Hope vs. Belief, Part 1 - Gambling is Good

I hope that John Kerry wins the election. As a libertarian, I want a government that trips over its own feet as much as possible, hence I want the executive and legistlative branches controlled by different parties. Bush's budget bloat is the sort of thing that results from a unilateral government. So, as the Republicans will almost surely retain control of the House and Senate, I hope for a Democratic President.

Yet I believe that George Bush will win the election. It is very hard to beat an incumbent, especially one who inspires patriotic fervor. Its true that he inspires hate too, but I am not convinced that this effect is sufficient (or even greater).

I voice my hopes in political conversations with likeminded friends. I voice my beliefs on the Tradesports market, where I've bet on Bush, currently a 7:6 favorite. These different forums draw out different parts of my opinion about the election: who I want to win vs. who I think will win.

Voicing an opinion is costless - anyone can argue that socialism is great, or that the government won't really inflate a fiat currency. Having a false opinion may be costless if it doesn't affect your life much, and it can produce a benefit of feeling good. So people may choose an opinion based on how it appeals to their hopes, rather on on what they believe is true.

An example of a more incentive compatible system is gambling. While people often gamble irrationally, gambling still tends to draw out more beliefs and less hope than mere discussion. By placing a wager, you tie your opinion to a personal gain or loss, so you care whether you are correct. Hence "Wanna bet?" really means "Do you actually think that, or are you just saying it?", and its a great way to call the windbag's bluff. People offer absurd opinions much more often than they make idiotic wagers. (There are many prophets of environmental apocalypse, but only Paul Ehrlich accepted Julian Simon's bet.)

There is nothing wrong with having hopes - I happily voiced mine above. The problem comes when we confuse our hopes and our beliefs, planning or making decisions based on what we want to be true, not what we believe to be true. In part II, we'll see how this comes into play in politics, where different systems elicit different combinations of hope and belief.

[1] There is another gain from gambling, and that is more precisely stated propositions. When arguing about exploitation, a libertarian might assume a balanced market, while a socialist might assume a massive power imbalance favoring employers. Its easy to ignore these important details and argue past each other, but when you make a bet, it becomes worthwhile to figure out the exact terms of the wager. It then often turns out that the apparent disagreement is based on different assumptions, and that there is not actually enough disagreement to find a bet which is acceptable to both parties. This makes sense, because disagreements are more likely over matters which are hard to test.

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Cash in: Poolitics.com, "the

Cash in: Poolitics.com, "the world's first and only pari-mutuel blog" allowed users to wager real cash money on how many times John Edwards used the word "millworker" in his acceptance speech. A dozen betting options, from zero mentions to "more than 10," were available. Though Edwards twice mentioned the mill where his father worked, the word was never uttered. Makes you wonder if a certain senator from North Carolina is 12 clams richer.


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In Part I, we saw how opinions and wagers can draw out dif [...]

I'm not sure I agree with

I'm not sure I agree with your conclusion about Bush.

See http://electoral-vote.com/

Also see http://www.zogby.com/news/ReadNews.dbm?ID=853

The reputable polling agencies put Kerry ahead on the race for electoral votes at the moment.

Perhaps I should place a bet.

Interesting. I think its

Interesting. I think its unlikely that those numbers have much accuracy, or the TradeSports line would be very different. But I could well be wrong. I certainly don't think Bush is a lock, but 7:6 odds on an incumbent whose actions have led to as much praise as criticism (outside the libertarian cyberghetto) seemed too good to pass up.

One thing to keep in mind is that unusual events are more likely to favor Bush. ie catching Osama, another terrorist attack, etc.

Quote of the Day Voicing an

Quote of the Day
Voicing an opinion is costless - anyone can argue that socialism is great, or that the government won?t really inflate...

Actually, you should vote

Actually, you should vote the spread between the Tradesports and Iowa Electronic markets. if their reported prices are tradable as reported in places I've seen. Just an anecdotal observation, but Tradesports seems to have had a bigger Bush-Kerry gap than Iowa at times over the last few weeks. That means risk-free money regardless of your hopes or beliefs. Assume a $1 payoff to the winning share in each market, the sum of Bush and Kerry today, in each market, should be close to $1. Across markets it appears that you can get a Bush in one and a Kerry in the other for less than $1. Assuming you could trade in size (which I realize you can't) arbitrage trumps both hope and belief every time.

Dave - I've been told that

Dave - I've been told that Iowa is very small and you can only bet a small amount (like $100). Hence arbitrage is not worthwhile. We should find this unsurprising given the existence of a gap between the two markets - if it could be easily and profitably exploited, it wouldn't exist!

If you look at the tradesports state-by-state numbers vs. the overall election, they tend to stay pretty much in line.

[...] t. The difference

[...] t. The difference between the systems is another manifestation of my idea about eliciting hope vs. belief. When you control a huge sum of other [...]

[...] ust for speculation)

[...] ust for speculation) but kept forgetting3. I think this goes to Patri’s point about Hope vs. Belief somewhat- what people’s beliefs a [...]