Scott Alexander 2021 Predictions: Buy/Sell/Hold

by ZviDon't Worry About the Vase11 min read27th Apr 202137 comments

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Forecasts (Specific Predictions)World ModelingRationality
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Scott Alexander is out with his (late) 2021 predictions. You know what that means. It’s time to find things to disagree with!

Scott has the tough job here. He’s putting out a hundred plus predictions with probabilities attached. All I’m doing is saying where I definitely disagree with him. 

Epistemic Status: Writing this quickly and off the cuff seems more appropriate and fair. I’m going to explain my reasoning here while also not trying to do a bunch of research on these questions. In general, if something seems reasonable and say or imply that I’m holding, that’s not a strong ‘this is also my probability strongly held’ answer, it’s in the ballpark but likely weakly held. 

US/WORLD

1. Biden approval rating (as per 538) is greater than 50%: 80%

Biden’s approval rating is clearly steady. There’s always some honeymoon effect, but it would take a surprising event to send it that far down. 80% seems like it’s in the ballpark. Hold.

2. Court packing is clearly going to happen (new justices don’t have to be appointed by end of year): 5%

Indeed do many things come to pass, and ‘clearly going to happen’ isn’t a clear definition. If this is ‘legislation expanding the size of the court has passed’ then this seems high to me because not only does it seem unlikely Biden gets 50 votes on this, it seems unlikely he’d get them this quickly with so much else on the agenda, but also they’re talking about it, Biden’s already gone gangbusters on giant bills and 5% isn’t that high. So I can’t disagree strongly. Hold.

3. Yang is New York mayor: 80%

Yang is only at 69% on PredictIt, although PredictIt tends to be too low on favorites in this range (although not enough to justify trading on its own). He’s ahead, but he’s prone to rather silly things and there’s plenty of time to mess up, so I think I’m with PredictIt on this and I’ll stick with 70%. Sell.

4. Newsom recalled as CA governor: 5%

Depending on what counts as ‘recalled’ this is either at least 10%, or it’s damn near 0%. I don’t see how you get 5%. Once you get an election going, anything can happen. Weird one, I’d need more research. 

5. At least $250 million in damage from BLM protests this year: 30%

With the verdict in, I don’t see what causes this kind of damage in the next 7 months. That doesn’t mean it can’t happen, but $250 million is a lot. I’m selling this down at least to 20%. Sell. 

6. Significant capital gains tax hike (above 30% for highest bracket): 20%

I don’t think you need to get to 30% to be significant, but that’s not the question. The question is how likely this is, which is asking how likely all 50 senators go along with it. Given there’s already been mention of specifically 29.6% as a Shilling point, I’m guessing 20% is about right. Hold.

7. Trump is allowed back on Twitter: 20%

I’m selling this to 10%. Why would Twitter do this? They’ve already paid the price they’re going to pay, and it’s not like Trump mellowed out.

8. Tokyo Olympics happen on schedule: 70%

I’m more at the Metaculus number of 80% provided slipping a few days doesn’t count as failing, I’m leaving it alone if a postponement of any length counts because random stuff does happen. I think Japan really, really wants this to happen and there’s no reason for it not to. Buy. 

9. Major flare-up (significantly worse than anything in past 5 years) in Russia/Ukraine war: 20%

It’s definitely a thing that can happen but there isn’t that much time involved, and the timing doesn’t seem attractive for any reason. I’ll sell to at least 15% on reasonable priors. 

10. Major flare-up (significantly worse than anything in past 10 years) in Israel/Palestine conflict: 5%

The last ten years have been unusually quiet here, so it arguably would take very little to count as a  major flare up here, but vagueness of what ‘major’ means makes it tough. With a tighter definition I might buy to 10%, if it’s wide enough maybe a little higher. Otherwise, hold.

11. Major flare-up (significantly worse than anything in past 50 years) in China/Taiwan conflict: 5%

Every war game of this situation I’ve read says that it’s a major disaster with no winners, even if China ‘wins,’ so it’s not in China’s interest to push on this, and it seems like it will have better spots in the future. 50 years is a long enough window that this has to be a shooting war. I do worry about this scenario but I think 5% is still high, and I’m selling to 3% if I’m truly risk-neutral. Given I’m very short China/Taiwan conflict due to being alive and liking nice things, I wouldn’t actually bet here, but worth noting my prior is lower. 

