Kling agrees that prediction markets outperform surveys

Here:

Suppose that instead of ratings, you asked consumers to vote with dollars. For any movie, a consumer who owns the movie can post an "ask" price and a consumer who does not own the movie can post a "bid" price. To ensure that these prices are real, every once in a while, you would fill all the orders for a particular customer--that is, you would buy the consumers' DVD's at her asking prices and sell her DVD's at her bid prices.

Welcome to the club, Arnold.

Remembering Bill Walsh

I've admired Walsh since the 80s. He changed the game with the precision passing strategy, which led to a bunch of rings. He made a lot of players look great, who never looked as good with other programs. He didn't talk trash, but worked with consistent class. And he stayed faithful to his wife, in her health and sickness. Here's Nick Carfado:

LOS ANGELES -- There were hundreds of people closer to Bill Walsh than this reporter, but in our many conversations over a four- or five-year stretch it was evident how much Walsh loved baseball.

"How are those Red Sox doing?" the legendary coach of the 49ers asked me a couple of years ago. "I like Terry Francona's style. Does a good job with the players doesn't he? They really respond to him. That's what coaching and managing is all about. Do your players listen to you? Do they respond to what you're trying to do? You can tell how a team responds to a leader even from afar."

So Walsh, who died yesterday at age 75 after a long battle with leukemia, would have loved today, and what it could mean for the sport.

In his later years, when he worked at Stanford and took care of his wife, Geri, who was ill, Walsh was interested in all sports.

He loved to watch great players in any sport and he admired excellent coaching or managing, though I remember being chastised for referring to him as a genius. "That's Einstein, not a football coach," he said. "A football coach isn't a genius. He's just a football coach."

Because there weren't often trades in football, Walsh was always fascinated by the art of the deal. He was a big Red Auerbach fan for that reason.

Walsh was a great coach. "The Genius" would have enjoyed this day in baseball.

UPDATE: Additional quotes:

"In the recent or modern history of the NFL," said Baltimore Ravens Coach Brian Billick, "no coach has been more influential and innovative than Bill Walsh."

"The offensive philosophy that he installed in those great 49er teams more than 25 years ago will remain his legacy," said another Hall of Fame coach, Don Shula.

"People use the word genius and we usually scoff at that," John Madden, the Hall of Fame coach with the Oakland Raiders and longtime NFL broadcaster and analyst, said yesterday. "In his case, I don't think you can scoff at it."

Allen Barra has more:

It was as a teacher, though, that Mr. Walsh had his greatest and most lasting influence on football. Unlike Lombardi, who left worshippers but no disciples, Mr. Walsh spawned an entire generation of acolytes. His defensive coordinator George Seifert won two Super Bowls with San Francisco; his offensive coordinator Mike Holmgren won one with Green Bay. Mr. Seifert's pupil Mike Shanahan, schooled in Mr. Walsh's methods, won two more with Denver.

Mr. Walsh's influence on football today is so pervasive that nearly 20 years after his final game, the Super Bowl has practically become an annual showcase for his adherents. This past February, Indianapolis coach Tony Dungy, a former player under Mr. Walsh, squared off against the Chicago Bears' Lovie Smith, who trained as an assistant to Dennis Green, once a Walsh receiver's coach.

That Messrs. Dungy and Smith were the first African-American coaches to reach the Super Bowl highlights perhaps Mr. Walsh's greatest legacy: In 1987, he helped create the Minority Coaching Fellowship Program. "I can tell you this," says Mr. Dungy, "his life was about much more than just X's and O's."

Cleaning up prediction markets

Justin Wolfers, ever the smart guy, says that point-spreads should go. (Via Felix Salmon).

The Dark Matter of Minimum Wage earners

From the continually brilliant Steve Conover:

I went to the US Census Bureau's Statistical Abstract to check the numbers. I found table 634, "Workers Paid Hourly Rates" (see the last table on the list at this page), and could only find 479,000 workers who made the minimum wage in 2005. That's 12,500,000 fewer workers than the lefties' are saying will benefit from the minimum wage hike. (Note that 1.4 million workers were making less than minimum wage; because many jobs are exempted from the minimum, I'm presuming those workers would continue to be unaffected by a minimum wage increase.)

I never made the minimum wage. I was paid less than the minimum wage from ages 14-18, working landscaping, snow shoveling, babysitting, and dishwashing. When I started working for a gift importer after high school, I made almost 20% over minimum wage (but not really, because I often worked more than 8 hours a day, but only got paid for 8 hours per day).

All these jobs helped me make more than minimum wage for more than 2 decades now. I suspect most people who make minimum wage or less, do so for less than 20% of their time in the workforce.

