic cognitive strengths" are a major dynamic element in human history and that includes a revisionist view of the autism spectrum.
3. New ways of thinking about what you're really good at (and not so good at).
4. A view of why education is much more than just signaling, but why you should be cynical about most education nonetheless.
5. An unapologetic defense of contemporary web culture and also social networks. Google is making us smarter, not stupider.
6. How commerce is shaping the culture of the world to come and what I didn't see in my previous writings on this topic. Why culture is becoming more like marriage.
7. Why the Sherlock Holmes stories are a lot more interesting than most people think.
8. What neuroeconomics should be studying and why. Instead of just doing more brain scans, neuroeconomists should look more closely at already-understood cross-sectional variations in human neurology.
9. An account of how behavioral economics misses the importance of marketplace competition and how and why some behavioral results need to be modified as a result.
10. The importance of neurology for unpacking debates about aesthetics, especially when it comes to music.
11. A discussion of Milton Friedman's greatest tragedy.
12. A definite prediction about the long-run future of humanity.
Here is the table of contents for the book. You can pre-order the book here.
The Physics of BS
Here is Frank Tipler on macroeconomics:
accurate predictions means that they do not know what they are talking about. We
non-economists should realize this also, and realize that our leaders, who are
being advised by macroeconomists, haven’t got a clue where they are leading us.
Well ok I have some problems with macroeconomics too but considering many of Tipler's writings his criticisms of macroeconomics are rather amusing. e.g.
Singularity–God–is like. The laws of physics tell us that our universe
began in an initial singularity, and it will end in a final
singularity. The laws also tell us that ours is but one of an infinite
number of universes, all of which begin and end in a singularity. If we
look carefully at the collection of all the universes–this collection
is called the multiverse–we see that there is a third
singularity, at which the multiverse began. But physics shows us that
these three apparently distinct singularities are actually one
singularity. The Three are One.
There is one religion which
claims that God is a Trinity: Christianity. According to Christianity,
God consists of Three Persons: God the Father (the First Person), God
the Son (the Second Person), and God the Holy Ghost (the Third Person).
But there are not three Gods, only one God. Using physics to study the
structure of the Cosmological Singularity, we can see that indeed the
three “parts” of the Singularity can be distinguished by employing the
idea of personhood. In particular, physics can be used to show how it
is possible for a man–Jesus, according to Christianity–to actually be
the part of the Singularity that connects the Initial and Final
Singularities. So the Incarnation makes perfectly good sense from the
point of view of physics.
If I Believed in Austrian Business Cycle Theory, part II
Karl, a loyal man, has a request:
In your post from a few years ago, "If I believed in Austrian business
cycle theory," you made some of the most apt predictions you have made
on this blog. Nearly everything has come true. Obviously though you are
not touting these predictions because being associated with the
"intransigent" Austrians will damage your credibility as a hip, quirky
thinker. So instead, can you just give me a socio-economic cost-benefit
analysis of breast implants.
Here is my original post. Two points:
1. What happened is best thought of as a bubble where loose monetary policy was one of several triggers but the market response was more at fault than was government.
2. Second, one important false market signal was that people thought rising asset prices could substitute for savings out of disposable income. That is not the Misesian or Hayekian scenario.
My "predictions in the subjunctive" were largely correct — more correct than I knew at the time — but that doesn’t mean Austrian business cycle theory is largely correct. I would, however, endorse a modified version of the theory which goes beyond the "blame the government inflation" for everything interpretation.
On Karl’s other question, it’s not just a zero-sum game, socially speaking, but my personal preference would be for Q = 0.
Addendum: Walter Block wrote a 58-page critique of my earlier writings on ABC. He has sent it to me twice and I am happy to link to it. Update: Here is the correct Block link.
Regulation and Distrust
Brought to you by Aghion, Algan, Cahuc and Shleifer, this is one of the best papers so far this year. It’s so good I’ll give you a longer than usual quotation from the opening pages:
In a cross-section of countries, government regulation is strongly negatively correlated with social capital. We document, and try to explain, this highly significant empirical correlation. The correlation works for a range of measures of social capital, from trust in others to trust in corporations and political institutions, as well as for a range of measures of regulation, from product markets, to labor markets, to judicial procedures.
We present a simple model explaining this correlation. The model turns on the idea that investment in social capital makes people both more productive and more civic (e.g., Coleman 1990). Compared to people who have invested in social capital, those who have not are both less productive and impose a negative externality on others when they produce (e.g., pollute). The community (whether through voting or through some other political mechanism) regulates production when the expected negative externalities are large. But regulation itself must be implemented by government officials, who are corrupt if they have not invested in social capital. As a consequence, when production is restricted through regulation, investment in social capital may not pay off. In this model, when people expect to live in a civil community, they expect low levels of regulation, and so invest in social capital. Their beliefs are justified, as lack of investment leads to incivility, high regulation, high corruption, and low production. The model has two Pareto ranked equilibria.