12. Netanyahu is still Israeli PM: 40%

This is the PredictIt line for him on 6/30, and Scott’s predicting this out to January 1. I’m guessing that he didn’t notice? Otherwise, given how many things can go wrong, it’s a rather large disagreement – those wacky Israelis have elections constantly. I’m going to sell this down to 30% even though I have system 1 intuitions he’s not going anywhere. Math is math. 

13. Prospera has at least 1000 residents: 30%

Hold/pass on the principle that Everything I Know About Prospera I Learned From Scott’s Article and he’s thought about this a ton more than I have. 

14. GME >$100 (Currently $170): 50%

That’s an interesting place to put the line. GME clearly has upside skew, where it could randomly go to $500 again, whereas it could easily retreat to a reasonable fundamentals price like $30, at least until it gets to sell stock and becomes more valuable for that reason. So what do we think about its chances here? Early in this whole thing I’d have said no way, but here we are three months later and it’s sticky, so how does one now apply Lindy to this phenomenon? If it hasn’t ended by now, why does it have to? So my honest answer is I have no idea, and 50% here seems at least sane, so I’m not going to touch it, but I should be very worried I’m anchored. Then again, I’m pretty sure I’d have sold anything substantially higher than this down to at least 60%, and bought up to at least 40%, so it’s the right ballpark I think?

 15. Bitcoin above 100K: 40%

16. Ethereum above 5K: 50%

Yearly reminder that this is absurdly bullish on crypto, because the bare minimum way to fufill these means crypto is fairly priced now. I’d sell Bitcoin down to 25%, Etherium down to 30%, and then hedge by buying both of them. 

17. Ethereum above 0.05 BTC: 70%

This is outright saying ETH is likely to outperform BTC, so this is Scott’s biggest f*** you to the efficient market hypothesis yet. I’m going to say he’s wrong and sell to 55%, since it’s currently 0.046, and if it was real I’d consider hedging with ETH.

18. Dow above 35K: 90%

19. …above 37.5K: 70%

It’s currently at 34K so saying it’s 90% to be up over the next 7 months is… complete insanity? It’s twice as likely to be between 35K and 37.5K than below 35K at all? Rather than give a probability, I’ll simply say I’m slamming the arbitrage. Sell the 90% a lot and buy index funds and/or options, ignore the 70% cause it’s not as good.

20. Unemployment above 5%: 40%

It’s currently officially 6% and presumably will fall with recovery. They’re pumping in a ton of money, and it was 4% before things got bad, but also a lot of people got a lot of money and there will be a lot of disruption and a lot of money illusion and grumbling. I’m guessing (very naively) that this isn’t going to happen that fast this reliably, and buying to 50%. 

21. Google widely allows remote work, no questions asked: 20%

I don’t know about the situation at Google but assuming they currently still do this I think it’s more likely than this that they keep doing it. If this is a blind prediction and Scott knows nothing I don’t know, I’d buy to 30%. 

22. Starship reaches orbit: 60%

Yeah, no idea. Hold.

COVID

23. Fewer than 10K daily average official COVID cases in US in December 2021: 30%

This is a bad line. If we get things under control everywhere, it will be under 10K, and we’re vaccinating enough to get close to Israeli levels with plenty of time to spare. I’m buying this to 70%, and if someone tried to ‘take it away’ by buying it from me, I’m having none of it.

24. Fewer than 50K daily average COVID cases worldwide in December 2021: 1%

Yep, that’s right, hold. Not enough vaccines. 

25. Greater than 66% of US population vaccinated against COVID: 50%

It’s at 42% now. Israel stalled lower than this (in the 50s) so we might hit a wall that’s hard to break. I think we’re favorites so I’ll buy to 60%, but it could go either way. Note that because of children this will play a lot stronger than it might sound. 

26. India’s official case count is higher than US: 50%

Buy to 80% before I even start thinking, probably willing to go higher still on reflection. I’m confused how this got here. 

