Global Warming Trading

here. (New York Oct 29 cartoon via Don Boudreaux).

Tyler Cowen calling the election for Rudy

via his Angry Ape Theory.

Hillary still almost a 3:1 favorite vs. Rudy:

Rage on, Megan

Rage against the machine!

How good are the Rockies?

The WSJ Numbers Guy has this:

Alan Reifman, a Texas Tech professor of human development and family studies who runs a blog called The Hot Hand in Sports, suggests using a binomial probability calculator to get a handle on the Rockies’ streak. These calculators answer questions such as, if you flip a coin 22 times, what are the chances you’ll get heads 21 times? The Rockies were, essentially, a fair coin on Sept. 16. So the probability of the run, according to a Vassar online calculator, is about one in 182,000. If we take the Rockies’ exact winning probability heading into the streak — 51.35% — we get one in 107,000.

Prof. Reifman suggests trying a different estimate that gives the Rockies more credit. What if we assume that, despite the record they actually had, the Rockies should have been expected to win 70% of their games? In that case, their streak is still a one-in-245 long shot.

No baseball team has ever had a streak this good so late in the season. That might seem to confirm a piece of baseball conventional wisdom, namely that hot teams such as the Rockies have a sort of momentum of winning that overcomes their underlying skill level and the historical record. But researches would argue the opposite: A hot streak such as the Rockies’ is just what one would expect to arise eventually if each baseball game were a flip of a coin, albeit a coin weighted according to the teams’ skill levels — just like if you flip a coin a couple hundred thousand times, you’d expect to see a run of 21 heads out of 22 at some point. And the Rockies overall have been no more streaky than you’d expect this season had their games been decided by coin flip, as Prof. Reifman wrote recently on his blog.

“These things happen,” Prof. Reifman told me. “This is one of those person-winning-the-lottery-twice kind of bizarre scenarios.” (It’s also akin to having triplets twice, without fertility aids.) That statement is supported by general research in the field, starting with a 1985 paper debunking the notion of streak-shooting in basketball, and running through a paper last year that reviewed the last two decades of research and found that “the empirical evidence for the existence of the hot hand is considerably limited.”

But there is one question such statistical techniques can’t answer: Are the Rockies merely by happenstance the team that sits on the edge of the bell curve (just lucky, as Tim Marchman recently wrote in the New York Sun), or is there something intrinsic to the team, at this time, that made it the one with the once-in-history hot streak? Prof. Reifman acknowledges that is a danger of writing off all such streaks as the product of sheer luck. For instance, he notes, the streak of 43 straight U.S. presidents being men was no accident.

Why does reading the newspaper actually decrease your knowledge?

So asks Nassim Taleb.

Don Surber has a good case in point (via Glenn Reynolds):

Drudge and NYT are about even in Web hits. A British study showed one-quarter of the U.S. hits for Brit newspapers come from Drudge. I’m guessing he steers quite a few hits to NYT.

MoveOn hates Drudge because the Clintons were able to get Newsweek to spike the Lewinsky story, and they would have gotten away with it too, if not for that meddling Matt.

NYT carries water for MoveOn today in a Page One story that included this:

The site is a potent combination of real scoops, gossip and innuendo aimed at Mr. Drudge’s targets of choice — some of it delivered with no apparent effort to determine its truth, as politicians of all stripes have discovered at times.

Well, let’s put that to the acid test. The Drudge at 8:20 a.m. Eastern today.

Top of the Page:

Wildfires Prompt State Of Emergency In 7 Counties…
Malibu inferno…
Thousands more homes could be at risk…
Wind gusts to 60 mph…

And the links are to: KNBC, the Daily News, LA Times, and Weather Underground — the news service, not the group of radical bombers that was featured in a NYT story on Sept. 11, 2001.

Banner headline: “HELL COMES TO SOUTHERN CALIFORNIA”

Source? AP.

