Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of The Odd Lots Podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal.
Speaker 4: Joe.
Speaker 2: Prediction markets.
Speaker 3: Yeah, I love them.
Speaker 2: I know you do. I find them mostly entertaining versus insightful,
Speaker 2: and I like looking up things that people are betting on.
Speaker 2: So I saw today people are betting on the temperature
Speaker 2: in New York. There's one pool for will Doge and
Speaker 2: Elon Musk claim there's missing goal at Fort Knox before May.
Speaker 2: There's political stuff obviously, like who will be the next
Speaker 2: German Chancellor, But we haven't actually done that many prediction
Speaker 2: markets episodes. We did one with Nate Silver late last year,
Speaker 2: but we should talk about them more.
Speaker 3: No, I totally agree, and I'll see two things in
Speaker 3: their defense. One is, I to the point like it's
Speaker 3: interesting to see what people are betting on. It's sort
Speaker 3: of an interesting news filter in and of itself, because
Speaker 3: I'll look at a polymarket and it's like I didn't
Speaker 3: even know people were talking about this. Whatever it is
Speaker 3: is someone going to have a baby, is so and so,
Speaker 3: you know, gonna be with so and so on. Love
Speaker 3: is blonde or whatever. Try don't watch, but you know
Speaker 3: it like gives you a read on like, Okay, this
Speaker 3: is interesting right now. And I do really think there's
Speaker 3: something to be gleaned that's in the price that in
Speaker 3: several of these And it's not that they're right or wrong.
Speaker 3: And I've never thought about the usefulness of prediction markets
Speaker 3: from a right or wrongs standpoint, but more like, you know,
Speaker 3: if you have an opinion on something, how does it
Speaker 3: differ from conventional wisdom right now? Is there a big
Speaker 3: gap between your sense of something happening in the market
Speaker 3: sense of something and so sort of taking the temperature
Speaker 3: of the betting public, and it is a narrow slice.
Speaker 3: You know, not everyone bets, but you know, generally speaking,
Speaker 3: there isn't gold lying on the ground, right Like generally speaking,
Speaker 3: there aren't tons of obvious opportunities to make money from
Speaker 3: these markets.
Speaker 2: So I will just say one of the big debates
Speaker 2: is whether or not this has social value. If you
Speaker 2: add financial incentives into betting the betting mix, do you
Speaker 2: actually get better predictions? As you say, there tends to
Speaker 2: be a certain type of person who is betting on
Speaker 2: something like polymarket and Calshi, so maybe it's a good
Speaker 2: thing for getting a read on a particular slice of
Speaker 2: the population, but I definitely have questions Anyway, all of
Speaker 2: it kind of got me thinking we've probably had some
Speaker 2: form of early prediction market, way way back before we
Speaker 2: had things like poly market and Calshi and I guess
Speaker 2: getting philosophical. All markets are essentially prediction markets. People think
Speaker 2: a company will do well or bad. But there must
Speaker 2: be some early examples of people betting on very specific
Speaker 2: social things. And it turns out there is one. There's
Speaker 2: a really good example, and it is the PayPal prediction market.
Speaker 3: This is crazy to me. I had no idea this existed.
Speaker 2: Yeah, so in Renaissance Rome, betting on who would be
Speaker 2: the next pope was a thing, and in fact, a
Speaker 2: very interesting market was built around it. So we should
Speaker 2: talk about that. And I'm glad to say we have
Speaker 2: the perfect guest to talk papal prediction markets. We're going
Speaker 2: to be speaking with Ryan Izako. He is the author
Speaker 2: of the No Dumb Ideas sub stack. So Ryan, welcome
Speaker 2: to the show.
Speaker 4: I'm thrilled to be here.
Speaker 2: Why did you decide to become an expert in Renaissance
Speaker 2: papal betting? Markets.
Speaker 4: It's a good question. It goes back to I was
Speaker 4: writing a substack about prediction markets in general. I typically
Speaker 4: write about economic or social ideas through the lens of
Speaker 4: a business pitch, and I wrote one about the idea
Speaker 4: of paying lobbyists through prediction market contracts, and that got
Speaker 4: me onto poly market regularly to check what the latest
Speaker 4: bets were. And I saw when the Pope was in
Speaker 4: the hospital and I'm glad to say he's doing better
Speaker 4: that one of the top markets.
Speaker 3: Or recording this March eleventh, I could.
Speaker 4: Go, yeah, one of the top one of the top
Speaker 4: markets on polymarket was new Pope in twenty twenty five,
Speaker 4: and that just seems so shocking to me. It's like
Speaker 4: such an outrageous thing to bet on. And when I
Speaker 4: went to the comments, which were a mix of compassionate
Speaker 4: and tasteless, I saw this idea that you could be
Speaker 4: excommunicated for gambling on this market, and while that's actually
Speaker 4: no longer true, that led me down this rabbit hole
Speaker 4: of trying to understand what were the dynamics around this,
Speaker 4: why was this put into place, what did it mean?
Speaker 4: And I started looking at the academic literature and I
Speaker 4: saw there wasn't a lot of public facing writing that
Speaker 4: went any deeper than this market existed, and you could
Speaker 4: be excommunicated for it. And so I figured, if not me,
Speaker 4: then who else that's warted writing about it?
Speaker 2: All?
Speaker 1: Right?
Speaker 3: Keep going? So what years are we talking about? When?
Speaker 3: At what point did the Catholic Church have a ban
Speaker 3: on betting on the next pope?
Speaker 4: Yeah, so the ban was put into place in fifteen
Speaker 4: ninety one. It was called Colgetos. That's my attempt at Latin.
Speaker 4: And this papal bowl was just sort of a decree
Speaker 4: that has the rule of law in the Catholic Church.
