# 39

At this point, for many tax situations, you cannot rationally believe both 'Nate Silver is credible' and 'I should not be betting on Biden'. If you have any trust in Nate you cannot think Biden is below ~80% to win. You can get 'Biden' for 65-66c on Predictit. Notably, there are several de facto copies of the same bet (Female VP, Dems win presidency). Even with fees, you are making a lot of stochastic money. Your capital will probably not be held up that long.

If you are outside the USA you can plausibly get even better odds. There are many places you can get implied odds of 62-63%. This bet gets worse if you are paying tons of income tax and cannot offset losses. But this is a very good bet for lots of people.

I edited in an image of the rolling polling averages so people can judge this for themselves.

Here is another good analysis of why we should be confident in Biden.

In general, I think Rationalists should be a lot 'louder' about their advice when they are sure. For many tax situations, this is a complete slam dunk. I really wish rationalists had been louder about similar advice in the past when I could benefit.

Contest Entrants Think Trump is Going to Lose

Of the 98 entries, only six said that the Democratic candidate was under 50c to win the presidency. In fact, the median predicted probability for the Democratic candidate (hereafter Biden, for brevity) among contest entrants was 87%; notably, the median probability given by the models out there is also 87% (though Nate Silver has yet to release his and based on his fights with G. Elliott Morris it’s probably not going to come in very high).

This confidence in Biden (he is “Likely” to win the presidency, in the parlance of verbal handicappers) isn’t shared by the markets. Both BetFair and PredictIt price Joe in the low 60s, suggesting that the presidency “Leans” Biden (the price ranges on PI depending on the market you’re looking at). Even Silver thinks that’s too low: “I don’t think people realize how dumb and sometimes even irrational the prices are at political betting markets as compared to almost every other type of market (which is not to say other markets are always rational, either).” and “Too low on Biden.”

Note: My claims are completely orthogonal to whether Biden should win. Rationalists, in general, have some faith in Nate Silver and similar analysis. This post is about the logical conclusion of that faith. Please do not discuss the merits of which candidate is better for the country.

edit: At this point if anyone is reading and can access international markets the 'safe' line is to buy both 'pop vote' and 'Biden'. Pop vote is safe so you can 'hedge' Biden bets with a safe +EV pop vote bet. This way you win money unless Dems lose the pop vote (extremely unlikely).

# 39

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I have bought $400 worth of Trump No contracts on PredictIt which will pay off if Trump loses. The price as of this writing is 61 cents for a contract that pays$1 if Trump loses.

Notably, the 538 prediction doesn't include a number of outside factors, primarily around mail-in ballots and voter suppression. 538 has already talked about the problems with mail-in ballots being rejected, and there are also concerns about not having all of the ballots counted before the cut-off point where they have to finish counting. Republicans have also made it harder for Democrat-leaning bases to vote. These are factors that will hurt Biden more than Trump. All those links are to 538, and there are other articles on the site about those same issues. If you believe in 538's model, you should probably also believe in their articles that indicate that these outside factors will be important. If you don't believe in the articles, then why do you believe in their model?

Either way, this is not a clear case where the market is wrong.

Only the first article in the comment is by Silver, on whose expertise the original poster is basing his recommendation. That article doesn't discuss mail-in ballots or voter suppression, and in fact his main point is that the time remaining until election day (almost three months when the article was written) combined with uncertainties due to Covid-19 meant that the race was still open back then. Those considerations have much more limited force at present, when only 16 days remain, and Biden's lead has widened considerably.

If you've been at all listening to Silver recently, you'll know that he thinks his model probably underestimates Biden's chances. This shouldn't be surprising, since as Silver acknowledges, in this new version of the model he has made a special effort to build conservative assumptions into it.