27. Vitamin D is generally recognized (eg NICE, UpToDate) as effective COVID treatment: 70%

Vitamin D is good and important, you should be taking it, but I’m skeptical that such sources will recognize this in the future if they haven’t done so by now. Conditional on (I haven’t checked) the sources that matter not having made this call yet, I’d sell it to 50%, while saying that I definitely would use it to treat Covid if I had the choice. 

28. Something else not currently used becomes first-line treatment for COVID: 40%

I’ll sell this to 25%, people are slow to adapt to change even when it happens, assuming ‘not currently used’ means not used at all rather than not first-line.

29. Some new variant not currently known is greater than 25% of cases: 50%

Depends what we mean by ‘known’ and what counts as a fully new variant, but my guess is this should be higher. Probably buy it to 60%, given there’s still a lot of time for this to happen.

30. Some new variant where no existing vaccine is more than 50% effective: 40%

I assume this means versus infection only. If it’s versus death, slam the sell button even more. If it’s versus infection only, I’d still sell this down to 25%, assuming this has to apply to Moderna/Pfizer. 

31. US approves AstraZeneca vaccine: 20%

If it does happen it will be after it matters, since it already doesn’t matter, so I’m not sure why we would do it, but I don’t have a good model here. 20% seems low enough that I don’t want to go lower.

32. Most people I see in the local grocery store aren’t wearing a mask: 60%

Buy to 75%. Scott is in Berkeley, so I’m optimistic that the area will be sufficiently vaccinated to be very safe by year’s end. It then comes down to, just how crazy are all you people now that it’s over, and my guess is not this crazy all that often. But often enough that I’ve still got the one in four open.

COMMUNITY

33. Major rationalist org leaves Bay Area: 60%

I have private information, so recusing myself.

38. No new residents at our housing cluster: 40%

39. No current residents leave our housing cluster: 60%

My guess is Scott is going to be underconfident on this, and also that he’s not taking into account how late it is in the year, so I’m going to do the ‘blind bet’ thing and sell #38 to 35% and buy #39 to 65%, but not push it.

53. At least seven days my house is orange or worse on PurpleAir.com because of fires: 80%

Note that Scott is only saying he’s 50% to leave Berkeley for a month. I’m going to hold this but also point out that if you can’t breathe the air maybe it’s time to check out the air somewhere else. 

PERSONAL

60. There are no appraisal-related complications to the new house purchase: 50%

Buy to 60% based on what I’ve learned about appraisals, assuming complication means a meaningful one, and assuming Scott’s #61 prediction isn’t nuts. I won’t go further than this due to asymmetrical information disadvantage. 

61. I live in the new house: 95%

Sell to 90% on the ‘indeed to many things come to pass’ platform. Probably, but let’s not get too confident here.

62. I live in the top bedroom: 60%

Buy to 65% because this feels like a place where if Scott’s thinking it’s a favorite, it’s a bigger favorite than he thinks, but again information issues.

63. I can hear / get annoyed by neighbor TV noise: 40%

Sell to 30% but the fact that it’s here at all makes me wonder so I’ll stop there given information issues. I’ve literally never had this happen in a house, and also there are almost no TVs in Berkeley that are ever on in the first place, so I’d be curious to hear more. 

64. I’m playing in a D&D campaign: 70%

I’ll trust Scott on this one and hold.

65. I go on at least one international trip: 60%

I’m guessing this underestimates the number of things that can go wrong, but Scott seems too skeptical about pandemic outcomes, which cancels that out, so I’ll hold.

66. I spend at least a month living somewhere other than the Bay: 50%

I wonder how much this is based on the whole ‘PurpleAir says you literally can’t breathe the air’ issue, and how much is travelling, and without more information I don’t think I can get involved, so staying out. 

67. I continue my current exercise routine (and get through an entire cycle of it) in Q4 2021: 70%

People tend to be pretty overconfident in such matters, so I’m tempted to sell on general principles, but I do think the public prediction will help somewhat. I guess sell a tiny bit to 65% but keep it light.

68. I meditate at least 15 days in Q4 2021: 60%

69. I take oroxylum at least 5 times in Q4 2021: 40%

Don’t feel like I have a good enough handle here to do anything beyond hold.

70. I take some substance I haven’t discovered yet at least 5 times in Q4 2021 (testing exempted): 30%

That seems aggressive. Haven’t discovered yet seems a lot harsher than haven’t tried yet. I’ll sell to 25% but again, the prediction must have come from somewhere.

