Odd Lots: Nate Silver and Maria Konnikova on the Art of Election Betting

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Welcome back to Risky Business, a show about making better decisions.

I'm Maria Kanakova.

And I'm Nate Silver.

Today we're dropping into your feeds to share an episode that Nate and I taped with the Odd Lots podcast, where we appeared to talk about prediction markets.

Yeah, this is a really fun interview.

The host, Joe Wisenthel, I know Joe a little bit.

We've hung out in Vegas together, actually.

And Tracy Alloway

asks same, asks great questions.

They're kind of nerdy in the same ways that we are.

So it was a fun, fun crossover, 80s sitcom crossover episode, basically.

Absolutely.

And if you enjoy the episode, you can find more of Odd Lots wherever you're listening to this podcast.

Bloomberg Audio Studios.

Podcasts, radio, news.

Hello, and welcome to another episode of the Odd Lots Podcast.

I'm Joe Wisenthal.

And I'm Tracy Alloway.

Tracy, I have to say, prediction markets have actually become a really significant part of what I would call my news consumption.

I know you tweet about them a lot.

In fact, you have an ongoing joke that you keep repeating that I would argue the novelty value has worn off, but clearly I'm wrong because everyone on the platform finds it very amusing.

Yeah, and other people have stolen my jokes.

I've seen that.

Yeah.

So the joke is that, you know, when people are really confident about something and something's priced at 75 cents on the dollar, they'll be like, oh, they're selling a dollar for 75 cents right now on polymarket.

My joke is that when something is 50-50, I say, oh, they're selling dollars for 50 cents, which of course sounds confident, but can mean in both directions.

It's worked really well.

I'm getting a lot of mileage out that one.

And you may be bored of it now, but I think we're in the valley of humor where if I'm still making the joke a year from now, Tracy, you're going to find it funny.

We shall see.

Okay.

Prediction markets.

Okay.

Prediction markets are interesting.

I have a lot of questions about them.

And first of all, I feel like I should caveat this entire conversation with an admission that I'm pretty sure I have made on this podcast before, but I intuitively do not understand probabilities.

I'm kind of serious.

Like I understand rationally why if you flip a coin five times, the probability of having five instances of heads is not 50%.

But if you flip it once, it's 50%.

But like on an intuitive basis,

I don't really feel that way.

Right.

And then the other thing I would say, when I see prediction markets, so one of the things that happened recently was people were going like, oh, prediction markets are so smart and so interesting because like on Predict It, there was a 10% chance that Biden would drop out of the race.

And so people were going like, oh, see, the prediction market called it.

And it was like, well, a 10% chance.

That was higher maybe than some other platforms or some pundits expected, but it happened.

The chance was 100%.

Like, I just intuitively, I don't get it.

I don't get, I don't get what the percentage actually means.

Right.

So, Trey, the way you think about the lottery, for example, is that if you buy a lottery ticket, your odds should be 50-50 because either you win or you don't.

Right.

Therefore, it should be binary.

No, so the way I think about them, and we'll be talking very shortly to people who know a lot more than me, is not that like I find conversations about the rightness or the wrongness of prediction markets or a given contract on a market to be sort of the wrong question.

It's more like to me, where I find it valuable is like, okay, a lot of people think that Biden might drop out, right?

Right.

But is that mean there's an 80% chance?

Does that mean there's a 55% chance?

And so what I find interesting about prediction markets is not so much whether they're going to be right or wrong, but that it seems like they can put some sort of number on the emerging conventional wisdom.

Because look, even before the debate, some people thought Biden still had a chance of dropping out.

And so it was interesting that the traders in those markets assigned non-negligible odds to that happening.

And then, of course, it all spiked after the debate and stuff like that.

So to me, you know, in thinking about the election, we have polls, we have models, we have prediction markets now, we have punditry that appears on opinion pages at various times.

It's yet another tool to sort of consume information and figure out where people's heads are at.

And I like it for that reason.

Yeah, okay.

But I still don't get the value of putting a specific number on it.

Like, you could just have an arrow that goes up or down that shows momentum.

And I'm being slightly facetious here, but like you could look at Google Trends or something and, you know, try to gauge momentum that way.

But okay, I have a bunch of questions.

I fully admit that this is something that, again, on a sort of like instinctual level, I do not quite understand.

But we do, in fact, have the perfect guests to explain it all to us.

Yeah.

Yeah.

I'm very excited.

We are going to be speaking with Nate Silver and Maria Konakova.

They are the co-hosts of the fairly brand new risky business podcast, which is all about questions like this.

They're both

poker players.

They both recently played in the World Series of poker and have made a lot of money over the years playing poker.

They're people with probability and gambling and odds and making decisions with money on the line, both in their blood.