Speaker 4: Banned all forms of betting on cardinals' duration of a
Speaker 4: pope's length, duration of a conclave, and who the next
Speaker 4: pope would be. And in the bowl it had a
Speaker 4: punishment of automatic excommunication. Is which the bowl b U
Speaker 4: l L animal. It's like the animal. And so it's
Speaker 4: a it's a papal decree that essentially has the rule
Speaker 4: of law. And papal bulls made up a lot of
Speaker 4: historical Catholic law until nineteen eighteen, which is when there
Speaker 4: was a massive reform of the entire canon law, all
Speaker 4: the law of the Catholic church, and the bowl was
Speaker 4: not renewed as part of that that reform of the law.
Speaker 2: So let's back up a bit and talk about early
Speaker 2: fifteen hundreds. What was this market exactly and who were
Speaker 2: the participants? Who was making the bets?
Speaker 4: It's a great question. So there were three broad types
Speaker 4: of groups that were making bets on these markets. The
Speaker 4: first was what you might call gentlemen's bets, so aristocrats
Speaker 4: cardinals would make side bets with each other. There's records
Speaker 4: of cardinals betting things like gloves, jewelry over the outcome
Speaker 4: of the conclave, and the conclave, just to take a
Speaker 4: step back, is the process that happens where the new
Speaker 4: pope is elected.
Speaker 2: When I saw the movie good, yes, I still.
Speaker 4: The movie is a pretty accurate representation of the process.
Speaker 4: And so group one was just sort of you can
Speaker 4: imagine it being kind of equivalent today and making a
Speaker 4: bet with your friends over a sports game. The second
Speaker 4: group was the biggest one, and this was a group
Speaker 4: of brokers called sinsally who would take bets from all
Speaker 4: social classes, from regular workers all the way up to
Speaker 4: aristocrats and also cardinals sometimes and their attendants. And these
Speaker 4: brokers were often people like cloth merchants, spice traders. They're
Speaker 4: often tied to the Florentine financial industry, and they took
Speaker 4: bets on everything, not just papal elections. It took bets
Speaker 4: on the outcome of sports matches. The most popular games
Speaker 4: in Renaissance Room was essentially kind of translated as boy
Speaker 4: or girl. They would find a pregnant woman and they
Speaker 4: would take bets on whether shoes and give birth to
Speaker 4: a boy or a girl. Wow. And this was an
Speaker 4: incredibly popular game. It was so popular that it actually
Speaker 4: was banned in the late fifteen hundreds. And they took
Speaker 4: bets on everything from will new cardinals be nominated? Who
Speaker 4: will the new cardinals be? How long with the pope rain?
Speaker 2: For?
Speaker 4: How long will the conclave run? For? Who will the
Speaker 4: new Pope be? And alongside these these market makers were
Speaker 4: it was a whole information ecosystem. You had handwritten newsletters.
Speaker 4: There was a lot of gossip going around, a lot
Speaker 4: of room or spreading, and you can talk about that
Speaker 4: in a minute. Maybe it's fascinating the rumors that went around.
Speaker 4: And the last group was actually sort of an early
Speaker 4: form of risk catching. So you had financial institutions banks
Speaker 4: that would in the same ledger give updates on shipping
Speaker 4: insurance that an investor had underwritten and the results of
Speaker 4: their paper bets, and so these same institutions would actually do,
Speaker 4: would actually offer both. There wasn't a clear distinction between
Speaker 4: gambling and financial investments in some of these environments. And
Speaker 4: you sort of think this is an early form of
Speaker 4: political risk catching. Because in the fifteen hundreds, the pope
Speaker 4: ran a major country, the Papal states, it was going
Speaker 4: to think of it as covering a large part of
Speaker 4: central Italy, and when a new pope came in, it
Speaker 4: often meant it was a new family that had political influence.
Speaker 4: It often meant that projects or taxation policy would change,
Speaker 4: You might might might go to war, and so there
Speaker 4: was really a big policy changes that would happen as
Speaker 4: popes switched. And it makes sense that some investors might
Speaker 4: want to hedge against that money real money.
Speaker 3: There's so much meat here that's interesting. I mean, first
Speaker 3: of all, you know, Tracy said in the beginning talk
Speaker 3: about some of the social utility, there's certainly the disutility
Speaker 3: when you mentioned Cardinal's betting, right, this is what we
Speaker 3: worry about with modern prediction markets, that there are actors
Speaker 3: who might try to influence the outcome of a specific
Speaker 3: event that's being bet on to make their bet payoff.
Speaker 3: And so that is one reason we might be concerned.
Speaker 3: I'm just fascinated by the sheer proliferation because this is
Speaker 3: the characterization of society right now, whether it's pure betting
Speaker 3: on sports, something that's a little then crypto, and then
Speaker 3: you get a little closer to the spectrum of like
Speaker 3: real trading or something options and then stocks. We have
Speaker 3: this incredible spectrum of opportunities to bet or trade.
Speaker 2: That distingmbling culture is I would call it.
Speaker 3: Yeah, we live in a clear gambling culture. Talk to
Speaker 3: us more just about that gambling culture that proliferated. Why
Speaker 3: was it so big? What was going on?
