WEBVTT - Odd Lots: Nate Silver and Maria Konnikova on the Art of Election Betting 0:00:15.604 --> 0:00:26.644 Pushkin. Welcome back to Risky Business, a show about making 0:00:26.684 --> 0:00:29.244 better decisions. I'm Maria Kannakova. 0:00:29.044 --> 0:00:29.844 And I'm Nate Silk. 0:00:30.164 --> 0:00:32.484 Today we're dropping into your feeds to share an episode 0:00:32.484 --> 0:00:34.964 that Nate and I taped with The Odd Lots Podcast, 0:00:35.204 --> 0:00:37.764 where we appeared to talk about prediction markets. 0:00:38.764 --> 0:00:41.684 Yeah, this is a really fun interview. The host Joe Wisenthal, 0:00:41.684 --> 0:00:42.844 I know d you a little bit. We've hung out 0:00:42.844 --> 0:00:47.844 in Vegas together actually, and Tracy Alloway, Uh ask the 0:00:47.884 --> 0:00:50.004 great questions. They're kind of nerdy in the same ways 0:00:50.004 --> 0:00:52.804 that we are. So it was a fun, fun crossover 0:00:53.244 --> 0:00:55.604 eighties sitcom crossover episode. 0:00:55.684 --> 0:00:59.364 Basically, absolutely and if you enjoy the episode, you can 0:00:59.404 --> 0:01:09.924 find more of Odd Lots wherever you're listening to this podcast. 0:01:16.564 --> 0:01:29.964 Bloomberg Audio Studios, Podcasts, Radio News. 0:01:32.604 --> 0:01:36.164 Hello and welcome to another episode of The Odd Lots Podcast. 0:01:36.244 --> 0:01:37.684 I'm Joe Wisenthal and. 0:01:37.644 --> 0:01:38.604 I'm Tracy Alloway. 0:01:38.724 --> 0:01:42.444 Tracy, I have to say prediction markets have actually become 0:01:42.444 --> 0:01:44.844 a really significant part of what I would call my 0:01:44.964 --> 0:01:45.764 news consumption. 0:01:46.204 --> 0:01:48.284 I know you tweet about them a lot. In fact, 0:01:48.324 --> 0:01:51.804 you have an ongoing joke that you keep repeating that 0:01:52.284 --> 0:01:55.044 I would argue that novelty value has worn off. But 0:01:55.284 --> 0:01:58.484 clearly I'm wrong because everyone on the platform finds it 0:01:58.644 --> 0:01:59.204 very amusing. 0:01:59.444 --> 0:02:01.404 Yeah, and other people have stolen my joke. 0:02:01.604 --> 0:02:02.124 I've seen that. 0:02:02.204 --> 0:02:02.484 Yeah. 0:02:02.524 --> 0:02:03.804 So the joke is. 0:02:03.724 --> 0:02:06.844 That, you know, when people are really confident about something 0:02:06.924 --> 0:02:09.204 and something is priced at seventy five cents on the dollar, 0:02:09.764 --> 0:02:12.404 they're selling a dollar for seventy five cents right now 0:02:12.404 --> 0:02:15.244 on polymarket. My joke is that when something is fifty 0:02:15.244 --> 0:02:17.764 to fifty, I say, oh, they're selling dollars for fifty cents, 0:02:17.804 --> 0:02:20.764 which of course sounds confident but can mean in both directions. 0:02:20.844 --> 0:02:22.724 It's worked really well. I'm getting a lot of mileage 0:02:22.724 --> 0:02:24.724 out that one. And you may be bored of it now, 0:02:24.884 --> 0:02:27.764 but I think we're in the valley of humor where 0:02:27.924 --> 0:02:30.084 if I'm still making the joke a year from now 0:02:30.124 --> 0:02:33.004 at Tracy, You're gonna find it funny. We shall see. 0:02:33.324 --> 0:02:38.164 Okay. Prediction markets, Okay, prediction markets are interesting. I have 0:02:38.244 --> 0:02:40.884 a lot of questions about them, And first of all, 0:02:40.924 --> 0:02:44.204 I feel like I should caveat this entire conversation with 0:02:44.484 --> 0:02:47.644 an admission that I'm pretty sure I have made on 0:02:47.684 --> 0:02:54.764 this podcast before, but I intuitively do not understand probabilities. 