Nate is the author of the forthcoming book, On the Edge, The Art of Risking Everything, and he's also an advisor to Polymarket, which is one of the big prediction markets that everyone has been quoting these days.

So a couple of great people to talk to about things like betting on elections and how they think about all this stuff.

So Nate and Maria, thank you guys both for coming on Odlots.

Thank you so much, Joe and Tracy.

Yeah, thanks for having us.

Absolutely.

So when we look at all these markets, and Polymarket's the hot one, but I forget the one that was predicted was also really big.

I think they're running into some, they have some regulatory issues.

Years ago, there used used to be Intrade.

There was the Iowa futures market.

There's others.

What is the value?

When people look at all these numbers, it's like, like, what is the value of markets like these?

I think it's the same value as any type of market where you have price discovery from participants who have a rational incentive to make smart trades and be closer to whatever the value the market resolves to.

You know, I mean, Tracy asks some existential questions about the notion of probability for things that are kind of seen as one-off events, but whether things are intrinsically uncertain or not is kind of above my pay grade, right?

The fact is that we have uncertain information.

We're trying to make judgments based on incomplete data, incomplete information.

And I think it's better to quantify things than to be totally subjective and use weasel words and not have any accountability for, you know, a 20% chance versus a 40% chance, for example.

Yeah.

And I think that there is a huge difference between the two.

And Tracy, your existential questions make a lot of sense to me as a psychologist, because, you know, the human mind really does not like probabilistic thinking.

You're not the only one.

And we do want to think in absolutes, right?

We do like zero and 100.

Those are easy numbers for us, whereas 23%, not so much.

But this idea that if we actually put our money where our mouth is, it will help us calibrate those probabilities better, help us calibrate our intuitive sense of how confident we are in something, how much we actually believe in it.

That's, I think, why prediction markets in all sorts of literature and all sorts of areas have gained momentum because you think differently.

I bet, and I would put money on this, Tracy, that if I forced you to put money down on an opinion or a thought, you would actually start homing in on those instincts, on those decisions.

And you would find that, okay, wow, like, you know, I'm probably less certain of this than I thought I was because I'm only willing to bet, you know, $10 and not $100.

Asking yourself questions like this, actually putting down those bets really helps.

And what Nate was saying, when you have lots of people, right, when you have hundreds and thousands of people doing this, that's when the calibration becomes better.

Because if we have a thousand Tracy who might, you know, not believe in probabilities that much or not understand them, and yet they're all putting their money down, the idea is that in this particular case, the crowd actually knows something, right?

There is some wisdom to the amount of money you're putting down because once again, actually betting with your wallet so that it hurts, that's when you start to actually question your beliefs.

Well, let me just say off the bat, thank you so much for trying to make me feel better.

I will just say, in my defense, I did do AP statistics and I did like, I did okay, probably because back then you had to draw charts by hand, and I was really into drawing like neat charts.

So I think I got points for that.

Okay, let me ask a non-existential question, which is: if I go onto polymarket or predict it, and let's just say I see an event and the probability is something like 40%.

Where is that 40% coming from?

And what exactly is it telling me?

It's saying that in the long run, if you took 100 similar events, some reference class that the event would occur about 40 out of one every every 100 times and wouldn't occur the other 60 out of 100.

I think what bothers people is that they question whether something like an election falls into an appropriate larger subset of some random distribution of data, right?

That bugs people.

If you're playing poker, then there's one of 52 cards that might come next.

It's technically not random, right?

The hand is actually dealt out once it's shuffled, but de facto random, right?

Or if you're watching a basketball game, you have some sense that a free throw may or may not go in or may bounce off the back rim, et cetera, et cetera.

With elections, I mean, parties always tell people that, oh, this is the most important election of all time, but there are like a lot of like fairly random contingencies.

In this election, for example, to use a somewhat pointed example.

If Donald Trump had not turned to look at a billboard of immigration data, then the bullet that was fired at him might have done much more damage than Grays' ear, for example.

Or in 2000, the butterfly ballot, this is going back a ways, a ballot design issue in Palm Beach County, Florida probably cost Al Gore the election and caused old people to confusingly vote for Pat Buchanan instead.

So there are these kind of near-random circumstances, even in elections, but even then, you know, not everything is knowable or predictable.

And if you think it's locked in that Harris is going to win or Trump is going to win, then okay, well, great, maybe you're right.

But you can make a lot of money by betting on that at polymarket or predicted or whatever else.

Yeah, I think one more time, you know, nothing in life is certain ever, no matter how much we want it to be, right?

Like, I might die in the next minute.

I hope I don't, but I'm right.

There's a non-zero problem,

non-zero chances.