Speaker 4: Yeah, I mean gambling goes back historically in Rome, all
Speaker 4: the way back to the Roman Empire. There's lots of
Speaker 4: stories and lots of media about gambling on gladiator games,
Speaker 4: around the outcome of wars, and in Rome there were
Speaker 4: two big drivers of it. When was this this historical
Speaker 4: culture of of gambling. The second was that it was
Speaker 4: a center of politics and intrigue, and so a lot
Speaker 4: of our information on the odds throughout the conclaves, and
Speaker 4: the fifteen hundreds comes from ambassadors from Venice, from France,
Speaker 4: from Genoa. And because there was all this interest among
Speaker 4: all these other foreign powers, there was a lot of
Speaker 4: information that leaked out of the conclave. And so when
Speaker 4: there's a lot of information and there's a market where
Speaker 4: you can try to make money off at information, you
Speaker 4: can sort of see how the incentives aligned to drive
Speaker 4: a lot of interest in the market, and because sew
Speaker 4: the incentives align to try to do market manipulation. So
Speaker 4: one of the more interesting stories was in fifteen to
Speaker 4: fifty five, I believe it was Cardinal Carraffa, who was
Speaker 4: one of the favorites to when about seventy percent odds
Speaker 4: to when a rumor went out after he missed Mass
Speaker 4: that morning that he had died, and his odds dropped
Speaker 4: down to thirty percent. People who clearly didn't fully believe
Speaker 4: that he had died, but there was enough to see
Speaker 4: some change in the odds, and it turned out he
Speaker 4: was very much alive. He was elected pope, And you
Speaker 4: have to imagine that there were some unscrupulous brokers and
Speaker 4: rumor spreaders who made a lot of money off of
Speaker 4: the shifting odds there.
Speaker 2: That reminds me how did bookies actually make odds, because
Speaker 2: I will admit I don't really understand how bookies make
Speaker 2: odds nowadays on sports games and things like that, But
Speaker 2: for something like who the new Pope will be that
Speaker 2: seems even more complicated, especially when we're talking about the
Speaker 2: fifteen hundreds, where presumably information flow is not as fast
Speaker 2: or as heavy as it is now.
Speaker 4: Yeah, it's it's a interesting point. So I think there
Speaker 4: were two big drivers what I've been able to uncover.
Speaker 4: The first one is that there was a lot of
Speaker 4: insider information, not just cardinals but also their attendance. People
Speaker 4: involved with bringing in food or wine. They would bring
Speaker 4: back information on what had happened, and so bookies had
Speaker 4: some level of information on what was happening in the conclave.
Speaker 4: These are also really politically. There's contentious elections, and there
Speaker 4: were factions, and so if you know all the players
Speaker 4: and you know the dynamics with foreign powers, you have
Speaker 4: some indication of which alliances of factions might come together
Speaker 4: to elect of pope and who the kind of logical
Speaker 4: compromise candidates would be. There was an idea, and I'm
Speaker 4: going to butcher it at the Italian Papa Belli. I
Speaker 4: think of this person who was sort of seen as
Speaker 4: a potential future pope, and so the people who were
Speaker 4: candidates who were likely to be chosen were already sort
Speaker 4: of identified in the public sphere. And then the last
Speaker 4: dynamic that would drive odds was money flow. So if
Speaker 4: you set odds and you started getting a ton of
Speaker 4: bat on those odds you set, that would create pressure
Speaker 4: to lower those odds and to make to basically protect
Speaker 4: yourself from offering two good of odds on a candidate
Speaker 4: who might win. And so there was a direct flow
Speaker 4: of that, where you know, people would adjust their odds
Speaker 4: based off of the flow of wages. There is also
Speaker 4: sort of a proto secondary market. We have some records
Speaker 4: of people saying they sold their ticket after the odds changed,
Speaker 4: so sort of like a prediction market, right, you buy
Speaker 4: it at ten cents, you sell it at fifty cents.
Speaker 4: People would sell their tickets that were at one hundred
Speaker 4: to one odds when they went up to ten to
Speaker 4: one and lock in their gains. And so that's that
Speaker 4: also I've made, but I didn't cover exactly how prevalent
Speaker 4: that was. But that also could have been a driver
Speaker 4: of setting prices for these different candidates.
Speaker 3: One of the things that you mentioned is that there
Speaker 3: were real stakes involved for some of the participants by
Speaker 3: who the next pope was going to be, because major
Speaker 3: policies could change, because you know, there was geopolitical consequence
Speaker 3: of this, and so therefore there is you know, what
Speaker 3: they would say, real money at stake, and then you
Speaker 3: can obviously have people ride along that who have nothing
Speaker 3: really at stake, but they just want to bet, which
Speaker 3: is characteristic of all markets today, including the popular prediction markets.
Speaker 3: Some of the prediction markets like so and so going
Speaker 3: to get pregnant, there probably isn't the real money. You
Speaker 3: probably don't really see much activity there, but you know
Speaker 3: a lot of things certainly areas like presidential elections or
Speaker 3: midterm elections. It's some of both. But the other thing
Speaker 3: I'm really interested in is, you know, Tracy and I
Speaker 3: work on financial media, which is subsidized by people who
Speaker 3: want to sell access to investment products, and these days
Speaker 3: it's more ETFs, but et cetera. This idea that like
Speaker 3: betting has always been a subsidy. Betting or investing or
Speaker 3: gambling has always been a part of what subsidizes the
Speaker 3: existence of news media.
Speaker 4: Yeah, one hundred percent. I mean, it's interesting because there's
Speaker 4: a mix of the idea and then the proliferation of it.
Speaker 4: So the idea of these newsletters was really common. This again,
Speaker 4: this is a longstanding Roman culture. If you ever look
Speaker 4: up Roman graffiti, you'll see this. There's a long history
Speaker 4: of spreading rumors and spreading ideas in Rome. But you're
Speaker 4: right that the demand for these newsletters was shot through
Speaker 4: the roof because of a financial incentive. And there wasn't
Speaker 4: just it wasn't just the newsletters that spread information. There
Speaker 4: was also taverns people would spread rumors and share information,
Speaker 4: and caverns. So there's a statue called the Pekino which
Speaker 4: has been for hundreds of years, this place where people
Speaker 4: would leave anonymous notes to spread information. And so those
Speaker 4: notes often had information on what was happening inside of
Speaker 4: the conclave. And the other piece that it was interesting
Speaker 4: was that the diplomats, the foreign diplomats who were in
Speaker 4: Rome would report back to their kings, monarchs, whoever, whoever,
Speaker 4: the leaders on what was happening inside the conclave. And
Speaker 4: so that definitely created a lot of demand for getting
Speaker 4: that initial firsthand information which presumably was passed off informally.