71. I do at least six new biohacking experiments in the next eight months: 40%

This seems like a lower bar to me by a lot than #70, so I’ll hold.

73. The Twitter account I check most frequently isn’t one of the five I check frequently now: 20%

I don’t think it’s that likely there will be a big new Twitter account at the top unless Scott is using Twitter for Covid a lot. Assuming his top 5 are mostly not that, I’ll sell this to 15%. 

74. I make/retweet at least 25 tweets between now and 2022: 70%

I think I bet against a similar thing last time and lost by a wide margin. My guess is this is if anything a little underconfident, since 25 is not that many, so maybe buy to 75%. 

WORK

75. Lorien has 100+ patients: 90%

76. 150+ patients: 20%

77. 200+ patients: 5%

78. I’ve written at least ten more Lorien writeups (so total at least 27): 30%

I’m somewhat sad that #78 is sitting so low, but I don’t feel like I have enough info to disagree with it. #75 is basically ‘does Lorien exist’ since there’s no way Scott either loses or fires his patients, but the 150+ and 200+ thresholds mean taking more, and I’m guessing that won’t happen. It does seem like 70% is a lot of space between 100-149 patients, so I’d probably split the difference and go to 85% and 25% to open up things a bit. The downside represents ‘Lorien experiment fails and Scott transitions to something else’ and the upside seems plausible too. I’ll also go to 10% on 200+ patients if ‘second doctor joins practice’ is a way to get there, hold if not. 

84. I have switched medical records systems: 20%

85. I have changed my pricing scheme: 20%

Switching EMRs is a bitch and 20% sounds like a lot, sell #84 to 15%. On the pricing scheme, that’s entirely dependent on how much Scott is willing to sacrifice to see it through, so if he says 20% I believe him. 

BLOG

86. ACX is earning more money than it is right now: 70%\

I have a hard time believing that ACX revenue won’t increase so long as ACX keeps up its quality and quantity levels. I’ll buy to 80%. 

90. There is another article primarily about SSC/ACX/me in a major news source: 10%

I’ll buy this to 25%. Scott’s interesting, his relationship to the press is interesting, there are a lot of major news sources, and also this prediction might give people ideas. 

91. I subscribe to at least 5 new Substacks (so total of 8): 20%

Substack costs can add up fast, so it seems reasonable that going to this many wouldn’t be that likely, but with a lot of revenue it makes sense to be in touch with the greater blogosphere. I’m going to buy this to 30%. 

92. I’ve read and reviewed How Asia Works: 90%

Cool. Presumably this means he’s mostly done, I’ll be comparing this to my own review. Hold.

93. I’ve read and reviewed Nixonland: 70%

Also cool, possible this causes me to read it. Hold.

94. I’ve read and reviewed Scout Mindset: 60%

Buy to 70%, it would be pretty weird for Scott not to review this but I have to update on it only being 60%. I plan to read and likely review it as well, once Covid dies down or I otherwise find the time. 

95. I’ve read and reviewed at least two more dictator books: 50%

Two is a lot here, so presumably this is important to Scott. I’ll sell it a bit down to 45% because two is tough, but mostly trust him. 

96. I’ve started and am at least 25% of the way through the formal editing process for Unsong: 30%

97. Unsong is published: 10%

The implication here is that it’s about the halfway point in difficulty to get a quarter of the way through editing (about 1/3 chance of each step). My understanding is that publishing delays are often very long, so unless he plans to self-publish, no way this happens in 2021, but I can totally see a self-publishing for Unsong, so I’ll leave these be because there are too many variables I don’t have a good handle on. 

98. I’ve written at least five chapters of some non-Unsong book I hope to publish: 40%

99. [redacted] wins the book review contest: 60%

There might be a best entry but these things seem more random than that? I’ll sell to 50%. 

100. I run an ACX reader survey: 50%

101. I run a normal ACX survey (must start, but not necessarily finish, before end of year): 90%

Not sure how these two can coexist, so going to wait them out pending clarifications if any. 

102. By end of year, some other post beats NYT commentary for my most popular post: 10%

I’m guessing such events are slightly less rare than this? But that was a really big event, so I’ll probably still hold.