That's exactly where my mind went when you said nothing in life is certain

right but it's so true and if you actually think of the election like a poker hand except you know think about it in like multiverse terms i'm going to go back to existential terms tracy you tried to get us out of existential terms i'm going to bring us right back there so imagine you know the multiverse experiment where we have you know a million possible versions of our reality and in one of them we had different ballots right they weren't butterfly ballots al gore won the election We would probably not be here right now because, you know, it's funny that it's a butterfly.

Yeah, butterfly ballot, butterfly effect, right?

Those tiny things do matter, but you do have to realize that those probabilities still matter, right?

Like the fact that Hillary Clinton lost and that Nate got a lot of for it.

I defended Nate very publicly,

as did a lot of people, because his forecast was the single best one.

It gave her a good chance of winning, but it gave Donald Trump the highest chance of winning.

But people don't like, you know, you know, they don't understand that over 20% is a hell of a lot of a percent.

You know, in my last book, I compared Nate's percentages to poker and I said the chances of Donald Trump winning, according to Nate's prediction, was the same chance of you flopping a pair in Texas hold'em.

Now think how often you flop a pair, right?

That you pair up one of the two cards that you're holding.

That happens all the time.

Never happens to me.

No, it doesn't.

I really just like, sometimes I'm sitting there at the poker table and I'm like, God, just give give me a set.

And then I could double up and walk away for the night.

And it never happens.

Anyway, so I have two quick thoughts.

One is, I always do find it funny when people talk about like, are prediction markets good or not?

Because a point that I've made many times in writing, et cetera, is we actually do have a very popular liquid prediction market that's existed for a long time, which is the short-term treasury market, which is explicitly a bet on what the, you know, nine members or whatever of the FOMC are going to do over the next, and that's literally a prediction market.

And no one questions whether that market works.

It does work and it exists.

And there's a lot of money riding on it.

And it literally is, not just metaphorically, it is a prediction market.

You know, it occurs to me, though, when we talk about, okay, what is a 40% return?

This must be easily testable, right?

Like if you take a thousand contracts that have existed over the life of polymarket or the life of predicted or intrade or whatever it was, and then say like, okay, 100 days out from resolution, did the ones that would say 40%, did they resolve 40% of the time like has that been tested like can we say that that is the case that things with 40 in the prediction market over some time frame do resolve 40 towards that direction there's been somewhat mixed literature on this i do know i guess this is just a not so humble brag right i do know historically that like the 538 now silver bulletin election forecasts have been better than prediction markets, which is unusual.

Usually publicly available information is not better than the market.

However, they've been pretty well calibrated according to most estimates.

And also, I think the markets are maturing a lot.

Where, look, I've talked to a lot of different types of businesses, investment banks and hedge funds and things like that.

And they understand that, like, political risk is market risk.

When you have this big difference between the two parties, that like whether Donald Trump or Kamala Harris is the next president has a lot of implication for every sector of the economy or any trade you want to make.

And so you have seen more institutional attempts to either bet directly through prediction markets or bet on proxies.

And again, I'm an advisor to Polymarket, but their volumes are meaningfully much higher than in the past.

Their structures are good, so you don't pay as much of a tax in essence.

So I kind of think they've turned a corner from being pretty good to maybe verging on very good.

Yeah, I think, Nate, you just hit on a really important point, which is volume, right?

Prediction markets are only as good as the traffic that they get.

And so for a long time, you know, there was no legal prediction market in the United States.

And so it's very difficult when you're talking about betting on political events within the United States to have a well-calibrated market if people within the United States can't actually bet on it.

Right.

So I think that a lot of things are changing and hopefully will change for the better because volume is essential in calibrating correctly.

And you need people with expertise doing it as well.

But you also, you just need.

bodies too.

You need both of these things.

The ratio of smart money to dumb money is really important.

Yes.

In the Super Bowl, the literal actual Chiefs versus 49ers, whatever Super Bowl, there is so much dumb money being bet on on the Super Bowl that the sharp money can't consume all of it.

And so therefore, you often have positive expected value bets by fading the public in the Super Bowl.

That's not true for a regular season Hornets Wizards game in the NBA or something.

But for very, very big events like a big UFC fight or the Super Bowl, talk about this in the book a little bit, then those things potentially you have more dumb money than sharp money.

And so what you now have happening, I think, is like more of a professional class of bettors on politics, whether it is hedge funds or whether it is just smart individuals who are betting on the U.S.

election, elections around the world.

You see some sharp money coming into these markets.

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So just on this idea of like where the information and the bets are actually coming from, talk to us a little bit about the difference between a bookmaker versus a prediction market.

Because my impression of a bookie is like they kind of set the odds and then people decide whether or not they want to place money on them.