In any case, I would encourage people hesitant to bet for Biden to resist the temptation of "throwing in a bunch of considerations" for why the models may be wrong, and instead try to calculate what the correct forecast should be in light of those considerations. For example, if you think mail-in ballots will be a big factor, try to estimate the magnitude of this ef... (read more)

1Liam Donovan1moThis model seems reasonable, but I think bettors should mostly ignore the possibility of rejected mail in ballots, because the effect is extremely uncertain and around the same magnitude as many other idiosyncratic factors that should mostly wash out. For example, if there's severe weather or an outbreak of COVID on election day in a crucial swing state, that will hurt Trump much more than Biden because a much greater proportion of his voters are voting by mail (essentially the "rejected in person ballots" effect you mention).
1BossSleepy1moThe 538 distribution currently has Biden falling between... <squints> ~255 - 440 electoral votes 80% of the time (47% - 82%). Updating your guesstimate sheet with those ranges give a mean proportion to Trump of .38 with a range of .17 - 0.54
6Liam Donovan1moThis is total misinformation; mail-in rejection will probably be cancelled out by increased turnout from low-propensity voters (it's much easier to vote by mail than to vote in person). In any case, the effect of a 1-3% rejection rate is minimal and indistinguishable from general noise/uncertainty. Most of the claimed "GOP voter suppresion" either has a minimal effect or hurts the GOP, because the nuts and bolts of election administration are implemented on a county level. In most states, urban counties have the resources and inclination to counter the voter suppression, while rural (predominantly GOP) counties do not.
4gbear6051moI was merely noting that 538, the makers of the prediction model that the post is discussing, believes in the voter suppression. If you think they're wrong about the voter suppression, then you probably also shouldn't believe in their prediction model. On the other hand, if you think they're right about the prediction model, then why are you doubting their voter suppression research? Of course, it's perfectly consistent to think that they are wrong about both the model and the voter suppression, but the post was assuming that you believed in the prediction model.

I'm debating to what extent to write a detailed explanation, but

(1) yes the odds are insane at this point, and I felt the need to note this in my weekly Covid post. Trump is not 0% but he sure isn't 38%.

(2) the relative odds between the odds now, and the odds earlier in the year, are how you know the market is insane here. Nate's update from 71% to 87% reflects that Trump's position is obviously vastly worse than it was before, with less time to go, fewer opportunities for things to change, many votes in the bank and Biden several points farther ahead when the baseline was tightening. Yet the odds on Trump remain stubborn.

When I wrote my recent review of PredictIt prices, I thought Trump's odds were very generous but perhaps plausible. That's no longer the case.

