Gambling with Votes

MIKE1 Comment
Thirty days of September and October PredictIt markets.

Like Gambling with Covid19, betting markets can demonstrate probabilistic thinking. In that post we considered an idea from Matt (+EV) about Tom Brady’s potential passing yards.

In April Brady’s over-under yardage was 4,256, nicely inline with previous years of 4057, 4355, 4577, and 3554. However, Matt noted, there’s a lot more room under 4,256 than over it. Brady could get injured, retire mid-year, have a worse system, lose teammates and so on.

On Wharton Moneyball Cade Massey noted that the same idea can apply to modeling voting and prediction markets. In the FiveThirtyEight simulation (40,000 runs), Joe Biden wins eighty-seven times out of one hundred.

What’s the gap between 87 and 66?

  • Potential polling errors. 538 is an aggregation. Put another way, the level of awareness while driving one hour twelve times is not the same as driving twelve hours one time.
  • The Brady effect. There’s just more room for ‘something to happen‘ in one direction instead of another.
  • Matt’s Twitter handle +EV gives an idea too. It could be that Donald Trump’s odds to wins are less than a coin flip just not as bad as a single number on a roll of the dice. That middle area is the market.
  • People like betting favorites, public teams, and for the safety.

A neighbor invited me to a watch party on November third. Another challenges himself to go as long as possible without finding out the news (in 2016 he made it three days). I follow things loosely but thinking about it this way does feel sharp.

As Howard Marks says, it’s not so much what you buy as what you pay. Brady, for those interested, is on pace to go over.

SFTE: College Admissions

MIKE1 Comment

This is from our pay-what-you-want collection of ideas from Tyler Cowen.  

Equilibriums and incentives exist everywhere but not always in the same forms because conditions matter. “The key question is no longer: What’s the incentive?” Cowen said, “But to understand the incentive, you have to ask: What do people believe is the case? Subjective perceptions of the objective incentives out there become the new starting point for economics.”

The 2019 college admissions scandal is a situation where incentives and equilibriums existed and produced odd behavior which became criminal. Why would wealthy parents pay tens of thousands of dollars for their children to be admitted to schools, where in some cases, the kids didn’t even want to go?

Let’s pause our pursuit of Cowen’s ideas and introduce a set of cousins: the paradox of skill and the paradox of signalling. 

The paradox of skill is the idea that if skills between people are relatively similar, then luck matters more. If Serena Williams shows up at a local racket club, she’ll win (in straight sets) against the local pro. However, at Wimbledon she needs every bit of skill and a little bit of luck to claim the championship. 

That same idea exists in the world of signalling status. Ask the same question, and we get different results. If the incentive is to stand out from your peers, but your peers are already famous, already rich, and already take vacations to French Polynesia then what do you do? 

You stand out through your kids.

The ring leader was Rick Singer, a once legitimate college counselor who found a side door for clients. Kids were flagged as recruits even though they sometimes never had or wanted to play the sport, but the coach was compensated by the kid’s parents through Singer. It worked because collegiate athletic departments didn’t actually check if the kids were on the team. 

The thinking at the time was that coaches were incentivized to win because that’s how they kept their jobs and paychecks. But the violators followed the JTBD theory to include non-recruits in return for, what they claimed, were non-quid-pro-quo donations.

Ryan Singer solved for the equilibrium. 

Parents wanted kids admitted. Coaches wanted compensated, and recognized. Singer wanted paid. Students wanted help. Like ingredients in a recipe, combining these things and it almost seems inevitable.

To solve-for-the-equilibirum means to also think about incentives, which we look at in the short piece from Cowen. It’s written as an alternative to Netflix or for the dentist who chronically runs late. 

Can you rotate your position?

MIKE1 Comment

By rotation, I mean taking all the sides. Whenever there are people of differing positions on an emerging topic — it could be Uber, it could be eSports, it could be 5G, self-driving vehicles, you name it. If I find that I cannot argue from any particular viewpoint, I will book a couple of days to spend time with that community on ethnographic — just hanging out until I rotate my worldview and until I can argue from their viewpoint. That’s called taking all the sides.