And then, you know, they might calibrate those odds depending on the response they are getting from people placing the bets.

But there's like a starting point that the bookies have.

And I guess it must be different for prediction markets.

Talk to us about like the difference in establishing those probabilities.

I mean, yeah, the classic act of bookmaking is where you have some, in essence, prior.

I guess it's an advanced show, right?

So like you have, you start out with some number that you kind of probably comes out of a model or some conversation you have.

The initial line that a sportsbook posts on an NFL game is actually probably often quite beatable, right?

It's just some like nerd in a back room somewhere who's doing his best.

But then you look for action from sharp bettors.

Maybe the bookmaker thinks that Maria is really good at sports betting and I'm a total hack.

whale definitely definitely anyone listening that this is accurate so maria bets on the Chiefs.

She bets 5K on the Chiefs, and they'll move the line toward the Chiefs in Maria's direction, right?

So now it's more expensive for me to bet on the Chiefs.

If I bet, they think I'm a whale, they don't do about it, right?

Because they think that's just dumb money that they're trying to make a profit from.

So that's traditional bookmaking, whereas the prediction markets, it's all happening more organically, right?

There's no human at the Switch who is deciding and evaluating where to move their numbers.

I think that the other important thing is that you, I think, suggested, Nate, but didn't say explicitly.

When you're talking about sports books, when you're talking about bookmaking, this all happens pretty much manually, where people actually

look to see who's placing the bets, and then they actually adjust the lines, right?

Like there is a human adjusting the line and deciding, okay, this is what we need to do.

And that might happen hundreds of times a day, maybe even more.

And the line gets better and better.

But in prediction markets, those adjustments are just happening all the time.

It's the invisible hand, the same as like the stock market, for example.

Yep.

I could imagine that there are various types of bettors on prediction markets and you broke it down into sharps versus whales or whatever it is or dumb money versus smart money, but they're also different, even within the category of smart money.

There are probably many different approaches.

So I could imagine that there are some people who are very sophisticated in their political analysis and they could say, you know what, this person is a better chance of winning, you know, getting the vice presidential tap than someone else.

Someone else might just say, you know what, anytime the model or the price diverges from the silver bulletin model, I'm going to go either short or long.

That I imagine that there are arbitrage traders who are just sort of maybe looking at the price on one exchange versus the price of another exchange and attempting to take advantage of discrepancies, just like it exists in stock market.

I assume maybe there are momentum people.

It's like, this is hot right now, even if I don't believe it.

But talk to us about some of the different strategies that the good bettors on prediction markets take?

I mean, I think you identified most of them, Joe.

And, you know, one thing you learned being in the gambling world, playing poker and so forth, is that if there is an arbitrage to have or an edge to be had, someone's going to hoover it up, right?

There are actually people who go around and are professional slot machine players, for example, because there are odd circumstances where you might have a jackpot or a conditional probability where playing a slot machine can don't do this at home.

Do not do this at home.

But there are cases where Tracy's going to do it.

Yeah.

Plus, you need to play a slot machine.

So at the end of the day, something like the vice presidential race, it's inherently somewhat subjective.

But if you have practice, I mean, as a poker player, poker players develop uncanny intuitions for probabilities.

They'll say, I need 31%

to make this call profitable on the river.

And I was only getting 30%.

And so I folded, right?

I mean, they'll literally get to like a 1%.

delta versus what the actual odds are.

Good poker players.

You need an adjective in there.

Yeah, yeah.

But you learn it kind of, I mean, it just, it's muscle memory at some point.

Yeah, absolutely.

And sometimes you don't even quite know what the probabilities are.

You just know that you have those odds or you don't have those odds.

You really do start feeling them.

So that is something that develops over time.

And I'm actually not sure, though, that it would develop over time when you're doing something like prediction markets, right?

Because slot machines are also something that is very experiential, right?

Where you actually kind of are doing this and you're trying it over and over and over.

And for prediction markets, I think you often just place lots of bets and it's not like you're sitting there actually watching this and experiencing it and learning from it.

So I think you already, if you want to be a good better, you need to learn those intuitions from something like poker and then apply them to the prediction markets.

I don't think it works the other way around because the way that the brain works, you need that experience.

You need to sample those probabilities over and over and over.

That's why poker players know what 1% feels like because they've played tens of thousands, hundreds of thousands of hands, and they have seen the outcomes.

They've sampled correctly, right?

So they know exactly what that feels like.

That doesn't happen in prediction markets.

So Nate can go into a prediction market and he's going to crush, right?

Because he has a good instinct for those probabilities.

But someone who doesn't already, I don't think that they're going to suddenly develop it because they were betting in prediction markets.

Joe, I can say with 100% confidence that I have failed to apply my poker intuitions to my slot machines playing strategy.