103. I finish and post the culture wars essay I’m working on: 90%

104. I finish and post the climate change essay I’m working on: 80%

105. I finish and post the CO2 essay I’m working on: 80%

Good luck, sir, and may the odds be ever in your favor. I don’t think I’m in a position to second guess, if anything I’d be bullish on #104 and #105, maybe a little bearish on #103, but very small.

106. I have a queue of fewer than ten extra posts: 70%

Sell to 60% because if I was Scott I would totally end up with a much, much larger queue (and I do in fact have a truly gigantic one to the extent I have a queue at all).

META

107. I double my current amount of money ($1000) on PredictIt: 10%

#107 is all about how much Scott is willing to risk. You can make this at least 40% by ‘betting on black.’ So I can’t really say, but my guess is Scott messes around enough that this can be bought to 15%.

108. I post my scores on these predictions before 3/1/22: 70%

This is one of those weird full-control meta-predictions. I think Scott will be that much more likely to post in late February and I’ll bump it to 75%, but there’s a bunch of ways this can fail. 

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New Comment

12. Netanyahu is still Israeli PM: 40%

This is the PredictIt line for him on 6/30, and Scott’s predicting this out to January 1. I’m guessing that he didn’t notice? Otherwise, given how many things can go wrong, it’s a rather large disagreement – those wacky Israelis have elections constantly. I’m going to sell this down to 30% even though I have system 1 intuitions he’s not going anywhere. Math is math. 

 

I would buy at this price, probably up to 50%, but there are some wrinkles to how it gets resolved. At least 45% of the population really really wants him as PM, and the other 55% doesn't have a favorite, but 2/3rds are very strongly opposed to Netanyahu. If he is temporarily no longer PM due to the sharing agreement during the run-up to another election, but then wins, does that resolve yes, or no? (This seems remarkably plausible.)

But as a disclaimer, I'm bad (and somewhat poorly calibrated) at predicting things I'm emotionally invested in, and, well...

Want to sell me USDC on there in exchange for paypal, so I can bet? (I'll gladly pay a 2% "commission" for, say, $200 in USDC.)

I'm happy to; no commission needed. If anyone else wants to get money from fiat into polymarket easily with no fee, just let me know

Update: we did this, I bought shares, we'll see how it goes.

21. Google widely allows remote work, no questions asked: 20%

I don’t know about the situation at Google but assuming they currently still do this I think it’s more likely than this that they keep doing it. If this is a blind prediction and Scott knows nothing I don’t know, I’d buy to 30%. 

Easy money. If this were a month ago I wouldn't be quite as sure, but Google has outright said they will not do this: https://www.cnbc.com/2021/03/31/google-speeds-partial-office-reopening-and-puts-limits-on-remote-work.html

Not easy money because there's no way to bet. Scott presumably didn't know, but that doesn't make this 0%. I'd still be at 5% here.

On reflection I decided I'm still at 10%, because a new strain might disrupt things and force Google to delay that policy. 

[Mods: I've edited the original for this and for the Vitamin D question, please re-input.]

Welp. I lose points on this one https://www.bloomberg.com/news/articles/2021-05-05/google-relaxes-work-from-home-rules-to-let-more-staff-be-remote

Wasn't expecting them to bend but it seems they are after all.

Fair. I was also debating between 5-10%.

I have some inside information on this as an ex-Alphabet employee; I have a strong impression that execs do not want to do this. Employees were clamoring for a policy statement on this for months and they hemmed, hawed, dodged the question, delayed for months, and ultimately refused.

New strains could delay things more, but I would be surprised if they don't ultimately make people go back to the office as soon as they reasonably can. Presence in Mountain View or occasionally other offices is one of the few places where employees really want something and Alphabet execs, historically, have drawn a fairly hard line that they can't have it.

