Michael Covel: News & Info.

From a reader comes thoughts on intrade.com

intrade is a prediction-based website, where they offer essentially “bets” on outcomes. each trade matures at either 0 or 100, a negative outcome and a positive outcome to the event/trade in question, respectively. if at the extreme, markets and bets such as these were perfectly predictable, then the spread between the starting point of the bet and the ending point of the bet would have zero variance. in other words, each bet would be binary: if we could predict with 100% certainty that the Dow would finish above 12,000 by the end of July 2008, then the bet would start at 100 (actually slightly less given the time value of money) and mature at 100, as each player’s minimum bid would be essentially 100. thus a unary outcome - bets finish where they started as everyone has 100% certainty on the outcome, as markets would then be 100% predictable. conversely, if markets and bets such as intrade offers were not 100% predictable, then the variance of the price should be all over the place, which is exactly what you see at intrade. bets start at 20, move to 90, then mature at 0. some start and stay at 50 forever, only changing within a couple of days of the bet’s maturity, as certainty emerges. i recall the 2004 election, where Bush was given up as the exit polls showed him losing, and the intrade bet on Bush to win I believe hit 20, only to mature at 100 a few days later. So intrade’s bets essentially proves the unpredictability of markets and events: bets often start at 50 (zero prediction as it is equidistant), often move 90+ points as they swing from one outcome to another, but rarely do they start and finish near an outcome, given the complex system on which one is betting. this again all essentially proves that NOTHING is predictable in a statistically significant basis.

Thanks.

A great article centered around the notion of probabilities. We humans clearly don’t like to think in terms of numbers and uncertainty.

A comment from trader Larry Hite:

“Life is nothing more than a series of bets and bets are really nothing more than questions and their answers. There is no real difference between, “Should I take another hit on this Blackjack hand?” and “Should I get out of the way of that speeding and wildly careening bus?” Each shares two universal truths: a set of probabilities of potential outcomes and the singular outcome that takes place. Everyday we place hundreds if not thousands of bets - large and small, some seemingly well considered and others made without a second thought. The vast majority of the latter, life’s little gambles made without any thought, might certainly be trivial. “Should I tie my shoes?” Seems to offer no big risk, nor any big reward. While others, such as the aforementioned - speeding and wildly careening bus - would seem to have greater impact on our lives. However, if deciding not to tie your shoes that morning causes you to trip and fall down in the middle of the road when you finally decide to fold your hand and give that careening bus plenty of leeway, well then, in hindsight the trivial has suddenly become paramount.”

An inexact science for sure.

An interesting chart listing the odds of dying. I could not help but think of lottery odds when I saw that chart.

This bit of research reminds me of Michael Lewis’ Moneyball except this time it is the NBA receiving a “by the numbers” statistical analysis. The lesson? Count, count, count.

So was the black swan the Giants win or the Patriots undefeated record until the Giants win?

With Super Bowl Sunday festivities ready to kick off, investors looking for a sure bet would be wise to watch the commercials. Buying the stock of publicly traded companies that run advertisements on game day has historically been a recipe for success, say researchers at the University of Wisconsin-Eau Claire. Sure bet?

Another numbers guy takes the lead.

A new way to predict where top prospects will end up. Interesting research.