Intrade and the Dow Drop

by Eliezer Yudkowsky 11y1st Oct 20081 min read13 comments


With today's snapback, the Dow lost 777 and regained 485.

As of this evening, Intrade says the probability of a bailout bill passing by Oct 31st is 85%.

(777-485)/(1-.85) = 1,946.  So a bailout bill makes an expected difference of 2000 points on the Dow.

Of course this is a bogus calculation, but it's an interesting one.  Not overwhelmingly on-topic for OB, but it involves prediction markets and I didn't see anyone else pointing it out.  I hope the bailout fails decisively, so this calculation can be tested.

PS:  Bryan Caplan understands Bayes's Rule:  It's not possible for both A and ~A to be evidence in favor of B.  So which of the two possibilities, "unemployment stays under 8% following a bailout" and "unemployment goes over 8% following a bailout", is evidence for the proposition "the bailout was necessary to prevent economic catastrophe", and which is evidence against?  Take your stand now; afterward is too late for us to trust your reasoning.