The one thing in Scott's post I never heared of before was Oroxylum: 

https://en.wikipedia.org/wiki/Oroxylum_indicum 

You can find a lot of claims about the multitude of beneficial effects online. One serious study has

Key findings: ... The crude extracts and their isolates exhibit a wide spectrum of in vitro and in vivo pharmacological activities involving antimicrobial, anti-inflammatory, anti-arthritic, anticancer, anti-ulcer, hepatoprotective, antidiabetic, antidiarrheal and antioxidant activities. Flavonoids are the major constituents of all parts of the plant. From a toxicity perspective, only aqueous and ethanolic extracts of stem bark, root bark and fruits have been assessed and found to be safe. The major flavonoids of the stem bark, such as baicalein, chrysin and oroxylin A, were reported for the first time as natural flavonoids with potent inhibitory activity against endoprotease enzymes and proprotein convertases, which play a key role in the growth of cancer and in viral and bacterial infections.

-- https://pubmed.ncbi.nlm.nih.gov/25543018/

Pretty impressive. If only it was clear how to exactly dose and use this.

  1. Vitamin D is generally recognized (eg NICE, UpToDate) as effective COVID treatment: 70%

Vitamin D is good and important, you should be taking it, but I’m skeptical that such sources will recognize this in the future if they haven’t done so by now. Conditional on (I haven’t checked) the sources that matter not having made this call yet, I’d sell it to 50%, while saying that I definitely would use it to treat Covid if I had the choice.

This was a typo on Scott's part, he's updated it to "not generally recognized". He's previously written about why he doesn't think it's effective.

It's a pain to redo, but can someone add Ought embedded predictions to all of these?

https://forecast.elicit.org/binary

(Alternatively/additionally, can they all be on Metaculus?)

I detailed a few of them which are already on Metaculus here. If there are others which you are particularly keen to see added I'm sure they could be written

Would be happy if this happened but definitely don't have the bandwidth to do it myself.

I've added these predictions to foretold, in case people want to forecast on them in one place: https://www.foretold.io/c/6eebf79b-4b6f-487b-a6a5-748d82524637

About 17 and the EMH. Can't Scott be just thinking that ETH is sufficiently more risky than BTC so it may have higher expected returns even with the EMH (the EMH allows this, right?). Or even that he might think ETH has some chance of total collapse (like an outlier at 0) so even with equal expected returns it's much more probable that ETH outperforms BTC than the other way around (?)

Actually this is the other way around. If ETH is less risky than BTC then the median performance of ETH will outperform BTC and his probability could be consistent with EMH

This is neither consistent with historical realised volatility (ETH is more volatile than BTC), nor is it consistent with the options market (ETH implied vols are all higher than the equivalent moneyness BTC implied vols)

If ETH is less risky than BTC then the median performance of ETH will outperform BTC and his probability could be consistent with EMH

Wait. Does this mean that EMH expects less risky investments to have higher performance on average? That sounds shocking enough that I must be confusing something here. Or is this some sort of median vs mean distinction that I'm not seeing

?

tl;dr "some sort of median vs mean distinction"

No, there's two things going on which act against each other:

  • Riskier assets have higher returns on average
  • Riskier assets are more skewed (mean higher than median)

I've made the (I think safe) assumption that the skewness of the assets are more important than the relative differences in their expected return. 

You can have a play with some toy models for this, for example, fixed Sharpe, lognormal assets  you will have something which looks like:

log(X) ~ N(sharpe * vol - vol^2/2, vol)

P(return larger than r) = P( Z*vol + (sharpe*vol - vol^2/2) > r) = P(Z  > (-sharpe + vol/2 + r/vol))

If we're interested in r = 0 (outperformance of current price) then as vol increases, the probability goes down. 

(There's actually quite a bit of intuitive stuff which drops out of this model (if we're required to hit a given r, then increasing volatility makes it easier (up until vol = sqrt(2*r)))

Niice, it makes sense! Thanks!

So to recap, I was right in that riskier assets can have higher avg returns, but I was missing the usually bigger and opposing effect where as the assets gets riskier, the same avg returns rely more and more on lucky very big gains while doing worse more often (at least if they are sort of lognormal). 

My second point I still think was correct, right? -- i.e., that if Scott believed ETH had some chance of total collapse (a mixture distribution), then this skews it to the other side and pushes the median below the mean, and gives some reason to think ETH is more likely to outperform BTC. Does this make sense?

It is possible that Scott believed that ETH is negatively-skewed (ie small chance of collapsing, large chance of small increase) but this would be inconsistent with his probability that ETH is going to 5k. 

I think the vast majority of people think crypto is positively-skewed.