That is definitely true.

Okay, wait.

So I'm looking at Polymarket right now, and I should look at this more because this is actually kind of fun.

How are the particular events that people are betting on?

How are those chosen or selected?

Because right now I am looking at, will the U.S.

confirm that aliens exist in 2024?

What will Trump say in August?

I mean, really, I feel like that could be anything.

And then will Taylor Swift get engaged in 2024?

So the big questions of our time.

But how are those sort of like, why those particular questions?

Is it just if anyone wants to start a market in a particular event?

Yeah, I'd say the polymarket guys who I know a little bit are very attuned to finance Twitter and politics Twitter and crypto Twitter.

Sometimes they're kind of jokes and kind of trollish.

I mean, they're trying to have some fun, right?

And so you'll see some questions that are a little bit meme-ified for sure.

I actually actually saw Nate, and I'm not sure if this was, I don't remember if it was on Polymarket or one of the other prediction markets, but there was a prediction market on our podcast, including, you know, number of F-bombs that Nate will drop within the first 10 minutes.

You know,

things like that.

Wait, do you guys bet on that?

Presumably you can make a lot of money.

I mean, some sites say that it's okay, right?

If you talk, so the other.

The big free money prediction market site is Manifold, which, which has this very dedicated community of traders.

So even though as a polymarket advisor now, I'd say I think real money is the way to go.

It's pretty good.

I certainly have a lot of respect for Manifold.

But yeah, and Manifold is kind of radical transparency where anyone can put up a market about anything.

And they will even say, yeah, as long as there's no conflict of interest, then inside information only makes the market smarter.

I'm a little bit worried about that.

I mean, this is an issue in sports markets too, where now you have...

ESPN bets might offer a market on like the NFL draft or something, right?

Well, if you're an ESPN NFL beat reporter, you might have a lot of knowledge about what what the Atlanta Falcons are going to do and for politics markets.

I mean, something moved the markets toward Tim Walls, Kamala Harris's VP pick, aggressively about 15 minutes before that pick was confirmed.

What is that?

I don't know.

Maybe it's that there were SUVs, as there seemed to be outside of Tim Walls' residency, Minnesota, where he lives in Minnesota.

But inside information is, I mean, from a user standpoint, it's all incorporated, so it's useful.

But like, you do wonder a little bit about like, are there ulterior motives for people who have, you know, inside knowledge about sports, politics, et cetera, financial events to bet?

Yeah.

And then, you know, there's a thin line.

I'm working right now on my next book, which is about cheating.

And there's a thin line when you can use inside information where, you know, everything is fair game between that and cheating, right?

And starting to throw games and starting to actually do things where how you bet affects how you act.

And that's incredibly difficult to police.

It's always been difficult to police.

And I think it's going to become even more so.

So I personally, and I'm not involved with any prediction markets, I personally would like to see there be some sort of penalties and it not being quite as open to that sort of thing, just because I think that there is a huge possibility for abuse and for things that actually end up sabotaging the integrity of especially things like sports games, but politics, you know, all sorts of contests.

Right.

Tracy and I, I think it was last year, maybe 2022, we interviewed Rostin Benham,

the head of the CFTC, and they have not not been friendly towards prediction markets for some of these specific reasons, which there are probably good reasons why you don't want manipulation of actual political events to have money on the line.

And actually, while we're on this topic specifically, since you're here, Nick, my understanding is that Polymarket is not legally available to people in the U.S., but as many people know, VPNs exist.

And because it uses stable coins to fund it, there are ways around it.

Is that an accurate characterization of its state?

Look, since I am in an official capacity for them, all I'll say is that you are not allowed to bet on Polymark if you're in the United States.

Got it.

Okay.

We know what's going on here.

You know, you mentioned prediction markets on podcasts.

Actually, and you mentioned Manifold.

At one point, Tracy, I don't know if you saw it.

This fellow who's like a, used to be a pro-Magic, the gathering player in gambling, Zv.

Moshevitz, he put up a contract and it said, Will Zv Moshevitz get invited onto the Odd Lots podcast this year?

And I thought about going, oh, I was like, I'm i'm gonna spend money on the i'm gonna take all my yeah i'm gonna take all my fake manifold currency go along and then invite them on the i didn't do that but uh it is very amusing to think of the various ways you could very easily

thank you for protecting the integrity of the podcast and the market yes and the market the most the price discovery mechanism of prediction markets thank you but i want to get back to actually get deeper into this question of like you know on polymarket there's a leaderboard or there's a top volume this week and i think you can see leaderboard is kind of open so you can see talk to us more about like what good traders are doing and why some people seem to be better at this than others I think good traders are good at kind of quick slice intuition and working with limited information.