Left side stories think to 1. ABC News, 2. AP, 3. Fox News, 4. Financial Times, 5. AP, 6. Financial Times, 7. Malaysia Times, 8. Hollywood Reporter, 9. Times of London, 10. International Herald Tribune, 11. Deadline Hollywood.

Center column: 1. Times of London, 2. London Telegraph, 3. London Guardian, 4. International Herald Tribune, 5. Times of London, 6. Washington Post, 7. Washington Times, 8. Haaretz.

Right side: 1. New York Times, 2. AP, 3. Bloomberg, 4. AP, 5. Agence France-Presse, 6. Washington Post, 7. AP, 8. YouTube

32 links – 31 to news organizations that were established pre-Internet. The lone Web-only site is YouTube.

The only story that is based solely on innuendo is the lone NYT story: “Clinton Finds Way to Play Along With Drudge”

Which is where I got the quote. Game. Set. Match.

Freakonomic: Religion offsets child poverty effects

Pretty interesting. I wonder what happens when they adjust for different faiths ...

I'd prefer Belichick speak about me than Easterbrook

Gregg Easterbrook is worthy of respect for his many skills and accomplishments. But, as he paints Belichick to be the Darth Vader of the NFL, I can't help but think that he sounds worse than the guy he's demonizing.

Easterbrook writes:

Victory seems to give Bill Belichick no joy, and defeat throws him into fury. Belichick and the rest of the top of the Patriots' organization continue to refuse to answer questions about what was in the cheating tapes -- and generally, you refuse to answer questions if you have something to hide. The team has three Super Bowl triumphs, yet its players regularly whine about not being revered enough. The team's star, Tom Brady, is a smirking sybarite who dates actresses and supermodels but whose public charity appearances are infrequent. That constant smirk on Brady's face reminds one of Dick Cheney; people who smirk are fairly broadcasting the message, "I'm hiding something." The Patriots seem especially creepy at this point because we still don't know whether they have told the full truth about the cheating scandal -- or even whether they really have stopped cheating.

Contrast this with what Belichick says about his upcoming opponent, Joe Gibbs:

Q: Could you talk about Joe Gibbs' stature in this game?

BB: Hall of Fame. He's a Hall of Fame coach. He's already been recognized for his career to…whatever his last year was there. '93, was it?

Q: '92.

BB: '92, OK. Yeah, '92. Fortunately he's come back to tack on more to that, and he has a good team this year. He's really one of the…I wouldn't say the founders, but a coach that took the one-back offense and took it to a level far above what it was when he started there at Washington in…it would have been '81, right?

* * *

BB: We all make mistakes - me more than anybody. I've made plenty of them. You try to learn from them and move on. It's the same thing I would tell a player. Look, the players that played yesterday, it's not the first time they've made a mistake in a game, any of them. Every player, there's always things they can do better. They all made mistakes. There's all things that they can learn from them. We're all in that category. That's how it is every week. That's how you get better - You learn from your mistakes and you move on.

Q: Do you have a World Series prediction?

BB: No. My focus is on Washington and that's where it needs to be. They're a good football team coming in here. They'll be ready to go and I have a lot of respect for Joe Gibbs and his staff -Gregg Williams, all of them. They're tough. They've won four and they could have easily won a couple more, so we'll have our hands full. That's all I'm worried about right now.

Sure, Belichick is scandalous like the biblical David, and not nearly as poetic. But who will cut the head off Goliath? As much as I respect Peyton Manning and Tony Dungy, I'd rather Tom Brady and Bill to represent me on the gridiron front.

I can't help but think that Easterbrook is football's Salieri, with nothing but fumes over Belichick as Mozart. Which guy is complaining (and getting paid to do it) while the other guy is getting it done?

Patriots are favored over the Colts to go to the Superbowl at 2:1.