Right! My untrained intuition still resists a bit; I should play with the numbers.

I'm pretty neutral on bitcoin but Ethereum is 90% going past 5k at some point this year though it might not end the year there. my thought process is that it would do well even if it was strictly a ponzi scheme because of the intense bitcoin halving hype cycle and recent retail mania but then you also have to consider the deflationary changes to the network and the small chance that layer 2 solutions work as advertised. if the deflationary changes drive it into the 4-5k range and then we see more retail participation then 2017, you could very well see some absurd prices before things pop because of how illiquid crypto is and the intense HODL meme.

 

all that said, it's going to be 3-5 years minimum for any of this smart contract stuff to be remotely fairly valued. and that's coming from someone who is overall bullish on crypto/DeFi

 

edit: retracted because if I truly thought it was 90% likely I would be much more leveraged/exposed to it

[This comment is no longer endorsed by its author]Reply

Your retraction is commendable!

I've copied this, but only taking the market forecasts. Doing this meant I've spotted a couple of things which I think Zvi missed:

8. Olympics going ahead on schedule

Zvi cites the Metaculus forecast, but it actually isn't specific to the schedule. Other prediction markets are half-way between his forecast and Scott's. (Although my personal forecast is the ~same as Zvi)

12. Netayahu. I'm not sure if Zvi meant to, but he missed that PredictIt does have an end of year market.

14. Zvi seems somewhat off the option market forecast. (Judging him slightly on hard mode as I think he's pretty skilled)

17. I'm not sure this was quite his "biggest" fuck you to EMH. The Dow predictions and ETH to 5k both seem significantly worse

You think there's only an 80% chance the olympics happen? This is a bit of a tangent but I'd love to hear why, since I have 100k+ shares of OLY2021 on FTX and haven't heard a convincing argument for the odds being below 90%.

re options, presumably Zvi is using the real world measure, which you can'treally infer from options prices without making a lot of dubious assumptions. Can you elaborate on how/why Zvi is "off the market forecast"?

I think there's ~80-85% chance the Olympics happen on time. I think there's a ~90% chance that the Olympics go ahead this year.

I think the case against them going ahead this year is roughly:

  • Current state of COVID in Japan, potential for it getting worse
  • "Cancellation is possible" statements from government
  • Public opinion is against the games

I don't think it's very likely, but do I think there's a ~15-20% chance that COVID flares up in Japan in the next 3 months in a particularly bad way? Doesn't seem crazy to me.

(FWIW, I don't think betting on the Olympics at the FTX odds is a bad bet, I just don't think it's a sure thing)

Risk neutral vs Real world measure isn't really a meaningful distinction the way you think it is. You can construct a binary bet in terms of options, and the price is the market price for that bet and that's the market probability. It's no different than betting on any other event. If you don't like market pricing, then sure, ignore everything I've written here, but don't think "risk neutral measure" is some magic phrase which lets you ignore the options market. If you think the odds are different, you can always place that bet.

I'm not saying Zvi is wildly wrong. Indeed he says he wouldn't trade with anything in 40-60% (and the market being at 60% means he's technically not "off" it), but I given it's close to what he'd consider trading, I think that's an interesting difference worth noting.

This isn't really a meaningful explanation for why risk neutral vs real world is meaningless? To me "the credence I have that something happens" is actually a meaningful, important number that is by definition different from the risk neutral price. You can argue that all market probabilities may deviate from real-world probabilities in some way, but that doesn't make real-world probability meaningless! 

I'm now confused as to what you mean by "real world" in this context?

Zvi is giving a credence for the event (p_zvi).

The market is offering a bet which implies some probability for the event (p_market).

All I am noting is p_zvi is different from p_market. I don't think there's anything special about the fact that options are involved here. (Unless I'm the one inferring you were specifically talking about options when you talk about "risk neutral measures". All market probabilities are in some sense in risk neutral probabilities. If you're complaint is about me talking about market probabilities then I guess this post wasn't really for you?)

EDIT: To be more concrete about this, the places where "risk neutral" vs "real world" probabilities end up mattering is places where there is a concrete risk premium. (ie what the options market implies about stocks in 1y's time doesn't account for the fact that "stocks tend to go up over time"). In all the examples we're talking about, those risk premiums are tiny relative to the numbers involved so they don't make a significant difference to how we should be calculating the "market implied" odds.