0:02:55.884 --> 0:03:00.164 I'm kind of serious, Like I understand rationally, why if 0:03:00.204 --> 0:03:04.044 you flip a coin five times, the probability of having 0:03:04.204 --> 0:03:08.484 five instances of heads is not fifty percent, but if 0:03:08.484 --> 0:03:11.364 you flip it once, it's fifty percent. But like, on 0:03:11.404 --> 0:03:15.604 an intuitive basis, I don't really feel that way, right, 0:03:15.924 --> 0:03:17.564 And then the other thing I would say when I 0:03:17.644 --> 0:03:20.204 see prediction markets. So one of the things that happened 0:03:20.204 --> 0:03:24.244 recently was people were going like, oh, prediction markets are 0:03:24.284 --> 0:03:28.644 so smart and so interesting because like on Predicted there 0:03:28.724 --> 0:03:31.684 was a ten percent chance that Biden would drop out 0:03:31.724 --> 0:03:33.564 of the race, and so people were going like, oh, 0:03:33.604 --> 0:03:36.924 see the prediction market called it, and it was like, well, 0:03:37.164 --> 0:03:41.004 a ten percent chance. That was higher maybe than some 0:03:41.084 --> 0:03:45.204 other platforms or some pundits expected, but it happened, the 0:03:45.324 --> 0:03:46.604 chance was one hundred percent. 0:03:46.724 --> 0:03:47.484 Like I just. 0:03:48.124 --> 0:03:50.844 Intuitively, I don't get it. I don't get I don't 0:03:50.884 --> 0:03:52.724 get what the percentage actually means. 0:03:53.044 --> 0:03:55.644 Right, So, Tree, the way you think about the lottery, 0:03:55.684 --> 0:03:58.004 for example, is that if you buy a lottery ticket, 0:03:58.164 --> 0:04:00.284 your odds should be fifty to fifty because either you 0:04:00.324 --> 0:04:01.284 win or you done right. 0:04:01.484 --> 0:04:02.884 Therefore it should be binary. 0:04:03.844 --> 0:04:06.284 No, So the way I think about them, and we'll 0:04:06.284 --> 0:04:07.964 be talking very shortly to people who know a lot 0:04:07.964 --> 0:04:11.364 more than me. Is not that like I find conversations 0:04:11.364 --> 0:04:14.564 about the rightness or the wrongness of prediction markets or 0:04:14.604 --> 0:04:17.204 a given contract on a market to be sort of 0:04:17.244 --> 0:04:20.844 the wrong question. It's more like, to me where I 0:04:20.844 --> 0:04:22.924 find it valuable. It's like, Okay, a lot of people 0:04:23.004 --> 0:04:27.124 think that Biden might drop out, right, right, But is 0:04:27.164 --> 0:04:29.924 that mean there's an eighty percent chance? Does that mean 0:04:29.924 --> 0:04:32.204 there's a fifty five percent chance? And so what I 0:04:32.244 --> 0:04:34.964 find interesting about prediction markets is not so much whether 0:04:35.124 --> 0:04:37.404 going to be right or wrong, but that it seems 0:04:37.484 --> 0:04:40.204 like they can put some sort of number on the 0:04:40.284 --> 0:04:43.564 emerging conventional wisdom. Because look, even before the debate, some 0:04:43.604 --> 0:04:45.964 people thought Biden still had a chance of dropping out, 0:04:46.164 --> 0:04:49.324 and so it's interesting that the traders in those markets 0:04:49.764 --> 0:04:52.844 assigned non negligible odds to that happening, and then of 0:04:52.884 --> 0:04:55.004 course it all spiked after the debate and stuff like that. 0:04:55.484 --> 0:04:57.724 So to me, you know, in thinking about the election, 0:04:57.964 --> 0:05:01.404 we have polls, we have models, we have prediction markets. 0:05:01.444 --> 0:05:04.204 Now we have punditry that appears on opinion pages of 0:05:04.284 --> 0:05:08.204 various times. It's yet another tool to sort of consume 0:05:08.284 --> 0:05:12.244 information and figure out where people's heads are at. And 0:05:12.484 --> 0:05:13.484 I like it for that reason. 0:05:13.844 --> 0:05:17.084 Yeah, okay, but I still don't get the value of 0:05:17.124 --> 0:05:19.804 putting a specific number on it. Like you could just 0:05:19.844 --> 0:05:22.844 have an arrow that goes up or down that shows momentum. 0:05:23.204 --> 0:05:25.524 And I'm being slightly facetious here, but like you could 0:05:25.564 --> 0:05:28.644 look at Google trends or something, or you know, try 0:05:28.684 --> 0:05:30.684 to gauge momentum that way. But okay, I have a 0:05:30.684 --> 0:05:33.524 bunch of questions. I fully admit that this is something 0:05:33.564 --> 0:05:37.004 that again on a sort of like instinctual level, I 0:05:37.044 --> 0:05:39.764 do not quite understand. But we do, in fact have 0:05:39.844 --> 0:05:42.524 the perfect guests to explain it all to us. 0:05:42.604 --> 0:05:44.804 Yeah, yeah, I'm very excited. We are going to be 0:05:44.924 --> 0:05:48.444 speaking with Nate Silver and Maria Kanakova. They're the co 0:05:48.524 --> 0:05:53.244 hosts of the fairly brand new Risky Business podcast, which 0:05:53.284 --> 0:05:57.404 is all about questions like this. They're both poker players. 