The offset to the Roe Effect

A few years ago, James Taranto raised the idea of the "Roe effect":

If a pregnant woman chooses tomorrow to have an abortion, the result in 2021 will be one fewer eligible voter--and that's a statement of fact, not a moral judgment. If tens of millions of women have abortions over decades, as they have, it will eventually have a significant effect on the voting-age population.

Not all women, after all, are equally likely to have abortions. It's almost a truism that women who have abortions are more pro-choice than those who carry their pregnancies to term, and it stands to reason that they generally have more-liberal attitudes about sex and religion. It also seems reasonable to assume that parents have some influence on their children, so that if liberal women are having abortions, the next generation will be more conservative than it otherwise would be.

I thought of this being countered by those who hold the keys to education, when I read John Leo's "Who Will Stand Up For Campus Free Speech" (via Glenn Reynolds):

The campus rule of thumb is that if someone on the liberal side is disinvited or punished for speech, the left will howl - and the right will usually howl too. This is what happened when the University of St. Thomas disinvited Archbishop Desmond Tutu for making remarks critical of Israel. After protests from across the political spectrum, he was reinvited. A better example is the hiring and almost immediate firing of liberal Duke law professor Erwin Chemerinsky as dean of a new law school at the University of California, Irvine. A huge number of conservatives protested, including professors and virtually the whole first string of nationally known conservative and libertarian bloggers. Chemerinsky was rehired.

The process doesn't work in reverse - with liberals protesting the silencing of a conservative. It's one of the most obvious flaws of the modern PC university.

More constitutional whimsy posted earlier today.

Progressive thinking on entitlement reform

From Tyler Cowen.

Are Prediction Markets Constitutional?

I think so*, although it could be a matter for states to decide, and not so much the federal government. In that scenario, my thought is that some liberal (in the classic sense) states will allow experimentation with prediction markets, and the informational value (at least over surveys and polls) will eventually sweep the nation. But that could take decades.

I was thinking about the constitutionality of prediction markets when reading Gary McDowell's "The War For the Constitution":

Warren Burger summed it up for many when he described Mr. Bork as simply the best qualified nominee in the former chief justice's own professional lifetime -- a span of years that included the appointments of such judicial luminaries as Benjamin Cardozo, Hugo Black and Felix Frankfurter. Such praise was no empty exaggeration.

A former Yale law professor and U.S. Solicitor General, Mr. Bork was, at the time of his nomination, a judge on the United States Court of Appeals for the District of Columbia Circuit. When he was a circuit court judge, Mr. Bork's opinions not only were never overruled on appeal, but on several occasions his dissents were adopted by the Supreme Court as its majority view.

In an earlier day such an appointment would have been celebrated as adding breadth, depth and luster to the highest bench. Instead, the nominee faced a mauling by those who set out not only to destroy him personally but to discredit all that he stood for as a jurist.

It was immediately clear that the unprecedented vote of 58-42 against his confirmation reflected something far more historic and fundamental than an ordinary partisan standoff. The confrontation in fact had been one of the most cataclysmic and divisive events in American domestic politics during the second half of the 20th century. The reason was that Mr. Bork's opponents succeeded in making the fight over his nomination into a contest over the future of the Constitution.

* * *

Time has shown that Mr. Bork's theory of constitutional interpretation remains very much alive; he was defeated but his central idea was never discredited. That theory of interpretation and its implicit belief in restrained judging should continue to guide anyone who believes that the inherent arbitrariness of government by judiciary is not the same thing as the rule of law.

One thing that is more scary than irrational voters is whimsical judges. And I know a few, personally.

*Off the top of my head, free speech and peaceful assembly seem to enable our rights to prediction markets.

UPDATE: Chris Masse linked prediction markets to the right to privacy here last year. I'm not sure that is as relevant as speech and assembly--the whole point being prices from prediction markets is a public good (even as I concede that the anonymity of traders improves prices). But what do I know--I'm not an attorney or judge, just someone who knows a lot of them.

UPDATE: Tom Bell, on the Constitution's call for progress in science and arts.

