Nate Silver and Maria Konnikova on the Art of Election Betting

24:42Because right now I am looking at will the US 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?

25:18And so you'll see some questions that are a little bit meme-ified for sure. I 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 that's OK, 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.

25:50So 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, 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 the Atlanta Falcons are going to do.

26:24And 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 as residents in Minnesota, where he lives in Minnesota. it. 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?

26:57Yeah. 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's 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.

27:44Right. Tracy and I, I think it was last year, maybe 2022, we interviewed Rostin Benham, the head of the CFTC, and they have 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, Nate, 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?

28:24Look, since I am in an official capacity for them, all I'll say is that you are not allowed to bet on Polymarket 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, used to be a pro magic, the gathering player in gambling, Zvi Moshavits. He put up a contract and it said, will Zvi Moshavits get invited onto the Odd Lots podcast this year? And I thought about going, I was like, I'm just going to take all my fake Manifold currency, go long and then invite them on the.

28:59I didn't do that, but it is very amusing to think of the various ways you could very easily influence the app. Thank you for protecting the integrity of the podcast. And the market. And the market. 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 leaderboards is kind of open. 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.

29:37And, 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 were 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.

30:10And the cream rises to the top over the long run, I suppose.

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32:40election, 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 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 Trump token?

33:23I 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 has sort of become, yeah, which has become like a Trump administration. It's 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?

33:56Because 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 gonna happen, especially if you're a macro trader, right? There are people, so 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 then to oil future prices, to energy prices, depending on certain global events.

34:41What 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 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?

35:16These 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 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 a thousand dollars that that fly is going to take off in the next 10 seconds from the felt or something like that.

35:48And 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 or the probability they're going to self combust. And it's just like becomes the way they see the world.

36:21We 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 whether 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.

36:54And 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 Polly market right now. It's 49, 49 percent 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 bettor.

37:29He 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 poly market or others that seem off or on or interesting or things that we should watch, perhaps, 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.

38:02And 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.

38:38Not 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?

39:30And 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.

40:13Right. 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, OK, 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.

40:54Yeah, 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, OK, polls aren't good anymore and that people don't pick up the phone and they become much more expensive and less efficient. And 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.

41:34They love to 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 some of the quality of data and, you know, 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.

42:11predictable, which I, Joe, 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 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.

42:42So 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 OddLaws to talk about something that's very timely and exciting.

43:20Thank you so much. It's been a pleasure.

43:34Tracy, 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. OK, so the bad news is there's a question on Polymarket that is, will America ban Zin in 2024? Oh, God.

44:13The good news is that the current probability is 7 percent. So I think you're OK. That's all right. I have Zolt instead. There's 100 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?

44:50Where 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.

45:32And 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 is 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 were like you already have skin in the game and this becomes an instrument to hedging or I'm like a little bit more skeptical.

46:12is like, OK, so here is one of the things I see. What will Trump say during his interview with Elon Musk? There's a 72 percent. He says, make America great again. There's a 49 percent chance he mentions crypto. There's a 57 percent 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. Well, crypto. But yeah, no, that's true. I take the point. Well, like, so, OK, like, OK, so for maybe a better one. will Taylor Swift get engaged? Right. Or, you know, the number. Wait, that might that might actually mean something for inflation or the marriage market.

46:51Right. Because a lot of people think that if Taylor Swift gets engaged, then a bunch of people 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. Come up with a. There's one. The number of Elon Musk tweets between August 2nd August 9th. Currently between 80 and 89 is at 100 percent. So people keep tweeting. Maybe Elon Musk tweets have an impact on the presidential election, which has an impact on a bunch of real world stuff.

47:23Five percent that there's a Dogecoin ETF in 2024. That seems a little high to me because, you know, we don't even have. Anyway, we could 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 prediction 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.

47:57Maria Konnikova, she's at mkonnikova. Follow our producers, Carmen Rodriguez at CarmenArmond, Dashiell Bennett at Dashbot, and Kilbrooks at Kilbrooks. And thank you to our producer, Moses Andam. And for more OddLots content, go to Bloomberg.com slash OddLots, 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 Dump Take channel, where people drop bad predictions or make fun of people. Very entertaining sub-channel in there, might be my favorite.

48:31Check out our Discord, Discord.gg slash OddLots. And if you enjoy AllBots, 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. All you need to do is connect your Bloomberg subscription with Apple Podcasts. In order to do that, just find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

49:09Thank you.

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