Risk neutral pricing is always a danger when trying to make inferences about real world probabilities based on market pricing, but it's usually a negligible one because participants in current prediction markets are generally speculators with no built-in exposure to the underlying asset, or ability to hedge against other markets.

 On the other hand, implied probabilities from options pricing can differ significantly from real world probability, because any participant in the options market can hedge their position against the underlying asset.

"In all the examples we're talking about, those risk premiums are tiny relative to the numbers involved so they don't make a significant difference to how we should be calculating the "market implied" odds." What evidence do you have that this is true? Your post is taking risk neutral probabilites from the market + your own opinion that risk neutral is similar to real world, then presenting that as the "market probability", which is very misleading. 

 

Edit: Maybe a better framing is that in order for option probabilities to give us a ~real world pdf of asset price at a given time, the asset needs to be approximately a martingale from now to the time in question. Many people would strongly disagree that BTC/ETH are even approximately a martingale on this time scale (they think there's large positive drift).  You are making a strong claim that is contrary to the view of many or most of the top crypto traders in the market, and yet you don't make this clear but instead claim it's a "market probability", with the implication that people should defer to it unless they have strong domain knowledge. 

because any participant in the options market can hedge their position against the underlying asset.

Right, but then the underlying asset is telling you something and if you disagree with that, then you can trade the underlying asset. There's nothing special about options here. The difference comes from the fact that the underlying asset can have a return. (In the same way that a bond have a price different from par doesn't (necessarily) mean that the market is forecasting default - they are discounting the value of a future cash flow).

What evidence do you have that this is true? Your post is taking risk neutral probabilites from the market + your own opinion that risk neutral is similar to real world, then presenting that as the "market probability", which is very misleading.

The evidence would be something akin to "the historic sharpe for risk assets is <1" so the order magnitude of risk premia is "small enough" relative to the volatility.

I don't think there is anything misleading about taking the market prices, constructing a bet and presenting that as a market probability, any more than taking showing betting odds and saying that's the betting market probability. Sure, there might be some subtleties depending on the market (eg long-shot bias, fees, etc), but fundamentally that's the price the market is offering. If you disagree, BET.

Edit: Maybe a better framing is that in order for option probabilities to give us a ~real world pdf of asset price at a given time, the asset needs to be approximately a martingale from now to the time in question. Many people would strongly disagree that BTC/ETH are even approximately a martingale on this time scale (they think there's large positive drift).

I agree with this, all I'm saying is that the degree to which those assets fail to be a martingale is small relative to their volatility.

You are making a strong claim that is contrary to the view of many or most of the top crypto traders in the market, and yet you don't make this clear but instead claim it's a "market probability", with the implication that people should defer to it unless they have strong domain knowledge. 

I assume all those people are long crypto, which fundamentally means they disagree with the underling price and are long... I don't see any inconsistency between that and what I'm saying. I would be more interested if you could find me someone who thinks both that 

  • option prices are wrong 
  • they shouldn't have a position in options
  • they shouldn't have a position in the underlying

because of some kind of risk-neutral vs real-world probability considerations.

Can you elaborate on why India's cases being higher than the US is an instabuy to 80%? I haven't given it any thought but it seems like that would require a pretty big increase in cases there?

See latest Covid post, it's already much higher.

Maybe Scott means cumulative cases here?

Yeah, I read that as a cumulative case statement (and I also thought Scott made the prediction before the current explosion in counts).

I also find it really interesting living in Hungary the way that the Covid numbers are being talked about in India. The official numbers just don't seem very bad yet. OTOH Hungary managed to top the world leagues in something everyone talks about for the first time since it lost its most suicides per capita crown to some other depressed Eastern European nation (I'm guessing that is who took it from the Hungarians), so I think my sense of how bad particular Covid numbers are is skewed by living here.

We will get to stop worrying about Covid a full month earlier than the rest of the EU though, so that's good.

Cumulative cases are still much lower, right? I assumed that "case count" meant cumulative cases, but it sounds like you're interpreting it as daily cases, which would explain our difference. Given that Scott only gives 50% chance it seems much more likely that he meant cumulative cases too imho