UPDATE: Alvin Roth, on the repugnance of markets (including prediction markets in terror). This reframes my point--constitutional repugnance is good, fleeting cultural repugnance is irrelevant. Just as slavery markets were not repugnant yesterday (but unconstitutional), so prediction markets are repugnant today (but constitutional)!

ALCS done, onto the World Series

Red Sox favored 2:1 over Rockies.

Mona Shaw speaks truth to government blessed monopolistic power

With a hammer (via Andrew Samwick).

Mythbusters: Competition and Insurance

If there's somethin' strange in your neighborhood, who you gonna call?

Megan McArdle (with an assist from Greg Mankiw) busts the mythical link between taxpayer funded healthcare and international competitiveness. She says:

Greg Mankiw points out that this is silly:

Employer-provided health insurance is just a form of compensation that happens to be provided in kind rather than in cash. What the Times seems to be saying is that because companies like General Motors have promised levels of compensation too large to make them competitive in the international marketplace, we should shift the responsibility for some of that compensation from the companies to the taxpayer.

An alternative approach is for the companies to reduce compensation to levels they can afford. One might respond that reduced compensation would be hard on workers. But so would the higher taxes needed to pay for the national health insurance the Times is lobbying for. There is no free lunch here.

But what he doesn't point out is that one of their main assertions--that GM is losing competitiveness because it has to pay for health care and pensions--isn't even true. GM's foreign competition comes from Japanese and German cars; the next biggest player, the Koreans, has less than five percent of the market. And Japan and Germany have employer-paid health insurance just like American companies.

I have no idea how the meme got started that American companies are losing competitiveness because only they have responsibility for their employees' health, but it shows up quite a lot, along with the even more erroneous belief that our pension problem creates a competitiveness disadvantage; for the record, Germany and Japan have their own gigantic pension problems.

I ain't afraid of no ghost!

UPDATE: Her post on optimal tax policy is even more awesome. Read the whole thing.

Contracts in Everything: Marriage

Yes marriage is a social contract, complete with a term sheet and witnesses and transaction costs. But that is not the contract that Robin Hanson is talking about:

Imagine a web site where you could start a market to bet on the duration of any upcoming or current marriage. That is, you could buy or sell assets that pay in proportion to the number of years the marriage will last, if it begins, up to some maximum of say fifty years. If the marriage never starts, you get your money back.

Once it became widely known that such market prices are often available, wedding guests and the couple would probably check out the price before the wedding, coordinating everyone's expectations about the marriage.

Pride would likely induce the couple to try to push up the price estimate of their marriage duration. Perhaps disgruntled rivals would try to push the price down. Both would provide crucial liquidity to get the market going. And successful couples would get a great fifty year wedding present from cashing in their bets.

Since weddings and divorces are a matter of public record, there should be little dispute on who won these bets. The long time scale would mean that the bets should be of assets bonds or stock index funds, which increase in value over time. The market price would usually be somewhat lopsided, usually being closer to zero than to the maximum time, which might bias the price up a bit, but that doesn't seem a big problem.

These markets could create incentives for outsiders to hurt the marriage, such as causing or spreading rumors about cheating. But my guess is that the suspicion of hidden powers out there trying to hurt the marriage would on average tie the couple to each other all the stronger.

The benefits of not being Super Rich

Jonathan Clements has a great piece today about the downsides of having more money than everyone else.

At first glance, it does seem silly--who doesn't want more money than they have now? And that profit motive makes everyone better off, as opportunities to provide more and ask for less drives competitive excellence and innovation.

But, as I see my kids growing up with much more than I did, I worry that they will not have healthy perspectives and attitudes in their later life. Clements talks about some of these concerns:

We all tend to sit up and take notice when we come across people with fancy titles, hefty incomes and immense riches. Yet these aren't signs of genius or virtue. Want proof? All it takes is two words: Paris Hilton.