0:05:57.404 --> 0:05:58.004 They are both. 0:05:57.844 --> 0:05:59.884 Recently played in the World Series of Poker and have 0:05:59.964 --> 0:06:01.884 made a lot of money over the years playing poker. 0:06:01.884 --> 0:06:05.484 They are people with probability in gambling and odds and 0:06:05.524 --> 0:06:08.444 making decisions with money on the line. Both in their 0:06:08.484 --> 0:06:12.124 blood is the author of the forthcoming book on the Edge, 0:06:12.164 --> 0:06:14.884 The Art of Risking Everything, And he's also an advisor 0:06:15.004 --> 0:06:18.364 to Polymarket, which is one of the big prediction markets 0:06:18.364 --> 0:06:21.604 that everyone has been quoting these days. So a couple 0:06:21.604 --> 0:06:25.044 of great people to talk to about things like betting 0:06:25.044 --> 0:06:27.004 on elections and how they think about all this stuff. 0:06:27.044 --> 0:06:29.444 So Nate and Maria, thank you guys both for coming 0:06:29.484 --> 0:06:30.164 on odd Laws. 0:06:30.564 --> 0:06:32.444 Thank you so much. Joe and Tracy, Yeah. 0:06:32.244 --> 0:06:33.084 Thanks for having us. 0:06:33.324 --> 0:06:35.884 Absolutely so. When we look at all these markets and 0:06:36.044 --> 0:06:38.564 poly markets the hot one, but I forget the one 0:06:38.804 --> 0:06:41.284 is predict It was also really big. Do I think 0:06:41.324 --> 0:06:45.284 they're running into some they have some regulatory issues years 0:06:45.284 --> 0:06:47.444 ago there used to be in trade. There's the Iowa 0:06:47.484 --> 0:06:50.644 futures market, there's others. What is the value When people 0:06:50.684 --> 0:06:52.924 look at all these numbers and say, like, what is 0:06:52.964 --> 0:06:55.004 the value of markets like these? 0:06:55.564 --> 0:06:57.444 I think it's the same value as any type of 0:06:57.484 --> 0:07:00.884 market where you have price discovery from participants who have 0:07:00.884 --> 0:07:03.604 a rational incentive to make smart trades and be closer 0:07:03.604 --> 0:07:05.644 to whatever the value the market resolves. 0:07:05.244 --> 0:07:06.164 To, you know. 0:07:06.204 --> 0:07:09.724 I mean Tracy asks some existential questions about the notion 0:07:09.804 --> 0:07:11.964 of probability for things that are kind of seen as 0:07:11.964 --> 0:07:15.124 one off events. But whether things are intrinsically uncertain or 0:07:15.204 --> 0:07:17.964 not is kind of above my paid grade, right. The 0:07:18.004 --> 0:07:20.964 fact is that we have uncertain information. We're trying to 0:07:21.004 --> 0:07:24.324 make judgement space and complete data and complete information. And 0:07:25.084 --> 0:07:27.524 I think it's better to quantify things than to be 0:07:27.644 --> 0:07:30.404 totally subjective and use weasel words and not have any 0:07:30.644 --> 0:07:33.724 accountability for you know, a twenty percent chance versus a 0:07:33.724 --> 0:07:35.084 forty percent chance for example. 0:07:35.564 --> 0:07:37.724 Yeah, and I think that there is a huge difference 0:07:37.764 --> 0:07:41.124 between the two and Tracy your existential questions make a 0:07:41.164 --> 0:07:44.124 lot of sense to me as a psychologist, because you know, 0:07:44.164 --> 0:07:47.044 the human mind really does not like probabilistic thinking. You're 0:07:47.084 --> 0:07:49.164 not the only one, and we do want to think 0:07:49.204 --> 0:07:51.684 in absolutes, right, We do like zero and one hundred 0:07:51.884 --> 0:07:55.164 those are easy numbers for us, whereas twenty three percent 0:07:55.404 --> 0:07:59.164 not so much. But this idea that if we actually 