…The model predicts, most immediately, that distrust influences not just regulation itself, but the demand for regulation…distrust fuels support for government control over the economy. What is perhaps most interesting about this finding, and also consistent with the model’s predictions, is that distrust generates demand for regulation even when people realize that the government is corrupt and ineffective; they prefer state control to unbridled production by uncivil firms.
…We take evidence on the demand for regulation as supportive of causality running from distrust to regulation. To test the reverse causality, we look at the experiment of transition from socialism, which we interpret as a radical reduction in government regulation in low trust societies. Our model predicts that such a reduction should lead to 1) a reduction in output, 2) an increase in corruption, 3) an increase in demand for government control at a given level of trust, and 4) a reduction of trust in the short run.
What I’ve Been Reading
1. Uncouth Nation: Why Europe Dislikes America, by Andrei S. Markovits. Not the usual swill on this topic; sadly the main prediction of this book is that the passing of Bush will not make America much more popular in Europe. Read this short article on the same.
2. Dante, Paradiso, translated by Robert and Jean Hollander. There still is not a gripping English-language Paradiso on the market, as the Mandelbaum translation is flawed as well and don’t ever trust Penguin translations with anything. This one doesn’t elevate me as the text should. But it has the best notes of any edition, is laid out most nicely, and is the best for trying to follow the Italian and cross-reference the translation. If you buy only one English-language Paradiso maybe it is this one. An alternative is the Henry Wadsworth Longfellow edition, lyrical but archaic, on-line for free.
3. Castles, Battles, and Bombs: How Economics Explains Military History, by Jurgen Brauer and Hubert van Tuyll. The table of contents looks amazing, but my browsing indicated this book to be boring. Still, some of you should read it. It is full of factual substance, slotted into an economic framework.
4. Americanos: Latin America’s Struggle for Independence, by John Chasteen. Every now and then a history book sweeps you up into its world; this one did it for me, most of all the treatment of Alexander von Humboldt but from beginning to end as well. The best and most readable book on its topic.
5. William Gibson, Neuromancer. Wow, this is now twenty-four years old. I’m teaching it next week in Law and Literature class. Upon rereading what strikes me most is how little science fiction it offers and how much it follows in the stylistic footsteps of Hammett and Chandler.
A Farewell to Alms, pp.1-112
1. Did hunter-gatherers really have living standards as high as people in 18th century England? By focusing on the long run, Clark neglects the pains of equilibration. Hunter-gatherers who survived to 30 maybe had decent lives, but population was very low. It was kept low, in part, by lots of brutal and painful death. We can’t just focus on the steady-state conditions in making welfare comparisons. Modern research is also discovering that primitive societies have very high levels of war and violent death; if we’re playing time travel games, I’m opting for 1800, and not just to have a chance of hearing Haydn. I’ll also take modern Tanzania over the hunter-gatherers, in a heartbeat, contra what Clark implies.
2. Why should we aggregate income comparisons by country (or the whole world) rather than by city? World history looks very different if we do the latter. Aren’t most countries relatively recent inventions anyway? More generally, I would like a more disaggregated look at the data. Big chunks of the urbanized human population — pre 1800 — seem to have violated Malthusian precepts for centuries on end. "Stadtluft macht frei" was the old German saying.
3. How long is the long run? This is one of my biggest questions about the work and about Malthusian predictions more generally. Are we just comparing 30,000 B.C. to 1800 A.D.? If so, we have only two data points. If we look at times in between, there is much more scope for non-Malthusian results, even if they hold for "only centuries."
4. Violent conflict and predation are not given enough (any?) importance. Cities that avoid violent conflict do pretty well. Admittedly, violence is itself endogenous to Malthusian considerations, but I’m not going to reduce war to population pressures (and certainly Clark never tries to.) Isn’t part of the historical inability to boost long-run living standards simply the result of recurring wars and depredations? 17th century European history, among other times, shows just how much war matters.
5. Should I reject the Julian Simon model I grew up with? In that view there are increasing returns to scale within cities, where people usually don’t starve. The countryside languishes in poor countries, in part because it is underpopulated. Rather than having a "one population model" with an aggregate "n," labor markets are local. The "plagued by diseconomies of scale rural folk" cannot sufficiently connect with the "economies of scale urban sophisticates," mostly because of bad institutions and backward infrastructure. And the cities prove unable to protect themselves against all ongoing predations. Doesn’t that model fit the data too, and fit the disaggregated and shorter-run data better?
6. I can’t find the single place where Clark directly tests the Malthusian model. I fear he will regard this observation as unfair, since there is argumentation and data of some kind on virtually every page. But I still am not satisfied. I see lots of evidence for "history shows mean-reversion and population pressures are one factor affecting wages." It is harder to find a) what "best alternative" the Malthusian model is being tested against, b) what evidence would adjudicate between models, c) what is the short-run claim about the response of population to real wages, and d) what in history are the "hard cases" for the Malthusian model and how does Clark handle them?