Wealth may be inherited, which means the beneficiaries' struggle for riches didn't extend beyond the delivery room. Legendary investor Warren Buffett, the billionaire chairman of Berkshire Hathaway, has described "the idea that you win the lottery the moment you're born" as "outrageous."

What about the self-made rich? Shouldn't we be more impressed by them? While their hard work and perseverance are often admirable, I wouldn't be too quick to deify.

Today, if you are adept at judging the chances that a corporate takeover will go through, you can make good money running an investment fund devoted to merger arbitrage. Such a skill, however, wasn't nearly so valuable in thirteenth century England -- or, for that matter, twenty-first century Afghanistan.

* * *

Displays of wealth can also be misleading. Folks can appear wealthy -- but the mansion may be fully mortgaged, the cars might be leased and the landscaper may still be awaiting payment.

Even if you come across somebody who can easily afford the trappings of wealth, the trappings themselves are not a sign of wealth, but of wealth that has been spent. The money lavished on the cars, homes and jewelry is now gone.

* * *

Don't get me wrong: There is nothing wrong with spending. The whole reason for saving and investing now is so we can have money to spend later. That said, I can't imagine why I should find this spending impressive -- and I am not sure it is making the spenders happy.

It seems obvious that your life would be better if you had a gardener to maintain the yard, a chef to prepare your meals and a private jet to whisk you off to exotic locations.

And if you were suddenly handed all these things, life would indeed be grand -- until you got used to them. Unfortunately, after a while, you would become accustomed to the great food and the no-hassle travel, and you would be hankering for something even better.

Problem is, once you are used to life's finest, that hankering can be hard to satisfy. Suppose you go to the best restaurant in town with your wealthy friends. To you, the food is unimaginably good. To your friends, it is just another meal -- and yet there's no place better they can eat.

As you might gather, I think it is important to realize that there is nothing that special about the wealthy or the life they lead. But my goal isn't to discourage folks from striving to be rich. That brings me back to my children.

Not everybody will grow up to be president of the United States -- or, for that matter, president of a major corporation. Still, I hate the idea that my kids might be so awed by such people that they consider these lofty positions out of reach.

* * *

Maybe, of course, my kids will decide that they aren't interested in spending their lives in pursuit of fame and fortune, and that would be fine. But I don't want them to be so awestruck by anybody -- whether wealthy, talented or powerful -- that they rule out such possibilities.

Having enough money is important, but having heaps of it doesn't guarantee happiness. Instead, what matters is doing something that you enjoy and that gives you a sense of purpose -- and I don't want my children to be deterred from doing just that.

All this said, I still wish you a new dollar today that you did not have yesterday.

ALCS heating up!

MLB.REDSOX contracts, the ones predicting a World Series win for the Boston team, doubled from 12% to 24% with their win last night in Game 5.

Cleveland is pricing at a 37% probability of winning the World Series, and Colorado at 39%.

Kling tipping his cap to Rodrik is like Solow saluting Schumpeter

But sometimes it happens. Fat tails in econ blogging, I guess.

Kling: I favor limited government.

Rodrik: I favor right-sized, adaptive government. Government must select policies and regulations that take into account local history and conditions. Government must experiment and correct its own mistakes.

Kling: Adaptive government is an oxymoron. In reality, you never observe adaptive government.

Rodrik: The same could be said of limited government.

Kling: [burble]

UPDATE: Steve Conover stumps for Robert Reich. Definitely smelling the leptokurtosis--I never knew I shared so much with our former Labor Sec'y:

Read the following sample of ideas excerpted from his lecture and his book—then guess whether he has been pigeonholed as a "conservative" or a "liberal" by the media.

• The corporate income tax should be eliminated.

• The biggest step toward solving the illegal immigration problem would be to eliminate all agriculture subsidies.

• Corporations are not evil—and that includes Wal-Mart.

• Our energy future will require "going nuclear" in a big way.

• We should be skeptical of any politician who blames a corporation for doing something that isn't illegal.