Speaker 4: And one other piece that set odds your question earlier.
Speaker 4: Another piece that set odds was if a certain person
Speaker 4: who was considered in the know would make bets. So
Speaker 4: you had certain people like if a Venetian ambassador made
Speaker 4: a major bet, that would be a strong signal that
Speaker 4: person had some insider information and that they this person
Speaker 4: was likely to win.
Speaker 2: So, Joe, I don't know if you've ever looked at
Speaker 2: the comments section on something like polymarkets.
Speaker 3: Yeah, definitely, it's I don't.
Speaker 2: Know how to describe it, a bit of a mess maybe,
Speaker 2: But one thing that does happen there is everyone talks
Speaker 2: their own book, right, Everyone is trying to sway the
Speaker 2: odds and get their prediction right. Did we see that
Speaker 2: in Rome as well?
Speaker 4: Yeah, you did see a little bit of that. So
Speaker 4: you definitely saw people hype up their their candidates and
Speaker 4: even saw people try to force the hand. So just
Speaker 4: take a step back. The way a papal election works
Speaker 4: is up two hundred and twenty cardinals go into a
Speaker 4: locked room. They swear not to share any information, which
Speaker 4: I think is better in force today than it was
Speaker 4: back then, and they vote up to four times a day,
Speaker 4: and every time they vote, if there's no if no
Speaker 4: one has a two thirds majority, they burn the ballots
Speaker 4: this black smoke, oh yeah, yeah, famous, the famous black smoke.
Speaker 4: And they try again up to three more times that day.
Speaker 4: And some of these conclaves were on for months. They
Speaker 4: were conclaves where they had odds and how long the
Speaker 4: conclave would go for, and there was a ten percent
Speaker 4: actually implied odds of never in one of the conclaves
Speaker 4: that they would never pick up hope, and so they
Speaker 4: this is also a piece with these rumors could try
Speaker 4: to force the hand of these these cardinals. So in
Speaker 4: fifteen ninety Paliotti was considered one of the cardinal Palioti
Speaker 4: was considered one of the favorites to become the next pope,
Speaker 4: and he's about seventy percent chance, and someone put out
Speaker 4: a rumor that he had actually already been elected, and
Speaker 4: the rumor spread so rapidly that the city started to
Speaker 4: put up his coat of arms. He started to set
Speaker 4: up as if he had won. If they sent guards
Speaker 4: to protect his house, because typically after pope was elected,
Speaker 4: they people would go and raid their house. It's an
Speaker 4: interesting cultural norm and it turned out he hadn't won,
Speaker 4: he hadn't gotten two thirds, and so there's an implication
Speaker 4: that that was done in part to try to pressure
Speaker 4: the last few cardinals to make that yeah, make that
Speaker 4: bet and acclaim him. Didn't work, did not work. Instead,
Speaker 4: we got Pope Gregory the thirteenth, who started the crackdown
Speaker 4: in earnest on some of the paper gambling that was happening.
Speaker 3: Did the premature victory like turn people against him, like
Speaker 3: would he have probably one had it not been for
Speaker 3: or do we not know?
Speaker 4: It's a good question. I don't know for sure, all right,
Speaker 4: but you can imagine for sure.
Speaker 2: So this brings me to a very important idea, which
Speaker 2: is did all this betting actually have an impact on
Speaker 2: the church in the sense of, you know, I imagine
Speaker 2: the Catholic Church isn't a big fan of betting, and
Speaker 2: you have this huge betting culture that's pegged to the
Speaker 2: internal political dynamics of the church. Did it change people's
Speaker 2: perception of the Catholic Church.
Speaker 4: It's a really good question in terms of the perception
Speaker 4: of the Catholic Church. I'm not as sure. The Catholic
Speaker 4: Church certainly felt threatened by it, and so the Catholic Church,
Speaker 4: starting even before the hammer really came down, had tried
Speaker 4: to ban these types of bets from happening, and so
Speaker 4: they had issued bans, they'd sent police freights out, but
Speaker 4: they were never rigorously enforced because there was enough intermixing
Speaker 4: between the betters and people in the Vatican that there
Speaker 4: was there wasn't a lot of impetus for aggressive enforcement.
Speaker 4: But when we as you get to the late fifteen
Speaker 4: eighties and into the early fifteen nineties, you started to
Speaker 4: see popes do really really aggressive crackdowns, and the level
Speaker 4: of aggression implies that there was a real threat to
Speaker 4: the church, and so they would they would raid broker
Speaker 4: shops and arrest everybody in torture them to find out
Speaker 4: who had place bets. They set up a system of
Speaker 4: thirty if proved brokers that were allowed to take bets
Speaker 4: on some things, not on the election of cardinals, not
Speaker 4: on the boy er girl, bets for pregnant women, and
Speaker 4: if you if you made bets outside of those thirty groups,
Speaker 4: the punishment was five hundred scooty, which I did a
Speaker 4: little bit of calculation, I think it's about seventy five
Speaker 4: hundred dollars, which a year's wage for a rural work
Speaker 4: was about fifty scooty, so ten times the wage of
Speaker 4: an average worker. And you can even be sentenced to
Speaker 4: serve on the galleys, so being kind of conscripted into
Speaker 4: the military for being caught on this. But the real
Speaker 4: crackdown came with Kogetos, which is the Papal Bowl, banning it.