0:07:59.204 --> 0:08:02.324 put our money where our mouth is, it will help 0:08:02.404 --> 0:08:06.964 us calibrate those probabilities better, help us calibrate our intuitive 0:08:07.004 --> 0:08:10.724 sense of how confident we are in something, how much 0:08:10.764 --> 0:08:13.684 we actually believe in it. That's I think why prediction 0:08:13.804 --> 0:08:17.244 markets in all sorts of literature and all sorts of 0:08:17.284 --> 0:08:22.284 areas have gained momentum because you think differently. I bet 0:08:22.764 --> 0:08:25.244 and I would put money on this tracy that if 0:08:25.324 --> 0:08:27.844 I forced you to put money down on an opinion 0:08:28.004 --> 0:08:31.644 or a thought, you would actually start homing in on 0:08:31.684 --> 0:08:35.804 those instincts, on those decisions, and you would find that, Okay, well, 0:08:36.004 --> 0:08:38.284 like you know, I'm probably less certain of this than 0:08:38.324 --> 0:08:40.444 I thought I was, because I'm only willing to bet, 0:08:40.604 --> 0:08:43.844 you know, ten dollars and not one hundred dollars. Asking 0:08:43.884 --> 0:08:47.604 yourself questions like this, Actually putting down those bets really helps. 0:08:47.644 --> 0:08:50.724 And what Nate was saying, when you have lots of people, right, 0:08:50.724 --> 0:08:53.684 when you have hundreds and thousands of people doing this, 0:08:54.244 --> 0:08:57.364 that's when the calibration becomes better. Because if we have 0:08:57.764 --> 0:09:00.844 a thousand Tracs who might you know, not believe in 0:09:00.924 --> 0:09:03.804 probabilities that much or not understand them, and yet they're 0:09:03.804 --> 0:09:06.764 all putting their money down. The idea is that in 0:09:06.804 --> 0:09:11.244 this particular case, the crowd actually knows something right, there 0:09:11.364 --> 0:09:14.324 is some wisdom to the amount of money you're putting down, 0:09:14.404 --> 0:09:19.724 because once again, actually betting with your wallet so that 0:09:19.844 --> 0:09:24.124 it hurts, that's when you start to actually question your beliefs. 0:09:24.444 --> 0:09:26.524 Well, let me just say, off the bat, thank you 0:09:26.604 --> 0:09:28.964 so much for trying to make me feel better. I 0:09:29.004 --> 0:09:32.364 will just say, in my defense, I did do AP statistics, 0:09:32.364 --> 0:09:35.044 and I did like I did okay, probably because back 0:09:35.044 --> 0:09:37.204 then you had to draw charts by hand, and I 0:09:37.244 --> 0:09:39.844 was really into drawing like neat charts. So I think 0:09:39.844 --> 0:09:40.804 I got points for that. 0:09:41.404 --> 0:09:41.724 Okay. 0:09:41.804 --> 0:09:46.284 Let me ask a non existential question, which is, if 0:09:46.444 --> 0:09:50.604 I go on to polymarket or predict it, and let's 0:09:50.684 --> 0:09:53.764 just say I see an event and the probability is 0:09:53.844 --> 0:09:58.844 something like forty percent, where is that forty percent coming from? 0:09:59.084 --> 0:10:00.924 And what exactly is it telling me? 0:10:01.924 --> 0:10:03.964 It's saying that in the long run, if you took 0:10:04.004 --> 0:10:08.004 one hundred similar events some reference class, that the event 0:10:08.044 --> 0:10:11.404 would occur about already out of every one hundred times 0:10:11.404 --> 0:10:12.284 and wouldn't occur the. 0:10:12.204 --> 0:10:13.804 Other sixty out of one hundred. 0:10:13.844 --> 0:10:16.484 I think what bothers people is that they question whether 0:10:16.484 --> 0:10:19.604 it's something like an election falls into an appropriate larger 0:10:19.684 --> 0:10:22.644 subset of some random distribution of data. 0:10:22.724 --> 0:10:23.724 Right. That bugs people. 0:10:23.724 --> 0:10:26.164 If you're playing poker, then there's one to fifty two 0:10:26.204 --> 0:10:28.964 cards that might come next. It's technically not random, right. 