• Punitive fines that would cripple or destroy a company should not be allowed.

Solow reference to Schumpeter is here.

Astro says "Ruh Ro!"

Jason Whitlock mentions something that must not be mentioned (via Matt Mosley):

Hip hop athletes are being rejected because they're not good for business and, most important, because they don't contribute to a consistent winning environment. Herm Edwards said it best: You play to win the game.

I'm sure when we look up 10 years from now and 50 percent — rather than 70 percent — of NFL rosters are African-American, some Al Sharpton wannabe is going to blame the decline on a white-racist plot.

Here's a picture of Jason, in case you were wondering ...

He continues:

A little-publicized fact is that the Colts and the Patriots — the league's model franchises — are two of the whitest teams in the NFL. If you count rookie receiver Anthony Gonzalez, the Colts opened the season with an NFL-high 24 white players on their 53-man roster. Toss in linebacker Naivote Taulawakeiaho "Freddie" Keiaho and 47 percent of Tony Dungy's defending Super Bowl-champion roster is non-African-American. Bill Belichick's Patriots are nearly as white, boasting a 23-man non-African-American roster, counting linebacker Tiaina "Junior" Seau and backup quarterback Matt Gutierrez.

The markets say that one of these teams will win the Superbowl, with 55% of the aggregate probability.

Is the Bernanke Put in force?

The Bernanke Put is a conceptual extension of the Greenspan Put, which refers to the former chairman's predilection for easing money whenever trouble or even just storm clouds appeared on the financial market horizon. (Apparently, Greenspan gets up to $150,000 per speaking engagement these days, so Ben ought to respond to such incentives as well).

When the Fed cut their target rate by 50 basis points, it seemed like a "one and done". I was one of the lone voices in the wilderness thinking a 25 bp increase was better for the long term, but as a person employed in a sector where layoffs and pay cuts are imminent, I am guilty of protesting little.

Now, the market is expecting another 25 bp cut when the FOMC announces on Oct 31. Using Fed funds futures data, the probability of a 25 bp cut have increased from 38% to 72% in the last 48 hours. Bernanke & Co. seem to be citing domestic uncertainty as the largest factor, ahead of inflation (which is low), a weakening US Dollar and other international forces.

I think this contract is priced pretty close to October 16th's fair value, although it's not trading liquid:

There is no "we" in "I"

The most excellent Arnold Kling:

Most economists favor the free market, with reservations. [I reject] the reservations. If John and Mary are free individuals, and John trades with Mary, then John and Mary both are better off. End of story.

Most other economists believe in the need for government intervention. Like many non-economists, they talk about government policy in terms of we. We must, we have to, we need, we should, etc.

... you have to lose the we. When people use we in today's politics , they are doing two things.

1. Appealing to a moral entity that stands apart from and above John, Mary, or any other individual

2. Treating government as the embodiment of that higher moral entity

I should emphasize that "lose the we" does not mean that one should be selfish or uncompassionate or uncaring. Instead, it means that you should channel your impulse to do good by actually doing good. Saying we and advocating government policy is instead a way of feeling good. It is an arrogant, demagogic pose.

Governments lay claim to legal authority to collect taxes or impose restrictions on trade across borders. But there is no moral significance to a border. If John, Mary, and Sam all lived within the same country, the question of whether free trade is good for "us" would never arise. John's right to trade with Mary without interference on behalf of Sam would not be questioned. It is hard to see how moving Mary across a border changes the situation from a moral or economic standpoint.

* * *

One of the variables that is correlated with health status is Unmentionable. This Unmentionable Factor affects life expectancy, income, international differences in the standard of living, and many other phenomena. Garett Jones is a young economist who incorporates The Unmentionable into his research. I describe a recent paper of Jones as saying that "people with high levels of The Unmentionable are better able to co-operate with one another." Not surprisingly, Jones has just joined the faculty at George Mason.