7. Charles Kenny argues that the Malthusian model does not explain observed short-run dynamics for population and real wages. I don’t regard this piece as a refutation of Clark by any means, but the evidence on how well real wages predict population growth seems to me murky rather than decisively in Clark’s favor. There’s just not a single, simple model at work here.
If you are coming to the book blind, here is a short piece by Clark. Here is my earlier column on the manuscript. Here is a survey paper on the Industrial Revolution and the Malthusian trap. Here is more good background. Peter Lindert considers how much real wages predict population growth in British history. Read this too.
What do you all think?
Underappreciated economists: a continuing series
Today I will pick E. Glen Weyl, a mere Youngling, who is studying at Princeton University. Here is his paper on neural networks, and the abstract:
I consider a potential neural basis of overconfidence, the well-documented tendency of individuals to overestimate the precision of their predictions. I present a simple, classic connectionist model for predicting a binary variable. I show that while the network initially makes weak predictions (in the middle of the probability range) regardless of input, after observing randomly generated data it learns to be overconfident in the sense that when presented with other, unrelated random data it makes strong predictions. The model matches behavioral data in that it shows overconfidence growing with experience and then, eventually, declining. The model shows how overconfidence, far from being a surprising fallacy, can be seen as a natural outgrowth of statistical over-fitting in the brain.
Glen probably won’t be underappreciated for long. Here is his seminal paper on two-sided markets (e.g., Match.com). There is already talk he will be a leading economist of the next generation.
Here is Glen’s home page, and his other papers.
Here is Dave Warsh on Weyl. Here is an article full of praise. (He’s already looking non-underappreciated; note the CV, A.B. 2007, Ph.d. expected 2008.) Here is Glen’s commencement address. Here is Glen’s fight against protectionism. Here are Glen’s film reviews. Here is Glen’s dining guide for Princeton cuisine (hmm…).
I very much liked Glen’s paper on Simon Kuznets: Economist of the Russian Jewish Diaspora.
Here is Glen’s muse, Alisha Holland. Here is Glen’s path to Unitarianism.
Let us all be grateful for people like Glen Weyl.
Prospect theory
A loyal MR reader asks about prospect theory. I feel it is usually too experimental and too ad hoc, are those really the general biases out there in markets? I was heartened to see the following good paper (non-gated here) on prospect theory and the stock market. The abstract:
We study the asset pricing implications of Tversky and Kahneman’s
(1992) cumulative prospect theory, with particular focus on its
probability weighting component. Our main result, derived from a novel
equilibrium with non-unique global optima, is that, in contrast to the
prediction of a standard expected utility model, a security’s own
skewness can be priced: a positively skewed security can be
"overpriced," and can earn a negative average excess return. Our
results offer a unifying way of thinking about a number of seemingly
unrelated financial phenomena, such as the low average return on IPOs,
private equity, and distressed stocks; the diversification discount;
the low valuation of certain equity stubs; the pricing of
out-of-the-money options; and the lack of diversification in many
household portfolios.
In other words, we can think of stocks as a lottery ticket. They offer a chance at the thrill of victory, and not just a mean-variance pair; this may help explain various pricing and return anomalies. Am I convinced? No. Am I moved? Yes.
#16 out of 50.
More new growth wisdom: Dani Rodrik and Jason Hwang
How does the introduction of new goods affect growth? While recent
evidence has highlighted the role of new goods in raising the diversity
and sophistication of a country’s production structure, which in turn
matter for growth, little evidence tells us why. I propose a simple
channel of impact relying on two building blocks. One, there is a
convergence force operating at the product level. The further behind
the frontier you are in a given product, the faster you raise quality.
Two, new goods are introduced with a greater distance to the frontier
than in existing goods. I construct a Schumpeterian growth model with
these features to show how entry into new goods influences aggregate
outcomes by determining the range of products in which convergence
occurs. Detailed trade statistics provide strong support for both
building blocks of the model. Using unit values as a proxy for quality,
I find that unit values exhibit strong convergence – at about 5% a year
– for the great majority of products in the sample. Also the gap in
unit values relative to the world frontier is larger for new goods.
Confirming a key prediction of the model, I further show that, holding
constant levels of development, unit values are inversely related to
measures of diversification and sophistication of a country’s exports.
This last finding helps to explain a recently documented puzzle
regarding the high sophistication and low unit values of Chinese
exports. (To be posted in early November)
Perhaps I will not be convinced (what goods can be produced reflects an unobserved heterogeneity in underlying conditions), but Hwang is worth watching.
Assorted
1. Complete works of Charles Darwin, now on-line.
2. Truth markets, explained by Dubner.
3. The money says Republicans still might hold both Houses.
Round-up
1. How to make "The Long Tail" work.
2. The economics of orchestras.
3. The TradeSports.com dispute over the North Korean missile launch, and more here.
4. Another interview with Milton Friedman.
5. Betting markets in everything.
6. Farm subsidies and Africa; counter the conventional wisdom, by DSquared.
7. Interview with Charles Murray. Btw, I don’t think human achievement has declined.
8. Review of the new Adam Phillips book, his kissing and tickling book is wonderful.