Speaker 4: And I actually brought a copy with me from the
Speaker 4: from the Yale Binding Key ra Book Library.
Speaker 3: What is this amazing old document.
Speaker 4: Yeah, so when this was issued, this Papal Bowl was
Speaker 4: translated into Italian, posted around the city, hosted on tavern
Speaker 4: city gates, given to all of the bishops and priests
Speaker 4: around Europe, particularly in Italy. And if you read the translation,
Speaker 4: you actually see that a lot of the it kind
Speaker 4: of implies what some of the issues might have been.
Speaker 4: And if I can read it, individuals driven by greed
Speaker 4: or fear of loss improperly seek to influence, obstruct, or
Speaker 4: delay these sacred elections and promotions through illicit means, either
Speaker 4: directly or indirectly, all those emotioniously the fame rous slander candidates,
Speaker 4: undermining the dignity and reputation of those involved. Such actions
Speaker 4: as distract and cool the sincere prayers and devotions of Christians,
Speaker 4: and then instead many individuals pursue temporal profit or personal
Speaker 4: gain rather than selecting candidates based solely on merit, employing
Speaker 4: numerous fraudulent schemes lie succeed in manipulations. There's also pieces
Speaker 4: here where they say people are trying to forbidden arts
Speaker 4: like divination or invoking the demount of assistance, driven by
Speaker 4: desperation and greed to figure out who who is going
Speaker 4: to win, and so the bowl is really strict. It
Speaker 4: says they permanently forbid all forms of wagering, betting, or
Speaker 4: speculation regarding papal elections, the promotion of cardinals. It nulls
Speaker 4: and nullifies any existing bets or elections that have already sorry,
Speaker 4: any existing bets or wages that have already happened. They
Speaker 4: declare all future agreements null, void and invalid. Any any
Speaker 4: funds or valuables involved in those should be given to
Speaker 4: charitable institutions with no allowances, and anyone who does this
Speaker 4: is automatically excommunicated from the church.
Speaker 2: Which was a big deal.
Speaker 4: Was a big deal, so it wasn't just about obviously
Speaker 4: today it's still a massive deal to be excommunicated. But
Speaker 4: from a religious perspective back then, ex communication could be
Speaker 4: an austivisation. You could kicked out of your community, they
Speaker 4: could seize your property. Occasionally, you could even be killed
Speaker 4: for being excommunicated. And so your protections, especially in the
Speaker 4: in the in the papal states, mostly went away if
Speaker 4: you're excommunicated. And then one of the piece that's really
Speaker 4: fascinating is that any clergy or figures who violate the
Speaker 4: decree are immediately stripped of their office and are incapable
Speaker 4: of being reassigned. And so think about the intensity of it.
Speaker 4: You can sort of see, you can sort of infer
Speaker 4: some of the feelings that church had about the effect
Speaker 4: this was having on these processes over time.
Speaker 3: I'm actually there are a lot of obviously sort of
Speaker 3: negative aspects of it. It is interesting this idea that
Speaker 3: gambling drives people towards mystical divination. There's some other that
Speaker 3: there's some other spiritual forces out the world that could
Speaker 3: reveal information other than the church. The Church losing its
Speaker 3: monopoly on the sort of understanding of the cosmos. Like
Speaker 3: it's a mid feels like a minor thing, but it's
Speaker 3: also like a sort of fascinating thing, and of course
Speaker 3: that is what gambling drives people to do. And lucky
Speaker 3: numbers blowing on the dice, like all these things that
Speaker 3: reveal a certain metaphysical reality other than the one prescribed
Speaker 3: by the church super instant to talk to us about, like,
Speaker 3: I don't know how we got from there to where
Speaker 3: we are today through line.
Speaker 1: Yeah.
Speaker 4: So after this, after this paper bowl came out, the
Speaker 4: public a markets mostly went away. We still have some
Speaker 4: evidence that people were gambling kind of on the black
Speaker 4: market of the gray market over time, but it was
Speaker 4: not as anywhere near as widespread as it had been
Speaker 4: as you get into the eighteen seventies. So the papal
Speaker 4: states ceased to exist in eighteen seventy Italy was unified
Speaker 4: as one country. And the eighteen seventy eight election is
Speaker 4: one where we have New York Times reports that there's
Speaker 4: this massive gambling on the new pope in the next election,
Speaker 4: and so you can start to see that the spiritual
Speaker 4: authority by itself was not enough to stop this gambling.
Speaker 4: After several hundred years of success, and as you move
Speaker 4: through the twentieth century, the next big milestone was nineteen
Speaker 4: seventy eight, which is with the first time that the
Speaker 4: UK bet makers offered odds on the next pope. And
Speaker 4: what's interesting is that if you talk about prediction markets
Speaker 4: as a way of seeing the future, they weren't very effective.
Speaker 4: John Paul the first and second weren't offered odds at
Speaker 4: all in that year, and so that implies that it
Speaker 4: actually was not very good at picking candidates who are
Speaker 4: not expected right. John Paul the Second especially was not
Speaker 4: expected to become Pope going into the conclave. And then
Speaker 4: as we go through the rest of the twentieth century,
Speaker 4: two thousand and five, I sort of remember this when
Speaker 4: I was pretty young, but I sort of remember in
Speaker 4: two thousand and five kind of scandalized press about Patty
Speaker 4: Power offering odds on the pope, and I looked it
Speaker 4: up before I came in here. It was about four
Speaker 4: hundred thousand dollars was bet just through Patty Power on
Speaker 4: who the next Pope would be in two thousand and five.