0:10:29.004 --> 0:10:31.404 The hand is actually dealt out once it's shuffled but 0:10:31.764 --> 0:10:34.604 de facto random, right, Or if you're watching a basketball game, 0:10:34.884 --> 0:10:36.644 you have some sense that a free throw may or 0:10:36.684 --> 0:10:38.884 may not go in, or may bounce off the back rim, 0:10:39.044 --> 0:10:41.924 et cetera, et cetera. With elections, I mean, parties always 0:10:41.964 --> 0:10:44.244 tell people that, oh, this is the most important election 0:10:44.724 --> 0:10:46.684 of all time, but there are like a lot of 0:10:47.244 --> 0:10:51.124 like fairly random contingencies in this election. Or example, to 0:10:51.164 --> 0:10:54.124 use a somewhat pointed example, if Donald Trump had not 0:10:54.404 --> 0:10:56.964 turned to look at a billboard of immigration data, then 0:10:57.004 --> 0:10:58.964 the bullet that was fired at him might have done 0:10:59.124 --> 0:11:01.444 much more damage than Grayze's ear, for example. Or in 0:11:01.484 --> 0:11:04.884 two thousand, the butterfly ballot. This is going back a ways. 0:11:05.364 --> 0:11:08.364 A ballot design issue in Palm Beach County, Florida probably 0:11:08.364 --> 0:11:11.124 costs al Gore the election and cause old people to 0:11:11.164 --> 0:11:14.524 confusingly vote for pap you can and instead. So there 0:11:14.564 --> 0:11:17.644 are these kind of near random circumstances even in elections. 0:11:17.644 --> 0:11:21.164 But even then, you know, not everything is knowable or predictable. 0:11:21.244 --> 0:11:22.964 And if you think it's locked in that Harris is 0:11:22.964 --> 0:11:24.724 going to win or Trump is going to win, then okay, 0:11:24.724 --> 0:11:26.524 well great, maybe you're right, but you can make a 0:11:26.564 --> 0:11:28.724 lot of money by betting on that at polymarket or 0:11:28.924 --> 0:11:30.044 predicted or whatever else. 0:11:30.364 --> 0:11:33.044 Yeah, I think one more time. You know, nothing in 0:11:33.084 --> 0:11:36.004 life is certain ever, no matter how much we want 0:11:36.044 --> 0:11:38.604 it to be, right, Like, I might die in the 0:11:38.604 --> 0:11:41.004 next minute. I hope I don't, but I'm right. 0:11:41.044 --> 0:11:42.244 There's a non. 0:11:42.284 --> 0:11:46.564 Zero non zero jes exactly where my mind went when 0:11:46.564 --> 0:11:47.404 you said nothing. 0:11:48.844 --> 0:11:51.924 Right. But it's so true. And if you actually think 0:11:51.964 --> 0:11:56.404 of the election like a poker hand, except you know, 0:11:56.524 --> 0:11:58.564 think about it in like multiverse terms. I'm going to 0:11:58.604 --> 0:12:00.724 go back to existential terms, Tracy. You try to get 0:12:00.764 --> 0:12:02.764 us out of existential terms, I'm going to bring us 0:12:02.884 --> 0:12:06.804 right back there. So imagine, you know, the multiverse experiment 0:12:06.844 --> 0:12:10.244 where we have, you know, a million possible versions of 0:12:10.284 --> 0:12:12.964 our reality, and in one of them, we had different ballots. Right, 0:12:12.964 --> 0:12:15.684 they weren't butterfly ballots. Al Gore won the election. We 0:12:15.684 --> 0:12:17.844 would probably not be here right now, because you know, 0:12:18.204 --> 0:12:21.884 it's funny that it's a butterfly Yeah, butterfly ballot, butterfly effect. Right, 0:12:22.564 --> 0:12:25.404 those tiny things do matter, but you do have to 0:12:25.484 --> 0:12:30.684 realize that those probabilities still matter, right, like the fact 0:12:30.724 --> 0:12:33.364 that Hillary Clinton lost and that Nate got a lot 0:12:33.364 --> 0:12:37.204 of for it. I defended Nate very publicly, as did 0:12:37.244 --> 0:12:39.444 a lot of people, because his forecast was the single 0:12:39.444 --> 0:12:42.044 best one. It gave her a good chance of winning, 0:12:42.044 --> 0:12:44.484 but it gave Donald Trump the highest chance of winning. 0:12:44.724 --> 0:12:46.684 But people don't like you know, you know, they don't 0:12:46.764 --> 0:12:50.564 understand that over twenty percent is a hell of a 0:12:50.604 --> 0:12:53.084 lot of a percent. You know. In my last book, 0:12:53.244 --> 0:12:56.204 I compared Nate's percentage just to poker, and I said, 0:12:56.244 --> 0:12:58.804 the chances of Donald Trump winning according to Nate's prediction 0:12:58.964 --> 0:13:02.124 was the same chance of you flopping a pair in Texas. 