Intrade and the Dow Drop


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Eliezer_Yudkowsky

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.