Speaker 4: That was Pope Benedict, and that actually was fairly accurate.
Speaker 4: It was three to one odds that Benedict would win.
Speaker 4: Twenty thirteen, Pope Francis, the current pope, was about a
Speaker 4: seven million dollar market through patty power alone, and so
Speaker 4: you can see it's already growing exponentially. And I remember
Speaker 4: very scandalized press about this. And what's interesting is that
Speaker 4: the current Pope Francis started off at fifty fifty five
Speaker 4: to one odds and never did better than thirty two
Speaker 4: to one. And so for these closed door decisions where
Speaker 4: like like Supreme Court decisions, papal conclaves, things where the
Speaker 4: public information is much more limited than say an election,
Speaker 4: the prediction markets have a very mixed record of accuracy
Speaker 4: and talking about the through line of some of these
Speaker 4: same dynamics, Vatican Insider that the current Pope Francis was
Speaker 4: starting to get momentum in the conclave and they didn't
Speaker 4: really move the market very much. And it's one of
Speaker 4: those interesting things with closed door decisions where insider information,
Speaker 4: especially when people aren't familiar with the dynamics around the decision,
Speaker 4: it's hard for outsiders to get a good sense of
Speaker 4: is the information actionable or not.
Speaker 3: Tracy, it's interesting thinking back to Pope Francis's election and
Speaker 3: the relationship between the winning candidate and the time of
Speaker 3: the conclave. As another derivative bet that you can make
Speaker 3: because I do remember one thing that was going on
Speaker 3: at the time. There was some interest in whether or
Speaker 3: not they would pick an Italian and because obviously, you know,
Speaker 3: the prior Poe had been German Retzinger, and prior Pope
Speaker 3: to that had been Polish, and so this idea is like, oh,
Speaker 3: and so the fact that it went a long time,
Speaker 3: I remember some people were saying, oh, maybe this means
Speaker 3: they haven't settled on an Italian and so you could
Speaker 3: sort of see, you know, how people try to relate
Speaker 3: conclave duration with outcome.
Speaker 2: Yeah, I remember that debate. Okay, So, speaking of Pope Francis,
Speaker 2: looking on polymarket right now, the odds are currently forty
Speaker 2: two percent for a new pope in twenty twenty five.
Speaker 2: Obviously we don't know if that's going to be right
Speaker 2: or not. But do you get a sense perhaps that
Speaker 2: the modern papal prediction market is somewhat improved in terms
Speaker 2: of its predictive power? Is there, for instance, more liquidity?
Speaker 2: There must be more people betting in general than there
Speaker 2: were like when Patty Power started doing this.
Speaker 4: Yeah, I think not yet. I have to imagine that
Speaker 4: when if a conclave does start whenever that happens, it's
Speaker 4: going to be the biggest one ever. And seven million
Speaker 4: dollars is the goal to beat the twenty twenty four
Speaker 4: presidential election I think was three and a half billion,
Speaker 4: and so I in terms of accuracy, though if you
Speaker 4: look at the comments, I don't know happypore are betting.
Speaker 4: The comments are almost entirely based off of Vatican news releases.
Speaker 4: And I do think that there's this dynamic that's going
Speaker 4: to start happening more and more, where like you said,
Speaker 4: we've gone into a gambling culture again today, and pretty rapidly.
Speaker 4: I mean it's ten years ago. I think online gamps
Speaker 4: poker was had the big landmark case that made it illegal,
Speaker 4: and we're seeing prediction markets, which used to be capped
Speaker 4: as academic academic tools set eight hundred and fifty dollars,
Speaker 4: are starting to become unrestricted crypto lets. People bet on
Speaker 4: poly market internationally, even if it's illegal in the US.
Speaker 4: And I think that we've you know, in nineteen eighteen,
Speaker 4: part of the reason why it wasn't written into the
Speaker 4: new Canon law is that it hadn't been a problem.
Speaker 4: The papabull had done its job in stamping this out
Speaker 4: as an activity. And I do think there's going to
Speaker 4: be a big social discussion of do we want this
Speaker 4: type of market for everything? And where where does it
Speaker 4: become an issue of taste, morality or other pieces. And
Speaker 4: it is interesting because I think it's I think society
Speaker 4: is largely agreed. We're okay with sports betting, We're okay
Speaker 4: with even political betting. Where casinos are being legalized in
Speaker 4: more and more places, is generally and moved towards gambling
Speaker 4: culture as a as a rule, and I think we
Speaker 4: haven't quite found the limits of where wept we're willing
Speaker 4: to accept it. And I wouldn't be surprised if in
Speaker 4: the next couple of years, if not this something else
Speaker 4: starts that conversation of what's what's the limit of where
Speaker 4: we're willing to let these markets run.
Speaker 3: I mean two things stand out here. One is that
Speaker 3: at this point, any poly market bet that exists, I
Speaker 3: mean it's more just you know, it's macab but it's
Speaker 3: a bet on the health of Pope Frances more than
Speaker 3: any informed insight and his age and so forth, and so'll.
Speaker 3: The sort of more interesting question will be, whenever there
Speaker 3: is time to select a new pope, what those odds
Speaker 3: look like for the conclave itself and the names and
Speaker 3: the candidates that come up. You know, obviously the sort
Speaker 3: of real money economic stakes don't exist in the same
Speaker 3: way that they used to, so to be pure speculative.