Hey OP -

Just want to say thank you for this post. This along with the failure of the rationalist community to buy bitcoin led to me betting $150 AUD on Biden, and Sportsbet Australia called the election for him already (no, I don't understand why either - I guess the publicity), so I got$235 in my bank account now (win: $85 AUD). I would not have done this without your post. https://www.9news.com.au/national/us-election-2020-sportsbet-pays-out-early-on-joe-biden-win/a722588b-85ec-4a87-a524-a1e592123691 If you have any trust in Nate you cannot think Biden is below ~80% to win. That seems too strong. I'm assigning a 50% chance to Nate being the best authority on this, and a 50% chance to markets being the best authority. I still agree that betting on Biden has positive expected value. My main reason for doubting Nate is the likelihood that the pandemic will have strange effects on turnout. I'm unwilling to bet on which direction that will surprise people. 8Liam Donovan1moFor what it's worth, 538's final predictions have (narrowly) outperformed betting markets in 2008, 2012, 2016, and 2018 (I haven't looked at 2010 or 2014). Also, almost every consistently profitable politics bettor is putting massive bets on Biden this cycle, and my impression is that they either believe 538 is ~accurate or biased in favor of Trump. As an example, here's the twitter account [https://twitter.com/rainbow_jeremy_] of one of the best professional politics bettors around; he believes Biden has a ~96% chance of winning. 3ShardPhoenix1moThere's a lot of partisan sneering against Trump supporters on that Twitter account which IMO calls his objectivity on the odds issue into question. 8Liam Donovan1moHe's been a pro political bettor for years, so if he was betting based on biased odds he'd have gone broke a long time ago. It's just a fact that Trump is extremely overpriced, and his share price is being propped up by extremely -EV bettors; him using that as an excuse to attack Trump supporters doesn't undermine the quality of his analysis. In general I'm more inclined the trust the market value than any particular prognosticator. Why shouldn't I be? edit: The arguments here have convinced me to bet some money on Biden (on Betfair), but today the odds are still moving against him (down to just under 60% on electionbettingodds.com). This does leave me rather confused - surely the "dumb money" can't outweigh the "smart money" so heavily? Especially not on Betfair which doesn't have PredictIt's limitations. Yeah, I think the OP's argument requires a good explanation of why the markets have failed to adequately price in Silver's prediction. I'm not saying markets are always right and impossible to beat no matter what, but the EMH is a pretty good default starting point, requiring strong evidence to overcome in any specific case. 'I trust this guy's public prediction, based on equally public information about his methods and track record' doesn't seem nearly enough. The efficient market hypothesis is an overrated and dubious hypothesis when applied to the stock market (a market which could plausibly have the necessary conditions for EMH to be reasonable), betting market's like predictit though are nothing like the stock market and significantly more inefficient. The necessary conditions for a market to be efficient require the market to be heavily/majority used by profit maximizing investors and this just isn't the case for most gambling markets. In general betting on a gambling market is a much worse idea than betting on stocks, since the transaction costs are a lot higher and you are betting on a zero-sum game instead of a historically positive-sum one. That being said there are some notable examples of the market completely failing. Take the Mayweather vs McGregor fight where the best boxer in the world for a decade only had a -400 edge against someone who had never had a professional boxing match (the line started at a much more reasonable -2500). If I had more money back in 2017 I would have bet that line heavily. Just because you are betting on a usually subpar market doesn't mean there aren't still good deals to be had on occasion. 9tslarm1moMy argument doesn't require the EMH to be true in any strong sense, just true enough that you can't beat a big, liquid market by a large margin via easy analysis of very public information. Predictit's price is similar to Betfair's -- in fact Betfair is currently slightly less favourable to Biden -- and presumably won't diverge too far in either direction due to arbitrage. Betfair has matched about$180 million on its 'next US President' market. Of course a lot of its users are wild gamblers, but it is big enough to attract serious professionals (and smart opportunists with plenty of capital) too.