And, you know, where's that skill come from?

I mean, it's partly the combination of being both analytical and really competitive, right?

These are not people who are just in the abstract building academic models, but they're people who have, to use the cliche of another author, they have skin in the game, they have a lot of practice, and they really want to win, which is why gamifying these things and having leaderboards and having discussion forums for people to explain the rationales behind their bets.

I mean, these are really, really competitive people, which is true for the other fields that Marie and I indulge in.

And the cream rises to the top over the long run, I suppose.

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So one thing I wanted to ask is: we've obviously been focused on prediction markets, but if I want to express an opinion or bet money on something like who's going to win the U.S.

election, putting a bet on polymarket or something like that is not my only avenue.

So we know that Trump has that SPAC, DJT.

I'm looking at the share price right now.

It spiked, you know, in sort of early July, I guess post the assassination attempt, but it's come back down dramatically.

And there are also things like, I mean, I think at this point there are a number of them, but Trump-related coins and tokens and things like that.

So I could just buy one of those if I think that Trump is going to win in November.

How are you seeing people sort of evaluate the opportunity from prediction markets versus things like, you know, a Trump SPAC or a Trump token?

I mean, look, if I were talking to the CFTC, then one thing I'd say is that because there are proxies for all these things anyway, that certain sectors of the economy might be better off with the Harris versus Trump administration, or interest rates, treatments might be different, or Bitcoin itself.

Yeah, which is sort of become

kind of a Trump proxy given how suddenly Bitcoin friendly has become.

Yeah.

Yeah.

So, you know, why have people bet on these noisy proxies when they're trying to hedge political risk, which is also economic risk?

So that's me as I guess now as a paid spokesman for Prediction Market Company talking to the CFTC and saying, you know, we're all making, you all have to figure out this risk anyway.

So why not have prediction markets instead of having to bet on DJT coins or whatever?

Yeah, I think a really important point is that this is what traders do all the time, right?

This is the job of a professional trader is to buy and sell things and trade things based on what they think is going to happen, especially if you're a macro trader, right?

There are people.

So Nate Nate and I this week on the podcast had Bill Perkins, who is a very famous energy trader who made millions of dollars trading on predicting correctly what's going to happen to oil future prices, to energy prices, depending on certain global events.

What was he doing?

He was betting on the likelihood that those events were going to happen, right?

And he thought that the market was off.

And then he was able to make those trades.

accordingly.

And so if you think about it in those terms, I mean, we have prediction markets.

That's That's what the stock market is.

That's what all of these different commodities markets are.

You're constantly, constantly betting on the future and betting on these things that will happen.

And the best macro traders out there, the people who trade events are the ones who have those intuitions and who are able to figure out, okay, what do I do?

And how do I pull the trigger, right?

These are also people who have to have a high risk tolerance and who need to understand risk-taking.

For someone like Bill Perkins, he's also a poker player, right?

So a lot of times, once again, these things go hand hand in hand.

I remember, Tracy, when I really was like into poker, and I used to read these like biographies of poker players, and reading about like how much some of them just like loved to bet on literally everything was really fascinating.

Like they would like two guys would see like a fly on the table and they're like, oh, I'll bet that's right.

$1,000 that that fly is going to take off in the next 10 seconds from the felt or something like that.

And I get the impression, and it sort of speaks to what Maria was saying about building up that

intuition like over thousands and thousands of events.

It almost read to me like the great poker players see probability on something like the way we see a color of something.

It's like that, I see your sunglasses on the table.

They're green.

Someone else looks at that sunglass and say, I see there's some chance that Tracy's going to pick up the sunglasses.

Or the probability that they're going to break

they're going to self-combust and it just like becomes the way they see the world.

We have a few minutes left.

Nate, what's going to happen in the election?

So we are actually pretty close to prediction markets.

The silver bulletin forecast as of this morning has Harris with a 53% chance and Trump at 47%.

If you want to round that down to 50-50, a poker player would say that's not quite the same, but 50-50 more or less.

I think the question is: like, whether she, so she clearly has momentum now in the polls.

We can debate what momentum means exactly, whether that implies momentum will continue.

But there are a couple of downsides for Harris.

One is that the Electoral College likely still favors Trump.

If it's a very, very close popular vote, and two is that she could be at something of a high watermark.

There is enthusiasm among Democrats right now that verges almost up to being like rabidly excited for Kamala Harris, but we still have three months to go.

Can it be sustained?

We shall see.

And then, you know, looking across the different markets.

You know, as you mentioned, I'm looking at polymarket right now.

It's 49, 49%, Kamala.

So they're a little bit tighter than what you haven't.

Like, so far, I don't know.