Speaker 3: In the end, there's nothing that governments can do to
Speaker 3: crack down on sort of offshore, crypto based prediction markets
Speaker 3: that are decentralized. The Catholic Church itself can come up
Speaker 3: with a new ball that statements that its adherents are,
Speaker 3: you know, choose to either abide by or not. But
Speaker 3: you know, it is interesting, just to your point about
Speaker 3: the limits, Like you know, it's weird because even with
Speaker 3: sports gambling, we find ourselves in this simultaneous, simultaneous moment
Speaker 3: where we've accepted there's nothing we can do. It's legalized,
Speaker 3: this just exists. At the same time that many people
Speaker 3: are disgusted and disturbed by the numbers that come out
Speaker 3: about gambling addiction and ruined lives and so forth, And
Speaker 3: yet there's this feeling of societ little helplessness that well,
Speaker 3: this is just what it is. We culturize it, and
Speaker 3: it's the culture. And so I do find that to
Speaker 3: be a sort of fascinating thing that many people across
Speaker 3: ideological realms, across power can say this is terrible and
Speaker 3: yet at the same time feel like and yet there's
Speaker 3: nothing we can do about it legally. It's just a
Speaker 3: very strange dynamic.
Speaker 4: It's extremely strange, and that you know, if you think
Speaker 4: ten years ago, you had to go to Vegas, yeah
Speaker 4: to do it, and there was some level of inconvenience
Speaker 4: involved with it. And I saw last last year that
Speaker 4: Robin Hood was trying to put prediction markets into their
Speaker 4: into their app. And so it's interesting because the it's
Speaker 4: not just a matter of legalization as a binary yes
Speaker 4: or no. It's also questions of social social stigma, and
Speaker 4: then also questions of access and ease of access. It
Speaker 4: being in your pockets obviously is significantly different thing than
Speaker 4: having to fly somewhere to make a bet like that.
Speaker 2: So speaking of social consequences, there is an argument that
Speaker 2: people make. Joe kind of made it earlier in the intro.
Speaker 2: The argument is predictions are useful, right, and getting a
Speaker 2: sense of what will happen, or at the very least
Speaker 2: what people think will happen, might have some social value.
Speaker 2: In fact, I've seen people take this so far that
Speaker 2: They argue that insider trading is good for prediction markets, right,
Speaker 2: because you want more accurate predictions, and so if people
Speaker 2: have insider info, that's one way of potentially getting there.
Speaker 2: But do you see any social benefit to these types
Speaker 2: of platforms. What would be the social benefit of, for instance,
Speaker 2: betting on whether we'll have a new pope?
Speaker 4: It's a good I think. My personal answer is I
Speaker 4: think there's not a lot of social benefit to it,
Speaker 4: but I think that people will find social benefit and
Speaker 4: the sense that a prediction bet is both a money
Speaker 4: making endeavor, but it's also a way of signaling that
Speaker 4: you believe a certain outcome is likely. And so I
Speaker 4: remember in the twenty twenty four election, people would make
Speaker 4: ideological bets on Trump whether or not they thought he
Speaker 4: was going to win or not, and same with Kama,
Speaker 4: and there were arguments that when the odds were mismatched
Speaker 4: in one way or the other, that there was market manipulation.
Speaker 4: And these prediction markets become part of the narrative of
Speaker 4: what's happening. And so I wouldn't be surprised if in
Speaker 4: the next conclave you see public figures, politicians and strangers
Speaker 4: on Twitter start to endorse certain candidates for ideological reasons
Speaker 4: and then place bats as a way of showing of
Speaker 4: signaling that they support that particular outcome. And I think
Speaker 4: that gets into really uncharted territory, or at least uncharted
Speaker 4: since in the last five hundred years.
Speaker 3: Yeah, I mean, I do like the idea of I
Speaker 3: think Tyler Kawn has called it like a BS tax.
Speaker 3: So I say something like, oh AI is coming for
Speaker 3: your jobs and if you have a t you know,
Speaker 3: if you have a computer job, then you're going to
Speaker 3: be unemployed of the next two years. And that's a
Speaker 3: great way to get engagement on Twitter. But like, if
Speaker 3: I don't indicate that I've put any stakes at all
Speaker 3: behind it, the problem is I like that idea in
Speaker 3: theory because I like the idea of Okay, put some
Speaker 3: money where your mouth is before you say this stuff,
Speaker 3: because all you're doing is collecting the benefits of the
Speaker 3: engagement without anything. But there's no way to enforce that.
Speaker 3: There's no way to get someone to okay, fine, I
Speaker 3: put up a ten dollars bit or whatever something this
Speaker 3: phenomenal how to like actually like force the side. So
Speaker 3: I like that in theory, but in practice I see
Speaker 3: very little way to sort of enforce the BS tax.
Speaker 4: That's a great point. I think that the liquidity is
Speaker 4: a big part of this, right, it's this is a
Speaker 4: reason why hedge funds don't buy prediction market contracts the
Speaker 4: way the hedge against political political risk. They buy currency
Speaker 4: swaps and to stay derivatives. And it's because the liquidity
Speaker 4: in these prediction markets isn't high enough to actually make
Speaker 4: major major bets on. If you put a million dollars
Speaker 4: into a market, you're going to move it significantly for
Speaker 4: most markets. And so there's sort of a paradoxical thing
Speaker 4: where the scale will almost always be fairly small on
Speaker 4: an individual level. Even on an agate level, it's large
Speaker 4: until they reach a certain tipping point and he starts
Speaker 4: to start to see big money coming in to based
Speaker 4: off of trying to trying to make actual outsize returns.
Speaker 2: Ryan, that was amazing, so fun to talk about a
Speaker 2: prediction market that's like five hundred years old. Thank you
Speaker 2: so much for coming on all thoughts.
Speaker 4: Thanks for having me.
Speaker 3: Yeah, that was great, Ryan, Thank you so much.
Speaker 4: Joe.
Speaker 2: That was a lot of fun.
Speaker 3: Yeah.