5Rafael Harth1moI've been told that the election is considered a massive and rare opportunity among professional gamblers, which that person thought was the 'smart money'.
0deluks9171moAnyone who thinks that betting market prices are rational will not bet on them. Why would you tie up your capital (even for a few weeks) and pay fees if the prices are fair?
2tslarm1moCan you elaborate? I'm not sure what the point of disagreement is here. For a big market like this, on an exchange like Betfair, my rough mental model is that there is a combination of recreational/compulsive gamblers, more serious professional/wannabe professional gamblers, and (given that the US election captures the attention of a great portion of the world) people who don't bet for a living but will keep an eye on the market and take any obviously profitable bets on offer. So a lot of the bets that get matched will be between unserious players (who either don't care or don't think carefully about whether the price is rational) and serious players (who do). Others will be matched within the group of serious players, who of course can disagree with each other about the 'correct price'. But if there's a mispricing obvious enough that you or I can detect it just by reading 538 or Less Wrong, and large enough to be hugely +EV after transaction and opportunity costs, my default assumption is that it will probably self-correct before I get a chance to take advantage. Not all the money in the market is rational, but there are rational bettors with enough capital to keep the prices roughly where they should be. edit to clarify why I'm focusing on Betfair: I don't know a lot about Predictit, but I believe it heavily limits the amount any individual user can bet. In isolation, that could be enough to allow it to stay surprisingly irrational for surprisingly long. But I assume its prices for any significant market will stay relatively close to those of a big exchange like Betfair, because of the easy arbitrage opportunities when they diverge. And the 65-66c you quote is very close to the Betfair price of about a day ago (though the latter has since tightened to the equivalent of about 62c).
3tslarm1moAt least a couple of people have downvoted this without replying. One of the things I usually like about LW and similar spaces is that good-faith comments get a reply, not just a silent dismissal. I get that the comment is not exactly punchy or brilliantly written, but I was trying to do the right thing and explain some of my own assumptions, rather than write the equivalent of 'wat?' and leave deluks917 to do all the work of bridging our communication gap.
3deluks9171mohttps://www.lesswrong.com/posts/y8RWtNBiksbSzm9j4/bet-on-biden?commentId=ENYJswSZy2DgrntEh [https://www.lesswrong.com/posts/y8RWtNBiksbSzm9j4/bet-on-biden?commentId=ENYJswSZy2DgrntEh] seems like an ok guess. I have a much higher confidence in this being a good bet than in any particular theory of why people are betting on Trump.
4tslarm1moWhich ones convinced you? I still haven't seen a serious explanation for why everyone is apparently leaving so much expected value on the table. It seems to me that the market is big enough to be worth the attention of serious people, but not so big that it would take a huge number of them to snap up all the 'dumb money' and push the odds somewhere reasonable.
3ShardPhoenix1moThe main factors were Nate Silver's record of good calibration, and (alleged) "smart money" successful bettors (including local Zvi) being onto it. I'm still uncertain why the market could be so inefficient in this case, so I'm not betting a lot of money, but it's possible that institutional factors prevent large amounts of smart capital coming in - perhaps directly betting on the election is still too weird for a large investment firm.