0:13:02.124 --> 0:13:04.844 Hold them now, Think how often you flop a pair 0:13:05.044 --> 0:13:06.884 right that you pair up one of the two cards 0:13:06.924 --> 0:13:08.644 that you're holding. That happens all the time. 0:13:11.724 --> 0:13:13.844 I really just like, sometimes I'm sitting there at the 0:13:13.844 --> 0:13:16.044 poker table and I'm like, God, just give me a 0:13:16.084 --> 0:13:18.324 set and then I could double up and walk away 0:13:18.324 --> 0:13:20.804 for the night, and it never happens anyway. So I 0:13:20.804 --> 0:13:23.404 have two quick thoughts. One is I always do find 0:13:23.444 --> 0:13:26.084 it funny when people talk about, like our prediction markets 0:13:26.164 --> 0:13:28.964 good or not, because a point that I've made many 0:13:29.004 --> 0:13:31.324 times in writing, et cetera, is we actually do have 0:13:31.364 --> 0:13:34.724 a very popular liquid prediction market that existed for a 0:13:34.764 --> 0:13:37.524 long time, which is the short term treasury market, which 0:13:37.564 --> 0:13:39.844 is explicitly a bet on what the you know, nine 0:13:39.884 --> 0:13:41.804 members or whatever of the FMC are going to do 0:13:41.844 --> 0:13:44.924 over the next And that's literally a prediction market. And 0:13:44.964 --> 0:13:48.404 no one questions whether that market works. It does work, 0:13:48.404 --> 0:13:50.284 and it exists, and there's a lot of money writing 0:13:50.324 --> 0:13:53.004 on it, and it literally is not just metaphorically, it 0:13:53.044 --> 0:13:53.844 is a prediction market. 0:13:54.004 --> 0:13:54.164 You know. 0:13:54.164 --> 0:13:56.724 It occurs to me though, when we talk about, okay, 0:13:56.724 --> 0:14:00.884 what is a forty percent return? This must be easily testable, right, 0:14:01.044 --> 0:14:04.004 Like if you take a thousand contracts that have existed 0:14:04.044 --> 0:14:07.204 over the life of polymarket or the life of predicted 0:14:07.364 --> 0:14:10.324 or intrade or whatever it was, and then say, like, okay, 0:14:10.364 --> 0:14:13.404 one hundred days out from resolution, did the ones that 0:14:13.564 --> 0:14:16.324 say forty percent? Did they resolve forty percent of the time? 0:14:16.884 --> 0:14:17.924 Like? Has that been tested? 0:14:17.964 --> 0:14:19.924 Like can we say that that is the case that 0:14:20.204 --> 0:14:22.564 things with forty percent in the prediction market over some 0:14:22.684 --> 0:14:25.604 timeframe do resolve forty percent towards the direction? 0:14:26.244 --> 0:14:29.244 There's been somewhat mixed literature on this. I do know. 0:14:29.324 --> 0:14:31.764 I guess this is just a not so humble brag right. 0:14:31.844 --> 0:14:34.564 I do know historically that like the five point thirty 0:14:34.604 --> 0:14:37.284 eight now Silver Bullet and election forecasts have been better 0:14:37.284 --> 0:14:40.684 than prediction markets, which is unusual. Usually publicly available information 0:14:40.764 --> 0:14:44.164 is not better than the market. However, they've been pretty 0:14:44.164 --> 0:14:45.924 well calibrated according to most estimates. 0:14:45.964 --> 0:14:47.564 And also I think the markets. 0:14:47.244 --> 0:14:50.564 Are maturing a lot where Look, I've talked to a 0:14:50.604 --> 0:14:53.964 lot of different types of businesses, investment banks and hedge 0:14:53.964 --> 0:14:56.364 funds and things like that, and they understand that like 0:14:56.804 --> 0:15:00.084 political risk is market risk when you have this bigure 0:15:00.084 --> 0:15:02.684 difference between the two parties, that like whether Donald Trump 0:15:02.724 --> 0:15:04.724 or Kamala Harris is the next president, has a lot 0:15:04.764 --> 0:15:07.044 of implication for every sector of the economy or any 0:15:07.084 --> 0:15:09.284 trades you