Audrey Tang, Conversations with Tyler.

Just one part of of a wide and deep conversation. Tang is one of the few guests who ‘match’ Tyler Cowen on his podcast format.

The college admissions admission

MIKE1 Comment

We’re not really sure on the origin of Hanlon’s Razor, but the speculation (via Wikipedia) is Robert Heinlein’s (Heinlein ->Hanlon) story, Logic of Empire, “The character ‘Doc’ in Heinlein’s story described the ‘devil theory’ fallacy, explaining, ‘You have attributed conditions to villainy that simply result from stupidity.'”

I’d remember it more and confuse it less if we stuck with ‘devil theory’ fallacy.

What does stupidity mean though? Most people aren’t dumb, despite our experiences. Most of us error by attribution. And, anyone alive today is the best evolutionary fit! Keep in mind it’s the cream of the crop (for fit) we’re dealing with.

Most of stupidity is wrong-person, wrong-time, wrong-place. In Unnaccaptable, the book about the college admissions scandal, there are a lot of people who broke a lot of laws, most of them stepping from a gray area to a black one.

My daughters (12, 10) aren’t near college applications, but we have been in school for seven years and have helped a lot. We buy supplies, email teachers, advocate to staff, volunteer at the school, attend events, and so on. There’s parental pride, there’s ego, and there’s that unending love parents feel, a willingness to do anything.

Then there’s the chance. Are you willing to do anything?

One minor character from the book is Gordon Caplan, a lawyer who in 2017 did pro bono work to help an Iranian child get admittance to the United States for emergency eye surgery. He told one another interviewer, “I never wanted to do anything that couldn’t be on the front page of the WSJ.”

Yet he crossed from gray to black. From Unacceptable, “I blame no one but myself. I am only angry at myself, I am not even angry at Rick Singer. he was selling something I never should have bought.”

Consider the moment. Consider the step. You’ve helped your kid in the past. You’ve paid for tutors, access, and school. You’ve done the leg work and the research. Then you’re in. You’ve taken the step and everything that got you here gets a further boost. Commitment tendencies kick in. Sunk-costs weight. Status-quo bias lends a hand to head onward and not turn back.

The lesson from Unacceptable is that conditions matter. The heart of Hanlon’s Razor is that conditions matter. This is good.

When Dan Ek spoke with Patrick O’Shaughnessy he clarified the contrast between Spotify and Netflix. ‘No’, Ek explained, Spotify is not just doing what Netflix is doing to avoid wholesale transfer pricing. It’s not that simple. “Unless you understand the system, you can’t just take one of the concepts out of it and expect it to work in your company.”

Conditions matter.

The master of noting how and when things change is Rory Sutherland and his output is Alchemy. Sutherland’s suggestion is that framing something using words is cheap compared to the potential value increase. Consider work from home. When Rory told his team of fifteen they could work from home nobody did. Why? “Instinctively they saw it as a concession. Every time they took advantage of this they were burning reputational air miles.” They viewed it as an exchange. However, when Sutherland mandated a day the exchange went away.

Unacceptable was a great book about an interesting moment filled with characters who made mistakes and should answer for their actions, but the central lesson is the malleability of people.

Another idea present in Unacceptable was covered in the pay-what-you-want notes about Tyler Cowen. One covered Cowenism is to solve for the equilibrium, a prompt to consider how a situation might play out. The college admission scandal provides a nice example to think that through.  

Cowen’s Chow Choices

MIKE3 Comments

One local topic during COVID has been motor homes. Some fellow dog walkers want one, some don’t. The obstacle, as often the case, is cost.

A few friends have them and universally they mention the deal they got. It was either a family friend, a distressed seller or a trade-up-buy-out-sale. For us, the math doesn’t work. Thirty-thousand dollars is a lot of nights at a Hampton Inn.

“Buying good things can’t be the secret to success in investing. It has to be the price you pay. It’s not what you buy, it’s what you pay. There’s no asset so good it can’t become overpriced.” – Howard Marks

Great rewards come where value diverges from price. This is the moneyball insight. This is the JTBD insight. This is Tyler Cowen’s Dining Guide insight too.