I just made my account but I want to remind everyone that you cannot make inferences on how good your prediction (or how good of a bet this was) based on one data point (how this election turned out). If you want to dig deep into the odds that every state was given, you can start to make a case, but anyone with the gut reaction that since the election was close, this was a bad bet, are wrong.

1FCCC13dAgreed. The best prediction would have been to assign Biden 100% credence. A defence of their position might say that "Given the information 538 had at the time, the best possible prediction machine would have less certainty than Nate", but this is too hard to prove, and it's inconsistent with the fact that Nate is a calibrated forecaster who (as far as I know) consistently beats the market.

For whom is betting for Biden actually a good idea? Can non-US citizens effectively participate? What when you factor in transaction costs? What are my expected gains (are they high enough to register an account and go through the hassle)?

Do you have an estimate of expected profit per $100 bet (for a few of the most plausible scenarios)? My impression is that PredictIt is +EV is you make lots of not-too-correlated bets so that your losses can offset your wins (though maybe not by enough to be worth the time & effort), but it's generally -EV (or at best barely +EV) if you deposit to make a one-off bet where you have to pay fees & taxes on your winnings (and don't get any tax benefit from your losses). 4deluks9171moI would say Biden is conservatively 80% to win from here. Polls are incredibly good. The election is in sixteen days. When I made the thread you could get Biden for 0.65. You need to pay 3.5 cents tax on winnings if you buy at 0.65. There is also a 5% withdrawal tax. So if you win you get (100/0.65)(0.965)(0.95)(0.8) = 112.8 . 12.8% returns in 16 days is nothing to laugh at. You are still getting almost 6% expected returns if you think Biden is only 75% to win. This all assumes you immediately withdraw your winnings from Predictit which is obviously bad for your expected value. If you are not in the US you can both get better odds than 0.65 and you don't have to pay the insane rake. 2Unnamed1moIt looks like this includes the fees you pay to PredictIt, but not the taxes you pay to the government. 2deluks9171moYes. I was clear in the OP Predictit is a worse deal depending on your tax situation. If you cannot deduct losses things look much worse. But many people either have low incomes or already deduct. Betting on international sites should be profitable regardless of tax status since the returns are much better. 1MichaelStJules1moOlder discussion of the Economist's model and betting markets by Gelman: https://statmodeling.stat.columbia.edu/2020/06/19/forecast-betting-odds/ [https://statmodeling.stat.columbia.edu/2020/06/19/forecast-betting-odds/] Is there anything a person living in Germany can do other than place a bet via someone else? Bet 100% of your upcoming charitable donations. Even if you are loss averse the charities are not. Donate the winnings if the bet pays off. 3Morpheus1moYou could try using Augur using a VPN I think. Though you need Cryptocurrency (Etherum). Which is the reason I didn't use it so far (too much effort to set up). 7Morpheus1moOk so I am through the process of making an acount and adding funds to it. You have to transfer your money into the Cryptocurrency DAI. The bet with the lowest fees and the longest expiration date (to allow for a longer time until the results are known), has Trump at 62%. The cheapest NO-share that you can buy immediately is at .69. There is a 0.77% market fee. But there is a relatively high fee for making a transaction which is payed in Etherum. it currently costs the equivalent of around 10$. But this transaction doesn't scale with your bet, so if you already plan to make a big bet (<500\$) this shouldn't affect your decision much.
2Rafael Harth1moI went the crypto route a bit, but then decided to funnel it through an acquaintance and use predictit instead. If I understand everything correctly and calculated all the fees properly (probably haven't), then the overall deal from the point where money leaves my paypal to the point where hopefully more comes back, is analogous to betting on Biden as if he had a 73,6% on the markets. Which I guess is still pretty good, but man do I wish that there was just one large market with minimal fees, instead of fees on transferring, currency conversion, profit on predictit, and withdrawal from predictit. So many fees :x Also, it takes a few more days. I hope the markets don't shift in Biden's favor in the meantime (then the deal obviously gets worse). It's amusing how I now want them to move into the opposite direction. And all that is assuming a 0% risk that the person just screws me over and keeps the money for themselves, which is probably roughly accurate.
2Pablo_Stafforini1moSuch a market exists [http://ftx.com/], though unfortunately it is restricted to countries where most LW users are not citizens of.
1Morpheus1moOk you don't need Etherum. You can just buy Augur's currency using a credit card. I tried using coinbase, but it seems to have pretty high exchange fees.
1NunoSempere1moBetfair.de should work. Besides sports, there is a politics section.
5Rafael Harth1moSadly, while you can place sport bets from Germany via Betfair, you can't access political bets.

I concur with this. In my case, I set aside some amount of money I was comfortable losing, calculated the Kelly bet based on the expected win, and bet some amount on Biden. I used Betfair, which is available to Europeans.

Some commenters mention the EMH. As counterevidence, I present that Betfair is offering even odds that Biden will win at least one state Trump won last time. (The 538 model gives 96% to this) (This was wrong)

From the blog of Andrew Gelman, one of the authors of the Economist's model:

As noted above, I think that with wider central intervals and wider tails we could lower that Biden win probability from 96% to 90% or maybe 80%. But, given what the polls say now, to get it much lower than that you’d need a directional shift, something asymmetrical, whether it comes from the possibility of vote suppression, or turnout, or problems with survey responses, or differential nonresponse not captured by partisanship adjustment, or something else I’m forgetting right now.

If you have BTC lying around and trust mybookie you can get 1K free if you wager enough. Getting 1K free on top of 10K is a lot of value. The site is a lot worse without BTC.

1Liam Donovan1moagain, watch out for rollover requirements before taking signup bonuses! Unless you're a prolific sports bettor it's almost certainly a bad idea to take the bonus.

Is there a simple guide on how to bet on Biden if I already have Ethereum and I don't live in the US? It seems I can do it on Augur and FTX, but both platforms seem very complicated.

1Morpheus1moYou can use catnip [https://catnip.exchange/] which is built on Augur. Here is a blogpost [https://limitlessmarkets.substack.com/p/-introducing-catnip-simple-liquid] from the guy who made it and a Discord Channel [https://discord.com/invite/a4hpuwd] where you can ask questions when you get stuck.

Practical question: Say I were willing to break the law. Is there an easy way to bet on BetFair from the US?

4deluks9171moI do not know of any safe to do this. If you are found out you risk losing money if they freeze your account. This bet looks a lot worse if you are risking your account when you get found out. If you have outside friends who trust you maybe they will 'bet for you'. There are some offshore sites taking American bets. You can also place bets online legally if you are in NJ (I think).

