Nate Silver and Maria Konnikova on the Art of Election Betting

SPEAKER_1 (0:02)

Bloomberg Audio Studios. Podcasts, radio, news.

Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

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

Tracy Alloway (0:32)

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.

Joe Weisenthal (0:45)

Yeah, and other people have stolen my jokes.

Tracy Alloway (0:47)

I've seen that, yeah.

Joe Weisenthal (0:48)

So the joke is that when people are really confident about something and something is 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.

Tracy Alloway (1:18)

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 percent. But if you flip it once, it's 50 percent. But like on an intuitive basis, I don't really feel that way. 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 on PredictIt, there was a 10 percent 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 percent chance, that was higher maybe than some other platforms or some pundits expected. But it happened. The chance was 100 percent. Like intuitively, I don't get it. I don't get what the percentage actually means.

Joe Weisenthal (2:39)

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.

Tracy Alloway (2:47)

It should be binary.

Joe Weisenthal (2:49)

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 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, it's like, OK, a lot of people think that Biden might drop out, right?

Tracy Alloway (3:11)

Right.

Joe Weisenthal (3:12)

But does 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's 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, in thinking about the election, we have polls, we have models, we have prediction markets now, we have punditry that appears on opinion pages of 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.

Tracy Alloway (3:59)

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, 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 guess to explain it all to us. Yeah.