Where are the wrong metrics being used?

Consider the name of a restaurant suggests Cowen. Would you eat at an Ethiopian restaurant called EYO Sports Bar? Cowen commented: “When I heard that name I thought, this place must be great. When Americans want to eat Ethiopian food what kind of name are they looking for? The Red Sea? Queen of Sheba? Fine. But when it’s EYO Sports bar you know it’s really for Ethiopians.”

In general, better food will be at places with bad names.

Also avoid places on the beaten path, full of beautiful people, and with famous chefs. These are all metrics some people use to choose a restaurant but that don’t necessarily contribute to the quality of the food. It might be good food, but won’t be a good deal.

Instead, use the economic Cowen espouses. Like the name Rus-Uz, a place that serves Russian and Uzbekistan food (and caters!) in Arlington Virginia. Ask, “‘What is the appeal to the masses?’ In relative terms it’s the Russians, so of course that means the Uzbek dishes are better.”

One way to think about metrics is to consider anything that has been quantified, counted, or numbered. It’s easy to count units but hard to count quality.

Part of the reason personal productivity has been an internet subject for so long is that it’s hard to measure. How does someone measure their work? Ask anyone who creates content online and they’ll tell you that it’s the oddest posts that get shared the most. The best productivity advice might just be: don’t give up.

Like this idea? Read more here.

Large N Small p

MIKE4 Comments

Is it more likely for an infected football player to transmit a disease to their teammates or their competition? Adi Wyner:

"I would expect intrateam transmission by far. Not only huddle time, but the time on the bench, in the locker room, and while they travel. It’s a small chance of any given pairing but it’s lots of pairs. Anytime you multiply a large number by small odds you get a large number."

That’s via Wharton Moneyball and demonstrates the large N, small p principle. It’s the idea behind TikTok too. Ben Thompson said:

"What’s interesting thinking about Quibi and TikTok is that Quibi was such an arrogant idea, that professionally produced content is always going to be better. Are we sure about that? The vast majority of TikTok is garbage and that’s always the case with user generated content. But as it turns out, .1% of a massive, massive amount of content is super compelling. You find that one-percent not by being a picker, you find it by sourcing it."

Large N, small p is why something is always happening.

What is cheating in chess is winning in life.

MIKELeave a comment

Roland Walker (BBC) talking with David Edmonds. The context is how Chess.com monitors cheating.

“We can’t overstress this enough, humans and computers play utterly differently. Humans play by planning and recognizing patterns. Computers play in unusual ways, it forgets everything that it knew in between every move. A computer doesn’t really have a plan.
“An engine will take back a previous move if it realizes that in the context of the following moves it wasn’t good. A human has a kind of sticky feeling about their plan.”

Chess engines make people better at chess and good players use them to practice, if not to play. It’s the Cowen idea of meta-rationality (more here). The idea of using the right resources.

Computers are good because they compute without bias (kinda) and avoid human mistakes like sunk cost. As Mohnish Pabrai pointed out, “when we spend a lot of time on something, we feel we should get something in return for that time, it’s a danger if you say, I’m going to research a company and decide if I want to invest or not. I think you’re better off researching a company with no such preconceived notion.”

This week my daughters (12, 10) and I watched both Sherlock (also BBC) and Enola Holmes (Netflix, we loved it). In both the episode and the movie, the characters had to be more objective to solve the crime.

However, it’s going full-Sherlock as much as moving in that direction. Like someone training to gain/lose weight, the goal isn’t to become extremely skinny/strong but to be more than the current state.

Meta-rationality then is under indexed, unless of course, it’s outlawed like chess.

h/t Cowen-kinda-queue, a podcast feed of Marginal Revolution mentions.

The Philosophy of Fish

MIKELeave a comment

Internet Archive, mentioned here.

"Let us suppose that an ichthyologist is exploring the life of the ocean. He casts a net into the water and brings up a fishy assortment. Surveying his catch, he proceeds in the usual manner of a scientist to systematise what it reveals. He arrives at two generalisations:

(1) No sea-creature is less than two inches long.