Are there things that you're watching for in the markets themselves?

You know, we did an episode on sports gambling with a sports better, and he was talking about, you know, sometimes there is edge in very niche markets.

So he was a tennis, he liked to bet on tennis, but he was saying, you know, there's often opportunities where you can like bet like, well, so-and-so will win in two sets or three sets instead of four or whatever it is.

Are there interesting things that you're seeing on the markets, whether it's polymarket or others that seem off or on or interesting or things that we should watch perhaps besides besides that headline Harris versus Trump contract?

I mean, you can bet on individual states.

You can bet on things like margins of victory in individual states.

And, you know, if you have a model like mine, then you have lots of opinions about that that you can bet on potentially.

However, the volumes tend to be a lot smaller.

There's also kind of a more macro question, which is

in recent elections, the markets have been a little bit Republican-leaning relative to what the models say.

Partly that's because I think the demographics of who trades on these markets, right?

They are a little bit crypto-pilled, very literally so in case it's looking like polymarket.

So that affects things a little bit.

But also, you know, polls have been off by a little bit in favor, you know, they lowballed Trump in 2016 and 2020.

Not in 2022, but Trump wasn't on the ballot.

So one way to read the delta between my forecast and the markets is that the market is pricing in just a little tiny bit of Trump beating his polls, which, you know, might not be entirely irrational.

I'm glad you brought this up because the wisdom that is being derived from this particular crowd, like the crowd is technically non-American, but definitely, you know, mostly male from what we know, and maybe a little Republican-leaning, as you just mentioned.

Are there like efforts underway, or is there a desirability to broaden out the number of people who are using this in order to maybe like up the size of the crowd and make sure that you're getting the best sample that you could possibly get.

And again, if you look at the official polls, the polls always attempt to get a slice of the American population that is reflective of its actual makeup.

That's not really happening on these prediction markets.

So is there anything that you could do about that or is it a concern?

I think that in an ideal world, of course, we would take all of these things into consideration and you would have a more representative sample of betters, but we're not living in an ideal world and like we're not, I can't affect the regulation, but I do think that it's important to get a sort of sample that is representative of the people who are going to be voting right so it's not just representative of the population but who's actually going to be going to the polls who's going to be casting the ballots those are important questions to ask and sometimes the fact that things are skewed also reflects like who's actually going to be walking.

Who are we actually going to be asking?

So I think there are so many different parts of this question.

And yes, Nate, as you correctly point out, I am worried about bias and I am worried about all of these different things.

But some of them are just like a fact of existence and we need to account for them, but we need to realize that, okay, like.

If we try to make it representative, we might actually be skewing things if the vote isn't going to be representative, if that makes sense.

Yeah, actually, that leads me to one more question, which is that just thinking about the election itself, setting aside betting markets.

So there is reason to think that maybe in 2016, perhaps the polls weren't capturing all of Trump's support.

And I guess it sort of played out like that.

But right now, it actually seems to cut in both directions.

So there is a view that, okay, polls aren't good anymore and that people don't pick up the phone and they've become much more expensive and less efficient and that there could be a skew in the type of person who answers the phone.

On the other hand, one thing that we've seen, particularly emerging in mid-year elections, is that Democrats just like, they love to turn out to vote.

They love, they'll vote in any random election.

And there is this perception, probably accurate, that many Trump voters are, you know, less engaged and they might support Trump, but whether that support actually translates into showing up, registering to vote, finding the polling location, going there and voting is another question.

How are you thinking about like some of these sort of risks right now in 2024 with the sort of the quality of data and ways it could be biased right now?

Yeah, look, the model more or less assumes that although polls can and probably will be biased to some degree, that the direction of the bias is unpredictable, which I just kind of see as a spinoff from like efficient market hypothesis.

The markets aren't always right.

They do silly things, but if you think you know better than the market what NVIDIA should be priced at or something, then you can make a killing trading options or whatever whatever else.

Look, pollsters have an incentive to get the right answer.

And we've also moved away from kind of like a purist world where you call everybody in the phone book at random and say, can I speak to the person with the next birthday?

And they always answer.

We've moved away from that to where like polls are basically models.

So my model is kind of like aggregating models into one big meta model.

And so therefore, I think the market incentives are pretty good, right?

And when polls are biased toward Democrats, then Republican-leaning pollsters tend to get more work the next cycle.

So it's a little bit, it's fairly self-correcting, I think, actually.

That's a very good way of looking at it.

So I hope you're right, Nate.

Nate and Maria, thank you so much, both of you, for coming on the podcast.

Good luck and congratulations on the launch of the new podcast.

Maybe a little competition, who knows?

But no, really appreciate having you both on Odd Lots to talk about something that's very timely and exciting.

Thank you so much.