want to make. And so you have seen 0:15:09.564 --> 0:15:14.524 more institutional attempts to either bet directly through prediction markets 0:15:14.604 --> 0:15:17.644 or bet on proxies. And again I'm an advisor to 0:15:17.644 --> 0:15:21.084 poly market, but their volumes are meaningfully much higher than 0:15:21.084 --> 0:15:23.244 in the past, their structures are good, so you don't 0:15:23.244 --> 0:15:25.804 pay as much of a tax in essence, so I 0:15:25.884 --> 0:15:28.844 kind of think they've turned a corner from being pretty 0:15:28.844 --> 0:15:31.084 good to maybe verging on very good. 0:15:31.284 --> 0:15:33.004 Yeah, I think, Nate, you just head on a really 0:15:33.044 --> 0:15:36.524 important point, which is volume. Right, prediction markets are only 0:15:36.564 --> 0:15:39.164 as good as the traffic that they get, and so 0:15:39.364 --> 0:15:41.484 for a long time, you know, there was no legal 0:15:41.724 --> 0:15:44.764 prediction market in the United States, and so it's very 0:15:44.804 --> 0:15:47.244 difficult when you're talking about betting on political events within 0:15:47.284 --> 0:15:50.244 the United States to have a well calibrated market if 0:15:50.284 --> 0:15:52.964 people within the United States can't actually bet on it. Right, 0:15:53.124 --> 0:15:54.804 So I think that a lot of things are changing, 0:15:55.044 --> 0:15:57.764 and hopefully we'll change for the better because volume is 0:15:57.884 --> 0:16:01.644 essential in calibrating correctly, and you need people with expertise 0:16:01.684 --> 0:16:04.004 doing it as well. But you also you just need 0:16:04.164 --> 0:16:06.164 bodies to you need both of these things. 0:16:06.284 --> 0:16:09.244 The ratio of smart money to dumb money is really important. Yes, 0:16:09.604 --> 0:16:12.444 in the Super Bowl, the literal actual chiefs versus forty 0:16:12.524 --> 0:16:14.964 nine ers whatever, super Bowl, there is so much dumb 0:16:15.004 --> 0:16:17.084 money being bet on the Super Bowl that the sharp 0:16:17.124 --> 0:16:19.924 money can't consume all of it, and so therefore you 0:16:19.964 --> 0:16:23.084 often have positive expective value bets by fading the public 0:16:23.124 --> 0:16:25.804 in the Super Bowl. That's not true for a regular 0:16:25.884 --> 0:16:29.924 season Hornet's Wizard's Game in the NBA or something, but 0:16:29.964 --> 0:16:32.724 for very very big events like a big UFC fight 0:16:32.844 --> 0:16:34.724 or the super Bowl, talk about some in the book 0:16:34.724 --> 0:16:37.164 a little bit. Then those things potentially you have more 0:16:37.244 --> 0:16:39.084 dumb money than sharp money. And so what you now 0:16:39.124 --> 0:16:41.844 have happening, I think is like more of a professional 0:16:41.884 --> 0:16:45.844 class of betters on politics, whether it is hedge funds 0:16:45.884 --> 0:16:48.084 or whether it is just smart individuals who are betting 0:16:48.164 --> 0:16:50.484 on the US election and elections around the world. You 0:16:50.564 --> 0:17:06.364 see some sharp money coming into these markets. 0:17:10.244 --> 0:17:14.444 So just on this idea of like where the information 0:17:14.524 --> 0:17:16.924 and the bets are actually coming from. Talk to us 0:17:16.964 --> 0:17:20.204 a little bit about the difference between a book maker 0:17:20.564 --> 0:17:23.724 versus a prediction market, because my impression of a bookie 0:17:23.884 --> 0:17:26.724 is like they kind of set the odds and then 0:17:26.804 --> 0:17:29.124 people decide whether or not they want to place money 0:17:29.164 --> 0:17:31.484 on them, and then you know, they might calibrate those 0:17:31.524 --> 0:17:34.844 odds depending on the response they are getting from people 0:17:34.884 --> 0:17:38.204 placing the bets. But there's like a starting point that 0:17:38.284 --> 0:17:41.484 the bookies have, and I guess it must be different 0:17:41.484 --> 0:17:44.004 for prediction markets. Talk to us about like the difference 0:17:44.084 --> 0:17:46.164 in establishing those probabilities. 