Sunday, January 18, 2009

great depression 2.1

A follow up to a post I wrote after Intrade put the chances of a depression occurring at some point in 2009 at 51%: In a post on his blog, Nate Silver of FiveThirtyEight explains why Intrade's numbers might be so high even while most economists are much less pessimistic. He explains that:
...a lot of the money that is to be made there comes from people who are trying to anticipate future price movements rather than the ultimate resolution of the contract. Say that I think the true chance of a depression is 4 percent, not 40 percent -- I should still buy depression contracts at 40 percent if I think I can sell them for 50 percent when the new jobs report comes out on Friday.
I started following the numbers at Intrade during the presidential primaries and still find it interesting to look at what's being traded there (though I'm yet to put any money down), but in this case, I'm not disappointed at all to find reasons why it isn't a flawless system.

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