Top 10 Reasons this Red Sox fan LIKES THE YANKEES

10. Javier Vazquez sucked, and the Yanks saved the Sox from getting him.

9. Like the ugly rock singer or awkward nerd who gets the girl, the 2004 season undid a lot of self-doubt. Without coming back from 0-3 against the prom king in the ALCS (let's call him Biff, in a tip to Back To The Future), it would not have been nearly as sweet.

8. El Duque sucked, and the Yanks saved the Sox from getting him.

7. George Steinbrenner's sunglasses remind me of Elton John's flaming accessories (based on an idea from my good friend Todd).

6. ARod, Jeter and Bucky Dent are as pretty as Gisele, Brady, and Bridget. DISCLAIMER: I'm getting old, so my standards are slipping.

5. Chen Ming Wang's pitching is scrubbing William Hung's singing off the D-List. Too bad my good friend Fazz throws all these chinese surnames around as if they were euphemisms for private parts. He and FDR would have gotten along great.

4. ARod doesn't suck, but he's overpaid, and the Yanks saved the Sox from getting him.

3. Because of the ARod signing, the Yanks missed out on Schilling. Swap those two, and 2004 ends differently.

2. Roger Clemens totally sucks, and the Yanks saved the Sox from getting him in his geriatric phase. (OK, he was one of the best ever to play the sport, like ...)

1. Mariano Rivera is one of the best ever to play the sport. To play any sport. Any Sox fan who wouldn't have wanted him in a Boston uniform doesn't know the game or a good man.

Steven Pinker's list of dangerous ideas

Here (via Tyler Cowen). A few of them are really discomfiting. Here's a sample of some that might be relevant for prediction markets:

Do women, on average, have a different profile of aptitudes and emotions than men?

Has the state of the environment improved in the last 50 years?

Would the incidence of rape go down if prostitution were legalized?

Do African-American men have higher levels of testosterone, on average, than white men?

Is homosexuality the symptom of an infectious disease?

Do parents have any effect on the character or intelligence of their children?

Would lives be saved if we instituted a free market in organs for transplantation?

Why bears will have a hard time waking up from the dead

Today's WSJ:

Foreign governments, flush with cash and no longer content with the meager returns to be had on safe but low-yielding investments like Treasurys, are becoming increasingly aggressive players on the equity front.

The new boldness of these government-controlled investors was on display Sunday night when entities controlled by the governments of China and Singapore agreed to invest as much as $18.5 billion in return for stakes in the big British bank Barclays PLC.

In doing so, Chinese lender China Development Bank and Temasek Holdings Pte. Ltd., the Singapore government's investment agency, could play a role in the outcome of the biggest bank-takeover battle ever. That increasingly bitter contest pits Barclays against a consortium of European banks led by Royal Bank of Scotland Group PLC in seeking to acquire Dutch banking giant ABN ABN Amro Holding NV.

While potentially boosting their investment returns, such deals expose the government-controlled funds and other entities involved to risks that range from simple investment losses to political backlash. If it continues, the trend could also reshape global financial markets, bidding up prices for more speculative assets like stocks, corporate bonds and real estate, while crimping demand for safer investments like Treasury bonds.

"There has been a fairly spectacular increase in financial assets under management by governments," said Dominic Wilson, director of global macro and markets research at Goldman Sachs Group. "The scale of the issues around such investment is different than anything the world has ever seen. Neither [governments] nor the markets know exactly what they should do with the assets."

If completed, the Barclays deal would provide further evidence of an important global shift in wealth. "This is basically a flow of capital from emerging markets to established markets," says John Studzinski, former chief of investment banking at HSBC Holdings PLC and now head of Blackstone Group's mergers-and-acquisitions advisory group, which advised China Development on the deal. The private-equity firm's role shows how private and public investors are joining together to create powerful forces.

Government bureaucrat shames economist

Here. (Usually, it's the other way around, or else some economists have become shills for bureaucracy).

Chris Masse gets me

He predicts:

Bob Cook nailed it: Making bets legal everywhere would create oversight, transparency. (two pages)

Caveat Bettor will appreciate, I’m sure.

More noteworthy career advice from Scott Adams

He blogs:

I’ve come to call this ego-driven behavior the “loser decision.” I don’t mean it as an insult. It’s an objective fact that life often presents us with choices where the comfortable decision leads nowhere and one that threatens your ego has all the potential in the world.

You need a healthy ego to endure the abuse that comes with any sort of success. The trick is to think of your ego as your goofy best friend who lends moral support but doesn’t know [squat].

I recently linked to another piece of advice, here.

Morgan Stanley predicts 14% correction next month

From the Telegraph (via DealBreaker):

A study by the bank found that credit spreads began to widen on average six months before every stock market correction of 10pc or more over the past 20 years.