Speaker 2: I'm always I always enjoy financial history, financial market history,
Speaker 2: and that was a really good example of it. One
Speaker 2: thing that really struck me was this idea of predictions
Speaker 2: as they become, As prediction markets become more prevalent in
Speaker 2: the world, the predictions, the actual predictions become part of
Speaker 2: the narrative of what's happening. And I think to Ryan's point,
Speaker 2: the twenty twenty four election was a really good example
Speaker 2: of that. The official polls showed something different versus one
Speaker 2: on poly market, and then as we got closer and
Speaker 2: closer to the election, there was this sort of idea
Speaker 2: that maybe the prediction markets were getting it right, maybe
Speaker 2: they tapped into a certain demographic of the US which
Speaker 2: actually turned out to be pretty important in the actual
Speaker 2: voting process. So young men, lots of young men on
Speaker 2: these platforms, and they all turned out and voted. So
Speaker 2: in that particular instance, it was a really good read
Speaker 2: on the outcome and it also became part of the store.
Speaker 3: You know what's interesting though about the twenty twenty election
Speaker 3: that people don't talk about go on the prediction markets
Speaker 3: got it wrong on the popular vote. No one talks
Speaker 3: about this.
Speaker 2: Yeah, that's true.
Speaker 3: So like it is true that according to the you know,
Speaker 3: you could say, okay, the polls were very closed. Some
Speaker 3: of them had you know, it's very close, and then
Speaker 3: the prediction markets got it right. I'm not really clear
Speaker 3: that twenty twenty four was this unherlded success because whatever
Speaker 3: the betters in their aggregate had in mind clearly had
Speaker 3: Trump winning the electoral vote vote through some you know,
Speaker 3: through some narrow case, but he won the popular vote.
Speaker 2: Narrowcase is a very diplomatic way of putting it.
Speaker 3: Well, some narrow route through the map, right, some narrow
Speaker 3: victory where he wins you know, the key states in
Speaker 3: the upper Midwest or whatever. He won the popular vote,
Speaker 3: but he was not winning the popular vote in the
Speaker 3: polymarket contract, and no one ever talked about that. They're like, oh,
Speaker 3: this great prediction market success in twenty twenty four. It
Speaker 3: got showed that the polls are wrong, blah blah blah.
Speaker 3: So I feel like there's no one we you know,
Speaker 3: at some point people have to reckon with actually what happened.
Speaker 3: How good were the prediction markets in twenty twenty four.
Speaker 3: I would say maybe not as great as they immediately
Speaker 3: got credit for. Anyway, all that said, I didn't think
Speaker 3: this was an excellent episode. It's interesting, Ryan said he
Speaker 3: got interested in this because the idea of paying lobbyists
Speaker 3: in prediction market contracts, which I've wondered about this too,
Speaker 3: Like could you have presidential campaigns in which part of
Speaker 3: the staff's pay was contracts. So it's like, if you're
Speaker 3: on the Kamala campaign, you get a certain share of
Speaker 3: your salary in long coma futures. Therefore you have a
Speaker 3: greater incentive to win, kind of like stock options, et cetera.
Speaker 3: I've never heard of that happening, but you could imagine
Speaker 3: campaign saying part of your salary is in these contracts
Speaker 3: to create an outcome incentive for victory.
Speaker 1: I don't know.
Speaker 2: I never really got the skin in the game arguments
Speaker 2: for these types of financial incentives, like the BS engagement
Speaker 2: that you were talking about earlier. If you're a pundit
Speaker 2: or if your job is to lobby for something or
Speaker 2: to influence something, then surely, like the incentive for you
Speaker 2: to do it is your job. People aren't going to
Speaker 2: listen to you online if you're consistently wrong.
Speaker 3: I like, say, no evidence that that's the case. I've
Speaker 3: never seen everything that that's the case. You Like, have
Speaker 3: you seen evidence that like, you can be wrong online
Speaker 3: for a long time, and that hurts your career.
Speaker 4: Yes, you have.
Speaker 3: Yeah, there's so many.
Speaker 2: At the very least people will point out how many
Speaker 2: times you've been wrong. At a minimum, that does happen
Speaker 2: to me.
Speaker 3: One of the worst things about the contemporary discourse are
Speaker 3: purveyors of garbage and cynicism, who say all kinds of
Speaker 3: stuff just for engagement, who tear down institutions, who tear
Speaker 3: down people, et cetera, with real decay, who pay no
Speaker 3: who bear no cost for the actions of what they're doing.
Speaker 3: I don't really know how to stop it, but the
Speaker 3: idea that maybe like if they were forced to like
Speaker 3: actually like bear the cost of the damage that they do,
Speaker 3: would be good. I would love that. I don't see
Speaker 3: it happening, but like, I would love that if there
Speaker 3: was some way to enforce that. But there's like I
Speaker 3: would love if there was at tax on it, like
Speaker 3: the damage.
Speaker 2: There's no way of enforcing it, Yeah, for sure. But
Speaker 2: my point is more like, by creating these prediction markets,
Speaker 2: it just feels like we're creating another way for people
Speaker 2: to like mess around with dodgy narratives. That's what it
Speaker 2: feels like. Even though it might be tied to financial incentives.
Speaker 2: We have no idea if the financial incentive is big
Speaker 2: enough to actually make people act seriously right.
Speaker 3: Totally, it doesn't work in practice. The idea of like
Speaker 3: putting your money with where your mouth is so that
Speaker 3: you don't build a career just on making outlandish things
Speaker 3: and like riling people up intuitively appeals to me.
Speaker 2: All right, we could go on about this for a
Speaker 2: long time, but shall we leave it there.
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the auth Loots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy.
Speaker 3: Alloway and I'm Joe Wisenthal. You can follow me at
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