We have often discussed the possible benefits of prediction markets for reducing bias. One key element that could be particularly useful is a conditional prediction market, where betting claims are based on outcomes conditional on some factor we want to evaluate. Robin recently mentioned the possible benefit from market claims on longevity or health conditional on various interventions.

Unfortunately, there are few prediction markets in the world, and fewer conditional ones, so it is hard to know how practical this institution may become. Thanks to an initiative by OB contributor Peter McCluskey, Intrade – the large, real-money prediction market – has added conditional claims based on the outcome of the U.S. Presidential elections. These may represent the first major case study of real-money conditional futures markets. So how are they doing? Here is some data and analysis.

Because of how the conditional claims are computed, we need to normalize the results by dividing the claim prices by the probability of a win for that party’s candidate. At the moment I looked (2008-07-28, 5:00 PM PDT), clicking on Politics and “2008 US Election”, and expanding “2008 Presidential Election Winner (Political Party)” I saw that the odds for a Democratic victory are 66.7-67.4. The claims are based on Democratic vs non-Democratic victories, so we will use the complementary odds of 32.6-33.3 for a non-Democratic win.

Then clicking on the left on “US Pres. Decisions” gives us the six conditional markets funded by Peter McCluskey.

Here are the claims, the prices, and the normalized values found by dividing by the corresponding Democratic and non-Democratic victory probabilities above. To compute the normalized values, I divided the lowest claim price by the highest party-victory price, and the highest claim price by the lowest party-victory price, giving the maximum range consistent with current trading prices. (Peter provides continually-updated information on current implied values as well.)

 Claim Dem price non-Dem price Dem norm non-Dem norm Increase in US government debt (over \$10 billion) 51.2-53.7 34.4-36.5 76.0-80.5 105.5-109.6 Number of US troops in Iraq on 30 June 2010 (over 2000) 41.3-43.8 32.1-34.3 61.3-65.7 96.4-105.2

These prices imply that the market expects that under a non-Democratic administration, we will see substantially higher government debt, as well as much higher numbers of soldiers in Iraq.

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## Distraction Overcomes Moral Hypocrisy

The New York Times reports on a particularly interesting bias, moral hypocrisy. Unfortunately I could not get access to any of the primary reports, but generally this refers to judging your own actions as moral when you would see them as immoral for someone else. The experiment blatantly shows the effect:

You show up for an experiment and are told that you and a person arriving later will each have to do a different task on a computer. One job involves a fairly easy hunt through photos that will take just 10 minutes. The other task is a more tedious exercise in mental geometry that takes 45 minutes.

You get to decide how to divvy up the chores: either let a computer assign the tasks randomly, or make the assignments yourself. Either way, the other person will not know you had anything to do with the assignments.

Now, what is the fair way to divvy up the chores?

When the researchers posed this question in the abstract to people who were not involved in the tasks, everyone gave the same answer: It would be unfair to give yourself the easy job.

But when the researchers actually put another group of people in this situation, more than three-quarters of them took the easy job. Then, under subsequent questioning, they gave themselves high marks for acting fairly. The researchers call this moral hypocrisy because the people were absolving themselves of violating a widely held standard of fairness (even though they themselves hadn’t explicitly endorsed that standard beforehand).

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What percentage of the world’s airports are in the USA? (Answer below the fold.)

Take a guess. Now, take another guess, different from the first one, and average them. According to research reported on in The Economist, averaging the 2nd guess improves accuracy by 6.5%. Better still, wait 3 weeks before taking a second guess. Averaging now improves accuracy by 16%. (Story found via Slashdot.)

Here is the full report from Pschological Science.  Some excerpts:

It is important that neither group knew they would be required to furnish a second guess, as this precluded subjects from misinterpreting their task as being to specify the two endpoints of a range.

That could make it a little tricky to do this on your own; you have to try to make your first guess as good as you can, and then start fresh for the second guess.

This benefit of averaging cannot be attributed to subjects’ finding more information between guesses, because second guesses were less accurate than first guesses

Hmmm, how can second guesses be less accurate than first guesses, yet averaging them is more accurate than either? I suppose it means that the two guesses tend (on average) to bracket the correct answer, with the second guess farther away than the first one. That means that your first instinct to improve your guess is more likely than not to be in the correct direction, but go too far. Knowing this might allow you to improve your guesses even more.

Oh, and as for the airports? According to the CIA World Factbook, there are 14,947 airports in the U.S., and 49,024 in the whole world, so 30% of the world’s airports are in the U.S. For the record, I guessed 25%, and then 15%, so averaging didn’t help me. But in general this might be a useful trick to easily improve guesses.

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## Prediction Market Based Electoral Map Forecast

Slashdot points to ElectoralMap.net, a site which aggregates the Intrade prediction market results for individual states in the fall U.S. Presidential election, to predict aggregate electoral college totals and the election winner. I’m bookmarking it as an alternative to media coverage of the race, which will put their own spin on likely outcomes. Note the arrows at the bottom of the map will allow you to track the changes in sentiment over the weeks and months leading up to the election.

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## The Future of Oil Prices 3: Nonrenewable Resource Pricing

Oil prices have been climbing rapidly in the past few years, and especially in recent months. Some point to speculation, others suggest that the fundamentals justify high prices. In 2006 I wrote a couple of posts here about how you could predict the future of oil prices. Unfortunately, reality did not align with theory, and my predictions were not accurate. Here is another approach to the problem which aims to look at the fundamentals and determine what is the rational market price for oil.

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## Overcoming Disagreement

In an ideal world, disagreements would not exist.