The current widening began in February, picking up speed over the past three weeks. If history is any guide, this could point to a global stock market slide as soon as August. Morgan Stanley's model suggests a 14pc fall, or 2,000 points off the Dow.

"This is not the first time that equity markets take their time to react to bad news," said the bank's chief Europe strategist, Teun Draaisma. "The fundamentals have deteriorated. Equities have reached all-time highs despite higher rates, wider spreads, higher oil, Chinese tightening, and a stronger euro.

"There is a widespread belief in continuation of good global growth without inflation. While we are not expecting a recession for another two to three years, we believe chances are high that this belief will be seriously tested soon."

A 15% correction in the S&P 500 brings it down to September 2006 levels (not adjusting for inflation or dividend yield). Bad, but not that bad, and if earnings continue to grow, then it's a buying opportunity.

Some WSJ reasons for the Dem fundraising lead over GOP

Today's article:

With more than a year to go before the 2008 elections, Democratic candidates have raised $100 million more in campaign contributions than Republicans, putting them on track to win the money race for the White House and Congress for the first time since the government began detailed accounting of campaign fund raising three decades ago.

Democrats have taken the lead by exploiting widespread disapproval of President Bush and the Iraq war to develop a more robust online network of new, small donors, as well as to gain traction with deep-pocketed business contributors.

Democrats have also benefited because of their comparative strength with Internet activists. While Republican voters tend to gravitate toward traditional media like talk radio, Democratic voters with strong opinions are more likely to go online to read blogs. That, in turn, has led to an explosion in online giving to Democrats, who are building lists of thousands of small-dollar donors for a fraction of the cost of traditional direct mail.

Blackstone Group, Carlyle Group and other members of the Private Equity Council trade group gave 69% of their $3.4 million in campaign donations to Democrats last year, up from 51% of $2.7 million in 2000, data from the Center for Responsive Politics show. Separate data for large hedge funds show a similar pattern of giving.

Other sectors are following suit. The securities industry flipped its allegiance to Democrats in 2006, giving more to Democrats than Republicans for the first time in a decade, the Center for Responsive Politics said.

Some wealthy Republicans also are switching sides, including business executives who want access to the levers of power, or who simply don't mind crossing party lines to support candidates they like. Many say they are disturbed by the steep growth in government spending under President Bush, as well as the perceived erosion of America's standing in the world.

New York venture capitalist and former American Express Co. Chief Executive James D. Robinson III, a lifelong Republican, says he is backing Mrs. Clinton. "She's been very involved in business development and sensitive to our issues," Mr. Robinson says.

Other Republicans supporting the New York Democrat for president include Terrence A. Duffy, executive chairman of CME Group, the Chicago-based commodities market; John Mack, Morgan Stanley Chairman and Chief Executive Officer; and Jeffrey Volk, who heads Citigroup Inc.'s global agency and trust business.

I posted this a week ago:

With the uncertainty of "Fred Thompson: in or out" many potential GOP donors are keeping their powder dry. What is the point of donating to Giuliani or Romney now, if one of them is going to fall out of the race before the end of the state primary cycle? Once the GOP Top 2 candidates are revealed (the way Hilary and Barack have been all quarter), the GOP will start catching up in their aggregate fundraising.

This may also have an effect with polls and pundits, which is why I believe that the Dem pricing of 56% chance of presidential victory is well below what the pollsters are reporting.

Cool career advice

Scott Adams hypothesizes:

If you want an average successful life, it doesn’t take much planning. Just stay out of trouble, go to school, and apply for jobs you might like. But if you want something extraordinary, you have two paths:

1. Become the best at one specific thing.
2. Become very good (top 25%) at two or more things.

The first strategy is difficult to the point of near impossibility. Few people will ever play in the NBA or make a platinum album. I don’t recommend anyone even try.

The second strategy is fairly easy. Everyone has at least a few areas in which they could be in the top 25% with some effort. In my case, I can draw better than most people, but I’m hardly an artist. And I’m not any funnier than the average standup comedian who never makes it big, but I’m funnier than most people. The magic is that few people can draw well and write jokes. It’s the combination of the two that makes what I do so rare. And when you add in my business background, suddenly I had a topic that few cartoonists could hope to understand without living it.

Capitalism rewards things that are both rare and valuable. You make yourself rare by combining two or more “pretty goods” until no one else has your mix. I didn’t spend much time with the script supervisor, but it was obvious that her verbal/writing skills were in the top tier as well as her people skills. I’m guessing she also has a high attention to detail, and perhaps a few other skills in the mix. Probably none of those skills are best in the world, but together they make a strong package. Apparently she’s been in high demand for decades.