It's been a pleasure.

Tracy, that was a lot of fun.

I'm a terrible gambler.

I'm really bad, but I still like it.

I don't like losing money, but I still like in my mind, I wish I were good and I like talking about it.

Well, I thought Maria's point about when you actually have to put money behind like your thought process about who is going to win the election, it sort of sharpens your reasoning and your thinking.

I thought that was interesting.

By the way, Joe, I have good news for you.

Tell me.

And I have bad news.

Oh.

Okay.

So the bad news is there's a question on polymarket that is, will America ban Zinn in 2024?

Oh, God.

The good news is that the current probability is 7%.

So I think you're okay.

That's all right.

I have Zolt instead.

There's a hundred other ones that, as we learned in a recent episode, will probably get through border security regardless of the regulatory environment.

But no, I thought it was fun.

And look, it gets back to two things that I still basically think, which is that A, in the form of regular markets, prediction markets have worked for a long time.

And B, they're just from my perspective.

I don't participate in betting markets, but I find it interesting is like, what is the conventional wisdom right now on what's going to happen?

Where are people's heads at?

And as a news consumer, I find them additive in a way that just say tweets like, I think Kamala is going to win or has the momentum.

It's something helpful on top of that.

It's definitely something to talk about in the media.

It's definitely something to talk about.

That is true.

I do think, not to go all existential again, but I do think it opens up really interesting questions about the nature and the purpose of markets.

So Nate talked in the beginning about, well, this is a price discovery vehicle.

And, you know, I can see that.

But I guess if you were a market traditionalist, you know, there might be people out there who think that markets are about efficiently allocating capital.

And so the question is, like, what are you really allocating capital to in this particular instance?

But then I guess the reverse argument would be like, well, there is value in making a correct prediction.

And so you are rewarding that behavior.

So I think that's a great point.

And I think I would say two things from my perspective, which, as Nate pointed out, for some of these bets, there is real economic issue at stake.

So, if you are interested in the future of electric vehicles or oil or whatever it is, then it might make a very big difference who wins the election.

In other words, like you like, you already have skin in the game and this becomes an instrument to hedging.

Or I'm like a little bit more skeptical as like, okay, so here is one of the things I see.

What will Trump say during his interview with Elon Musk?

There's a 72%, he says, make America great again.

There's a 49% chance he mentions crypto.

There's a 57% chance he mentions censorship, et cetera.

Like for a market like that, that seems like pure speculation because there are very few actual outside exogenous crypto.

Yeah, no, that's

well, like, so, okay, like, okay, so for maybe a better one, will Taylor Swift get engaged?

Right.

Or, you know, the number here's.

That might, that might actually mean something for inflation.

Or the marriage market, right?

Because a lot of people think that if Taylor Swift gets engaged, then a bunch of people are are like, it's time for us to tie the knot and sort of do the same thing.

Maybe we should just do this for a while and just play a game where we go through all of these particular events and questions and come up with the real-world economic issue.

Come up with a gym.

There's one, the number of Elon Musk tweets between August 2nd, August 9th, currently between 80 and 89 is at 100%.

So people

just keep tweeting.

Maybe Elon Musk tweets have an impact on the presidential election, which has an impact on a bunch of real-world stuff.

A 5% that there's a Dogecoin ETF in 2024.

That seems a little high to me because, but, you know, we don't even have.

Anyway, we can go on and on.

It's very fun.

It's just another way for me to consume the news.

All right.

Well, I'm sure we'll probably end up doing more production market episodes in the future.

But for now, shall we leave it there?

Let's leave it there.

This has been another episode of the All Thoughts Podcast.

I'm Tracy Alloway.

You can follow me at Tracy Alloway.

And I'm Jill Weisenthal.

You can follow me at the stalwart.

Follow our guest, Nate Silver.

He's at NateSilver538.

Maria Konakova, she's at M Konakova.

Follow our producers, Carmen Rodriguez at Kerman Erman, Dash O'Bennett at Dashbot, and Kale Brooks at Kale Brooks.

And thank you to our producer, Moses Andam.

And for more odd lots content, go to bloomberg.com slash odd lots where we have transcripts, a blog, and a newsletter.

And you can chat about all of these topics in our Discord.

In fact, there is a very active channel where people are talking about this stuff all the time and the elections channel and the pundit dunk tape channel where they people drop bad predictions or make fun of people very entertaining sub-channel and there might be my favorite check out our discord discord.gg slash odd lots and if you enjoy odd lots if you like it when we talk about prediction markets and the nature of markets themselves then please leave us a positive review on your favorite podcast platform and remember if you are a bloomberg subscriber you can listen to all of our episodes absolutely ad-free.

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Thanks for listening.

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