It’s a provocative statement, but hopefully readers of this blog will have been exposed enough to the reasoning to accept it provisionally. Even Eliezer’s recent explanations of his various disagreements largely come down to making cases for why his disputants should agree with him, not for why they should all continue to disagree.

When two people disagree, and they come together to try to reach agreement, they have much to gain. First, some of their disagreement may be based on different information. By explaining the basis for their beliefs and sharing their data, each can improve the quality of his own estimates. Second, they probably have different biases affecting their reasoning. Discussion will illuminate those biases and help to cancel them out. Third, not being perfect Bayesians, they are computationally limited, and one or the other is likely to have superior reasoning, algorithms and heuristics. They can both aim to incorporate the results from the best quality reasoning available to the two of them.

Given these advantages, why then are people seemingly so reluctant to reach agreement? I think it can be easily explained in terms of human social status. All too often we view disagreement and debate as a contest, with a winner and a loser. The one who convinces the other of the correctness of his position wins. If they both reach an intermediate conclusion, this is seen as a tie, perhaps with an edge to one side or the other.

This viewpoint makes pragmatic sense in human society. Someone who is frequently right and convinces others of that fact is likely to be correct on other issues. He will be more trusted and respected as a source of advice and wisdom. Someone who often turns out to be wrong on disagreements is not going to be very well trusted in general. So people who win disagreements gain status, respect, power and influence, all of which lead to improved quality of life.

This effect makes people very reluctant to admit that they are wrong and to adopt the other person’s side in a disagreement. In fact, we often see a sort of bargaining process, in which adopting certain aspects of one’s opponent’s views leads to demands that the other side adopt something of one’s own views in return. Agreement is seen as very much a process of compromise and negotiation, rather than an objective search for truth.

Of course, OB participants are far above such mundane considerations as power and influence. We are clear minded seekers after truth, right? Right? Okay, maybe we do retain some vestiges of these natural human instincts. What can we do to overcome them and approach disagreement from a more Bayesian perspective?

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## Naming Beliefs

Rolf Nelson points out that we don’t have good terminology to call “beliefs we would have had if we didn’t choose to be persuaded by the fact that everyone else believes differently”. It’s an important distinction because this kind of belief is arguably more helpful to know, for both majoritarians and others.

In classic group-decision experiments like “guess how many beans in the jar”, you get less accurate answers if people call out their guesses one after the other, because they are revealing their adjusted beliefs, that take into account the social consensus (perhaps without realizing it). If people write their answers down, we get Rolf’s kind of beliefs, uninfluenced by the consensus view, and those have been shown to be more accurate on average.

So Rolf’s point is very relevant about the lack of terminology. Devil’s Advocacy is about as close as I can come, but that doesn’t capture it. What do you suggest would be a good way to describe these kinds of beliefs? Once more people start making a conscious distinction between the two modes of believing, how should we talk about it?

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## Conformity Questions

Follow-up to: Conformity Myths

Robin posted earlier about a NYT Magazine article on conformity. I was able to find an online copy of the scientific paper here: http://psr.sagepub.com/cgi/reprint/10/1/2.

The synopsis from the NYT is not complete. Of the 12 times that people were challenged to disagree with the social consensus, the most popular choice was to agree 0 times. 25% of the subjects did this. The second most common was to agree 3 times, done by 14%. Third most common was agreeing 8 times, 11%. Only 5% went along with the crowd all 12 times.

I think it’s quite significant that 25% of subjects never went along with the crowd and stuck to their own perceptions. In total, only 32% of the answers were wrong.

I’m not sure I follow Robin’s comments on this. It seems to me that this re-interpretation of the classic experiment suggests that people are not as conformist as generally thought. That would mean that we do more than merely give lip service to celebrating independence, that culturally we are quite effective at following the ideal of independent thinking.

The key question is, what is the right thing to do here? Should one conform when presented with 8 people denying the evidence of one’s own senses? I argue that it is the right thing to do.

Now of course, if you know you’re in a psychological experiment, maybe you can’t help but be suspicious that something fishy is going on. But in general, in real life, if 8 people come in and tell you that your perceptions are completely wrong, you should take it very seriously. I imagine that in the history of the world, in the great majority of such situations, the 8 were right and the one was wrong. As an example that some may be familiar with, if a bunch of friends come in and tell you you’re drinking too much, while your perception is that you can easily handle the alcohol, you should probably listen to them.

I would suggest that conformity is the right thing to do in these situations, and to that extent I am rather dismayed that the subjects were as non-conformist as this data shows.

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## Anxiety about what is true

Robin links to an article about apparent manipulation of the medical process by drug manufacturers, dealing particularly with the drug Fosamax which is supposed to improve bone strength. The article raises the possibility that many modern diseases don’t exist at all but are the creation of the pharmaceutical industry to give them tools to sell more drugs.

My wife used to take Fosamax, so this was a topic of interest to me. To learn more, I did a search on scholar.google.com for “fosamax hip-fracture”. It looks to me like most of the hits are pretty favorable to the drug, but how much does that really prove?

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## Irrationality or Gustibus?

de gustibus non disputandum
(there’s no accounting for taste)

Can Eliezer’s reasoning about lotteries be extended to something like sexuality? The goal of our sex drives is reproduction of the fittest members of the species. But today we have interrupted this process so that most sexuality does not lead to reproduction. The underlying logic of the drive is no longer functional. Does this mean that our sex desires are irrational, and that we should consider sex to be as pernicious and harmful as lotteries?

Another example is our love of sweet and fatty foods, which are harmful to our health in today’s environment. The fundamental reasons we seek these foods no longer apply today. In a sense, this kind of hunger is irrational, in that satisfying the drive is actually harmful to us.

Where do we draw the line in judging whether our desires are rational?

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