At least one of the skills in your mixture should involve communication, either written or verbal. And it could be as simple as learning how to sell more effectively than 75% of the world. That’s one. Now add to that whatever your passion is, and you have two, because that’s the thing you’ll easily put enough energy into to reach the top 25%. If you have an aptitude for a third skill, perhaps business or public speaking, develop that too.

It sounds like generic advice, but you’d be hard pressed to find any successful person who didn’t have about three skills in the top 25%.

What are your three?

This sounds right on, with a couple of caveats. Assuming that Adams can combine 3 top quartile abilities (drawing, humor, business experience), I calculate 25% ^ 3 to put him in the top 2% where those 3 dimensions intersect.

But often, it is difficult to combine 2 or more skills into 1 significant competitive advantage. Let's say I'm a good cook and I'm good at math. What could I do with that combination?

And skill combinations also have utilitarian limitations, such as physical capacities losing ground to intellectual skills.

Ouch

Alex Forshaw on Edwards:

Edwards continues to fade. The Edwards and Obama campaigns released dueling New Hampshire ads; Gore lost steam, yet Edwards lost significant support as well. At the same time, Edwards has embarked on a strangely irrelevant "poverty tour" through some of the poorest parts of America. (Haircut... haircut...)

Unfortunately for Obama, many Edwards supporters have been driven to spluttering outrage at the relentless "narrative" of the "Edwards haircut," and how the "right-wing hate machine" is "manipulating" Edwards' public image. Edwards supporters fail to understand that, to 90% of the people pushing this narrative, it is not about highlighting Edwards' haircuts, $500,000 Fortress internship, and Chapel Hill palace because they are "out to get him" and stop his redistributionist agenda. It's about using simplistic data points to reveal -- not mischaracterize -- a profoundly hypocritical political opportunist who has portrayed his every repositioning as a spontaneous "Damascus moment," which coincidentally matched a concurrent tectonic shift in the political landscape. Iraq, bankruptcy reform, free trade, taxes, the larger anti-salafist war: you name it, and Edwards has had at least two positions on it.

Troy is back

From the Patriots website:

FOXBOROUGH, Mass. - The New England Patriots re-signed veteran wide receiver Troy Brown today.

In 2004, Brown earned accolades for his play on offense, defense and special teams, showing a level of versatility unmatched in recent NFL history. After injuries had taken a toll on the Patriots’ secondary, Brown pitched in as the team’s nickel back for the final nine games of the regular season and for all three of the Patriots’ postseason contests as New England won Super Bowl XXXIX. He finished second on the team with three interceptions in the 2004 regular season and matched his reception total with 17 tackles on defense.

The Blackville, S.C. native has been a key contributor to each of the Patriots’ three Super Bowl runs. In 2001, Brown led the team with 18 postseason receptions as New England won its first world championship in Super Bowl XXXVI. In that game against the St. Louis Rams, Brown led the team with six receptions and 89 yards, including a key 23-yard grab on the game-winning drive. Two years later, he tied for the team lead with 17 playoff receptions as the Patriots won Super Bowl XXXVIII over Carolina. He was again a key contributor in that game, finishing second on the team with eight receptions, including three grabs on the game-winning drive. In 2004, Brown played on offense, defense and special teams in all three playoff games, recording a total of five receptions and six tackles during New England’s Super Bowl XXXIX title run.

Living in the past is a dangerous thing. But respecting history is not.

Giuliani reaches out to constitutional conservatives

Giuliani writes a column on his judicial philosophy (via Instapundit).

The greatest living american?

Via Instapundit:

GREGG EASTERBROOK: Ignoring the greatest living American.

I think the candidate is worthy of consideration, but not because he along with Carter is the recipient of the Nobel Peace Prize. I mean, they gave that thing to this guy!

Hey this blog is a year old, this past July 10th!

Much too busy to remember these things. Hopefully I can remember my wedding anniversary better than this.

Thanks to all you readers and traders for your interest and support over the past year.

Iraq war costs

Menzie Chinn summarizes Iraq costs, quite nicely, over at Econbrowser.

Marginal utility theory for traders, from Freakonomics

Steve Levitt channels Daniel Bernoulli, in addressing utility, in an easy-to-read way:

At least for me, there are not too many questions that would lead me to respond, “For $25 million, no way, but for $50 million I’ll think about it.” Twenty-five million dollars is so much money that it’s hard to think about what you would do with it. It sure would be nice to have the first $25 million. I’m not sure what I would need the second $25 million for.

The high-turnover (read high-extinction) traders in these prediction markets most likely have not familiarized themselves with expected utility. This is why they do not follow my recommendation of risking only 4% maximum of account total on any single contract. Or maybe there are some other reasons of which I know not--please send me a comment of enlightenment!