0:17:46.444 --> 0:17:49.524 I mean, yeah, the classic act of bookmaking is where 0:17:49.524 --> 0:17:51.764 you have some in essence prior. I guess it's an 0:17:51.764 --> 0:17:54.084 advanced show, right, So like you have. You start out 0:17:54.084 --> 0:17:56.804 with some number that you kind of probably comes out 0:17:56.804 --> 0:17:59.644 of a model or some conversation. You have the initial 0:17:59.684 --> 0:18:01.844 line that a sportsbook post on an NFL game is 0:18:01.844 --> 0:18:04.764 actually probably often quite beatable. Right, it's just some like 0:18:04.884 --> 0:18:08.044 nerd in a back room somewhere who's doing his best. 0:18:08.164 --> 0:18:11.684 But then you look for action from sharp betters. Maybe 0:18:11.764 --> 0:18:13.884 the book maker thinks that Maria is really good at 0:18:13.924 --> 0:18:16.684 sports bidding and I'm a total hack whale. 0:18:16.764 --> 0:18:19.844 Definitely, definitely anyone listening that this is accurate. 0:18:20.484 --> 0:18:23.404 So Maria bets on the Chiefs, she bets five K 0:18:23.484 --> 0:18:26.324 on the Chiefs, and they'll move the line toward the 0:18:26.404 --> 0:18:29.124 Chiefs in Maria's direction. Right, So now it's more extensive 0:18:29.164 --> 0:18:31.324 for me to about on the Chiefs. If I bet 0:18:31.324 --> 0:18:33.964 I think I'm a whale, they to do about it, right, 0:18:34.004 --> 0:18:35.804 because they think that's just dumb money they're trying to 0:18:35.804 --> 0:18:38.644 make a profit from. So that's traditional book making, whereas 0:18:38.764 --> 0:18:41.844 the prediction markets, it's all happening more organically, right, there's 0:18:41.884 --> 0:18:45.484 no human at the switch who was deciding and evaluating 0:18:45.484 --> 0:18:46.564 where to move their numbers. 0:18:46.884 --> 0:18:49.604 I think that the other important thing is that you, 0:18:49.924 --> 0:18:52.844 I think suggested Nate but didn't say explicitly when you're 0:18:52.884 --> 0:18:55.964 talking about sports books, when you're talking about bookmaking, this 0:18:56.124 --> 0:19:01.164 all happens pretty much manually, where people actually look to 0:19:01.204 --> 0:19:03.964 see who's placing the bets, and then they actually adjust 0:19:04.044 --> 0:19:06.964 the lines, right like there is a human adjusting the 0:19:06.964 --> 0:19:09.324 line and deciding, okay, this is what we need to do, 0:19:09.644 --> 0:19:12.284 and that might happen hundreds of times a day, maybe 0:19:12.284 --> 0:19:15.204 even more, and the line gets better and better. But 0:19:15.324 --> 0:19:18.524 in prediction markets, those adjustments are just happening all the time. 0:19:18.644 --> 0:19:20.804 It's the invisible hand, the same as like the stock market, 0:19:20.804 --> 0:19:21.284 for example. 0:19:21.444 --> 0:19:21.684 YEP. 0:19:22.444 --> 0:19:25.644 I could imagine that there are various types of betters 0:19:26.124 --> 0:19:29.484 on prediction markets, and you broke it down into sharps 0:19:29.564 --> 0:19:32.244 versus whales or whatever it is, or done money versus 0:19:32.204 --> 0:19:35.004 smart money, but they're also different. Even within the category 0:19:35.044 --> 0:19:37.844 of smart money, there are probably many different approaches. So 0:19:37.884 --> 0:19:40.604 I could imagine that there are some people who are 0:19:40.684 --> 0:19:43.564 very sophisticated in their political analysis, and they could say, 0:19:43.564 --> 0:19:45.604 you know, this person is a better chance of winning, 0:19:46.084 --> 0:19:49.324 you know, getting the vice presidential tap than someone else. 0:19:49.604 --> 0:19:52.404 Someone else might just say, you know what, anytime the 0:19:52.444 --> 0:19:56.444 model or the price diverges from the silver bulletin model. 0:19:56.484 --> 0:19:59.644 I'm going to go either short or long that I imagine 0:19:59.524 --> 0:20:02.804 that there are arbitrage traders who are just sort of 0:20:02.804 --> 0:20:05.604