(2) All sea-creatures have gills.

These are both true of his catch, and he assumes tentatively that they will remain true however often he repeats it.

In applying this analogy, the catch stands for the body of knowledge which constitutes physical science, and the net for the sensory and intellectual equipment which we use in obtaining it. The casting of the net corresponds to observation; for knowledge which has not been or could not be obtained by observation is not admitted into physical science."

The ichthyologist goes on to explain, "In short, what my net can’t catch isn’t fish."

Moving the line of action

MIKELeave a comment

 

Buying gas for a vehicle is both easy (finding, doing, paying) and salient (gauges as well as low fuel warnings). People need no help to fill up. However, non-consumption occurs when something is perceived as too hard or unimportant. 

Consider the barnacles on your to-do list. The ones that get transferred to the new piece of paper or system or from physical to digital and back again. I’ve had items last longer than green bananas but the end is the same for both: buckle down and get it done (in the case of bananas, bake bread). 

Eventually you do roll up your sleeves, mentally brace yourself, and collect the necessary tools only to frequently find that dreaded task takes much less time than expected. If we’d known it was that simple we’d have done it much earlier. 

My wife and I bought a mattress from an online store. It’s fine. We ordered online because the perceived ease was greater, though we found out that Amazon (not where we ordered from) raises the bar for ecommerce and other companies often fall short. Amazon shifted the line of perceived ease for online orders well south of its actual location.

Business owners, volunteers, and persons on the internet can all shift the line by raising the salience and (perceived) ease. telling stories, structuring information, or bringing attention to a situation. The history of tuna demonstrates both these points. One year the California harvest of non-tuna was less than expected and fishers faced filling the tins another way. They caught larger fish, called it ‘chicken of the sea’ and packaged it with recipes pre-printed on the paper labels. ‘Hey’ the thinking went, ‘this is white meat too’. 

This model works as a way of thinking about the world but it only works as a model. There’s no Lego-style instructions. Rather, consider the JTBD for your customer, reader, team and find ways to be more salient and easier. 

In the pay-what-you-want short reading on Tyler Cowen, we highlighted how moon affiliation (wrong reasons, right or wrong outcome) shifts the action curve down. 

What’s next to a cash register?

MIKELeave a comment
coffee lifestyle starbucks coffee shop
Photo by Adrianna Calvo on Pexels.com

Tyler Cowen is one of the most interesting and insightful thinkers sharing their wisdom today (and for the past decade-plus!). One of his ideas highlighted in our Twenty-Minute-Read on Cowen is to think of incentives and solving for the equilibrium.

To think like an economist, like Tyler Cowen, we should consider how things work within a market. Tim Ferriss asks Cowen what advice he would put up on a billboard? Tyler responds in an interesting, and quite different way, from what many of Tim’s other guests suggest.

Normally, this question tends to lead to something inspirational or tactical, something grand or granular. There’s also a bit of personal signaling in the answers where after an hour or so of talking to Tim, guests want to step off on the right foot.

Cowen flips the question and wonders: what works on billboards. Casinos advertise on billboards. So do lawyers and radio stations. Auto dealers advertise on the radio, which you listen to in your car, and notice how nice a new car might be. Cowen doesn’t answer Ferriss because there’s not a connection between that medium and his message, and mediums matter.

The same effect came up in the college admissions scandal book, Unacceptable. After dropping off kids, “moms in workout gear might pop into a local coffee shop, where the area near the straws and napkins was blanketed with ads for test prep services and tutoring companies.” If a college tutor, guide, or private counselor wanted to find upper-middle-class clients where better than a coffee shop?

Markets are dangerous for entrepreneurs because they lead to competition. However, markets are instructive for economists, or people who want to think like them, because they lead to understanding. During his lunch with the FT, Cowen said that he looks for Ethiopian restaurants located near other Ethiopian restaurants because “competition works.”

The biggest lesson from the short piece on Cowen is to think that through. Who is getting coffee at this kind of place at this time of day?