Anyone with available capital interested in making money from this election should spend ~1hr researching TX, come to the accurate conclusion that Biden is favored there, and bet accordingly (buy Biden in TX, Dems to win TX senate race, Biden electoral college margin >210 EC votes, etc). The expected returns are much higher than betting on Biden to win overall, because Biden TX is currently trading at around 30% to win TX, when fair value is ~65%.  These twitter feeds from (semi)pro politics bettors are a good place to start: 1, 2

3deluks9171moI spent some time. I do not see the smoking gun. Can you post more details or links?
2Liam Donovan1mo* Polling shows Biden and Trump very close in the state * polling in Texas systematically underestimates Dems with Latinos * Turnout in TX seems to be much higher than past years, which is great for Dems because people who didn't vote in 2016/2018 are disproportionately young/nonwhite * Dems nearly won in 2018 despite depressed Latino turnout
8MichaelStJules1moDo you think FiveThirtyEight and the Economist haven't appropriately accounted for these considerations in their models? I don't think the discrepancy with the markets are so large. Where did ~65% come from?
1Liam Donovan1moNeither model takes into account any of these factors, and indeed their discrepancy with the markets are much smaller. 65% just comes from my estimate of the fair value of a TX biden contract, which comes from...whatever internal process generates probabilistic credences.
1Annapurna1moYeah the +EV of this bet is marginal at best.
2MichaelStJules1moAre there any important considerations in the opposite direction?
1Liam Donovan1moThere's plausible arguments for Trump being favored (he is currently ahead in the polls, after all), but I can't think of any good arguments for him being at ~75c. EDIT: Trump and Biden are now tied in the 538 TX polling average
1RyanCarey1moThe Texas bet (TX) seems EV neutral to me, and clearly far worse than the nationwide electoral college (EC) bet. Biden for EC: 95% likely (The Economist model), priced at 62% Biden for TX: 26% likely (The Economist), priced at 29% The two Twitter feeds are full of a lot of shitposting, and don't update me much.
0Liam Donovan1moI mean yes, clearly if you believe the Economist and 538 models are reasonable, then the TX bet isn't +EV. My point is that the models are clearly unreasonable for the reasons listed above, and the bet is actually extremely +EV.
3RyanCarey1moThere are three arguments (1) polls underestimating Dems in Southern states, and (2) benchmarking against 2018 senate, and (3) some low-quality Tweets. It's weird to hold a lot of stock in (2), given noise from candidate selection and other variables. If you place a lot of weight on (1), the actually sane bet would be Biden in AZ. It's rated 2nd and 4th most likely to go dem by Cohn and Wasserman [https://twitter.com/Nate_Cohn/status/1321275164508753921] respectively. Biden for AZ: 77% likely (Economist), priced at 54% on Election Betting Odds.

I'm not a gambler so forgive me if these questions are stupid:

How are these odds being calculated in the first place? I think we all remember the odds of 2016 versus the outcome. What were the various pundits being touted this time saying back then?

Why would bookies be offering odds that they know they're likely to lose out with? What are their profit margins? I know that casinos are a business that depends on extremely high volumes of bets, are bookies the same?

Is it possible to bet on the results of voting by state? That seems safer to me (well, as... (read more)

3deluks9171moI would encourage you to bet on other things too if you think you have a big edge. It is not obvious to me there are any better bets available at this moment. 538 had reasonable odds in 2016 imo. 27% chances happen. Bookies/Sites offer odds based on how much money is on both sides.

I got heavily downvoted for suggesting that Nate Silver's credibility was not strong enough to make this a good bet.

The most you could say at this point (late in the night on election day) is that it looks like the election is very close. This suggests to me that those people saying that betting on it at 65% odds for Biden was a huge steal, were overconfident. People were quoted who thought Biden's P(win) was 96%.

I am interested in any suggestions about what went wrong. I can't think of a lot of edifying reasons.

1. Rationalists don't win