Wanna bet?

Some bloggers take bets on the ideas they express in their writing. A few have been quite successful. I have chosen not to do so (thus far.) In some cases, those who refrain from betting are criticized for not having the courage of their convictions. I don’t believe that criticism is reasonable, and I’ll explain why in this post. Before doing so, let me emphasize that I am not opposed to betting, and do not criticize others for doing so. I will merely be expressing my highly subjective personal preferences.  My distaste for betting has two aspects, personal and philosophical.  (It’s not ethical.)

Personal objections:

Think back to when you were young.  Perhaps some 8-year old boys dared Freddy to pull Mary’s ponytail.  When Freddy refused, they taunted him.  “Nah, nah, nah, you’re afraid do it.”  Maybe he was afraid.  Or maybe he had other reasons.  Maybe he was polite.  Or maybe he was kind.  Fear is not the only human motivation.  

Unfortunately, many people seem to have so little imagination that they cannot conceive of why someone would refuse to bet on their beliefs, unless they were afraid of losing money.  Refusal is seen as implying that their stated beliefs were somehow not sincere.  To say I’m not a fan of this sort of childish taunting is an understatement.  But it occurs so often I feel I should respond.

Note: Some (not all) of the following applies to my current situation, and would not apply to when I was 30 years old.  If you are young, you may have trouble accepting these claims.

Last time I looked, Bryan Caplan had done several dozen bets, and won almost all of them.  When I looked at his bets, many of them were pretty lopsided.  The people he bet against were frequently taking foolish positions.  So I do understand the argument for doing Caplan-style bets.  Often it was like stealing candy from a baby. Good for him!  But it’s not for me.

[To be clear, although I almost always would have agreed with Bryan, I still think he did a bit better than I would have–I recall a Brexit bet where I would have taken the other side.  He really did do quite well.]

Consider six types of possible bets: small and large bets with friends, small and large bets with strangers, and small and large bets in betting markets.  I’ll start with the three types of small bets.

At my age and financial position, I don’t care very much about money, and I hardly care at all about small amounts of money.  I value two things–time to enjoy the last few years of my life, and a lack of aggravation.  Money?  I won’t say it doesn’t matter at all, but it’s way down the list. 

Why would I want the aggravation of doing a bunch of small bets, where even if I win the money won’t change my life at all?  Even worse, I have a very non-competitive personality.  If I lose my bet, I feel bad.  If I win $50 from a friend, I feel bad for the friend.  And who cares about a lousy 5o bucks?  If I bet with someone I don’t know, then how do I know they’ll pay up?  But I do know that I would pay up, and that fact tilts the bet in their favor.

I while back I recall a tweet from Elon Musk, predicting that Sam Bankman-Fried would escape arrest because he had donated to the Democrats.  (SBF donated to both parties.)  I immediately knew the tweet was dumb.  How did I know that?  Because I’m not 100% ignorant about how the US criminal justice system works.  Of course he would be prosecuted.  Ambitious prosecutors have never refrain from prosecuting someone like SBF.  They live for that kind of target.  (Read The Bonfire of the Vanities.)  To be clear, Musk is arguably the world’s greatest entrepreneur, much smarter than me, and there’s no shame in not being an expert on all topics.  As long as you know that the intricacies of government just aren’t your thing . . .  

Suppose I had challenged Musk to a bet.  Most likely he would have ignored me.  But let’s say he took the bet and I won.  That sounds great, doesn’t it?  No, that would be a nightmare.

I had thousands of readers at TheMoneyIllusion, many of whom were Russia trolls who hated me.  I would have been bombarded with demands to bet on this or that.  Some of the proposed bets would be too vague to resolve.  If I refused, they’d endlessly taunt me.  If I accepted, I’d be stressed as to whether these trolls would actually pay up.  I just want to spend my last few years reading novels I like and watching old B&W Japanese films.  I don’t need this sort of aggravation.

To give you a sense of how much I hate aggravation, there has been more than one occasion when I regretted speaking to people at a major financial firm for a brief period, even though they gave me a large sum of money.  The aggravation came from getting them to pay up, which often involved many back and forth emails and failed attempts at direct deposit.  Most people would regard the money I received as more than enough compensation—I’m different.

So if I don’t like betting with individual flesh and blood humans, why not with betting markets?  Before the recent election, I blogged that Trump had a 75% chance of winning, and 50% for winning the popular vote.  That was higher than the betting markets, which I recall had Trump with a 60% to 65% chance of winning the election, and only 25% to 30% for the popular vote.  So why didn’t I bet on Trump?  The thought of winning a small bet was simply not worth the hassle of figuring out how betting markets work, and doing the paperwork of setting up an account.  And don’t tell me it’s “easy”.  I’d say roughly 90% of the time when someone tells me something is easy to do on the computer, I find it hard.  (Mercatus tech support:  “This will just take 5 minutes.”  Two hours later . . . )

So far I’ve been talking about small bets.  What about a large bet?  Why didn’t I bet $10,000 on Trump winning, or $100,000?  

Here a different set of issues comes into play.  I’m married, and it’s not really “my money”, it’s “our money”.  For small bets that doesn’t matter, but for large bets I’d wish to consult my wife.  In this area, I’m far from risk neutral, and far more risk averse than I was when younger and single.  Even winning a big bet is no longer life changing.  Indeed one definition of “old age” is the moment you realize that even if you won a million dollar lottery it wouldn’t really change your life.  That realization happened to me a few years ago.  On the other hand, I know that my wife would not enjoy seeing me lose thousands of dollars on a silly political bet.  Thus even if in “expected dollar value” terms the bet was slightly in my favor, in “expected utility” terms it would be a bad bet.  

Again, I’m not opposed to bets on ethical grounds.  I can imagine a bet proposal so favorable that my wife would insist that I accept it.  One of those “taking candy from a baby” bets.  But it would have to be an extremely favorable bet to make me at all interested.  You cannot find those sort of extremely favorable bets in betting markets, and do I trust a stranger to pay up on a $100,000 bet?  And do I really want to bet $100,000 with friend?  Perhaps Elon Musk.  He’s so famous he’d be pressured to pay up.  Seriously, while I won’t completely rule out betting, non-Elon bets just don’t seem like an attractive option for me.

Philosophical objections:

When I was young, I recall a tour guide leading parents around the campus at UW-Madison.  The guide pointed to a building with an observatory on top, and called it the “Department of Astrology.”  I smiled, but no one else seemed to notice.

Don’t get too smug.  I sometimes wonder if we should re-label economics as “financial astrology”.  Those who follow my blogging know that I am pretty contemptuous of the cult of prediction.  Due to the EMH, asset prices are basically unforecastable.  Bubbles are a myth.  The business cycle cannot be forecast.  Big swings in inflation are largely unforecastable.  

Unfortunately, most people, even most economists, don’t agree.  There’s a sort of fake macho competition to see who is the best forecaster.  This just makes me sad.  It’d be like a bunch of guys at a statistics conference bragging that they are good at predicting roulette.  Of course not all bets are about unforecastable issues, but many are.  I worry that the cult of betting just reinforces the view that economics is mostly about prediction, whereas it is actually about policy regimes.  For instance, I don’t think that I’m very good at predicting big swings in NGDP.  But I do believe that I know how to prevent big swings in NGDP.  (Use level targeting and be guided by market forecasts.)

All my old blog posts are still online.  People are free to judge for themselves whether my takes have generally been useful.

Summary:

Just because you cannot see any reason why someone would reject a bet other than fear of losing, don’t assume that others feel the same way.  Libertarians should be especially receptive to this argument.  Consider some related examples of intellectual arrogance:

1. “I can’t see why anyone would greatly enjoy smoking, alcohol or pot, ban them.”
2. “I can’t see why anyone would like modern art or architecture, they must be faking it.
3. “Rap music seems stupid to me, so it must appeal to dumb people.”
4. My neighbor voted for the other candidate, he must be stupid or selfish or phony or brainwashed. 

Don’t assume that non-bettors are cowards, or phonies.

PS.  Here’s another take on the aggravation issue, if you remain unconvinced.  Most people pay more than they need to on all sorts of stuff.  If you aggressively search out deals and coupons, you can get lower prices on a wide range of goods and services.  You can rebook your Expedia hotel reservation every time the price drops.  But who does that?  When I was young, I did that on a big TV I bought from Amazon, which had a promise to refund future price cuts after you bought the set.  I applied for and received three rebates, each time the price dropped.  Now I’m too lazy to do that stuff.  I long for a simple life.

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