PEAR lab (Princeton Engineering Anomalies Research) – REDUX – Retrocausality in physics

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In my previous blog post, I said that Princeton professor Robert Jahn has been unable of finding the right hypothesis about the so-called &#8220-psychic phenomena&#8221- (if any). I mentioned the work of a theoretical physicist, Olivier Costa de Beauregard, who interprets the E.P.R. paradox using the concept of &#8220-retrocausality&#8221- (the reversal of the arrow of time). I said that, speaking of the so-called &#8220-psychic ability&#8221- (if any), one could interpret the so-called &#8220-precognition&#8221- (if any) as a reversal of the psychological arrow of time, where the mind could receive information coming from its own future.

Well, today, via Jason Kottke, we have some news from the scientific world that scratches this concept of &#8220-retrocausality&#8221- (which we should not confuse with &#8220-finality&#8221-, I was told), and which seems to comfort the Costa de Beauregard&#8217-s interpretation:

Quantum theory describes the behavior of matter and energy at the atomic and subatomic levels, a level of reality where most of the more familiar Newtonian laws of physics (why planets spin, airplanes fly and baseballs curve) no longer apply. The problem with quantum theory, put simply, is that it&#8217-s really weird. Findings at the quantum level don&#8217-t fit well with either Newton&#8217-s or Einstein&#8217-s view of reality at the macro level, and attempts to explain quantum behavior often appear inherently contradictory. &#8220-There&#8217-s a whole zoo of quantum paradoxes out there,&#8221- Cramer said. &#8220-That&#8217-s part of the reason Einstein hated quantum mechanics.&#8221- One of the paradoxes of interest to Cramer is known as &#8220-entanglement.&#8221- It&#8217-s also known as the Einstein-Podolsky-Rosen paradox, named for the three scientists who described its apparent absurdity as an argument against quantum theory. Basically, the idea is that interacting, or entangled, subatomic particles such as two photons &#8212- the fundamental units of light &#8212- can affect each other no matter how far apart in time or space. &#8220-If you do a measurement on one, it has an immediate effect on the other even if they are separated by light years across the universe,&#8221- Cramer said. If one of the entangled photon&#8217-s trajectory tilts up, the other one, no matter how distant, will tilt down to compensate. Einstein ridiculed the idea as &#8220-spooky action at a distance.&#8221- Quantum mechanics must be wrong, the father of relativity contended, because that behavior requires some kind of &#8220-signal&#8221- passing between the two particles at a speed faster than light.

This is where going backward in time comes in. If the entanglement happens (and the experimental evidence, at this point, says it does), Cramer contends it implies retrocausality. Instead of cause and effect, the effect comes before the cause. The simplest, least paradoxical explanation for that, he says, is that some kind of signal or communication occurs between the two photons in reverse time. It&#8217-s all incredibly counterintuitive, Cramer acknowledged. But standard theoretical attempts to deal with entanglement have become a bit tortured, he said. As evidence supporting quantum theory has grown, theorists have tried to reconcile the paradox of entanglement by basically explaining away the possibility of the two particles somehow communicating. &#8220-The general conclusion has been that there isn&#8217-t really any signaling between the two locations,&#8221- he said. But Cramer said there is reason to question the common wisdom. Cramer&#8217-s approach to explaining entanglement is based on the proposition that particles at the quantum level can interact using signals that go both forward and backward in time. It has not been the most widely accepted idea. But new findings, especially a recent &#8220-entangled photon&#8221- experiment at the University of Innsbruck, Austria, testing conservation of momentum in photons, has provided Cramer with what he believes is reason for challenging what had been an untestable, standard assumption of quantum mechanics.

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Parting Shot: If &#8220-psychological retrocausality&#8221- (&#8220-precognition&#8221-, actually) could be engineered one day, then we could make a killing on prediction markets. I could have sold short the SENATE.GOP.2006 contract at TradeSports, and made as much money as scientist David Pennock did (or so he claims &#8212-and I saw that some vendor also made this self-interested and undocumented claim).

TradeSports-InTrade: United Nations > John Bolton as US Ambassador to United Nations – REDUX

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I&#8217-ve spotted an interesting comment from Canadian trader Sacha Peter on the TradeSports forum:

This will be an interesting contract. Essentially, will Bush recess appoint him? I can&#8217-t see him getting past the senate confirmation process.

I lost a few bucks (literally, it wasn&#8217-t huge) in the previous confirmation debacle, so the way they worded this contract is very unambiguous and Tradesports appears to have learned one lesson.

So here&#8217-s the contract statement:

This contract will expire at 100 if John Bolton is the US Ambassador to the United Nations at 11:59:59pm on the date specified in the contract.

This includes (but is not limited to) confirmation by the US Senate or a recess appointment by the President.

The contract will expire at 0 if John Bolton is not the US Ambassador to the United Nations at 11:59:59pm on the date specified in the contract.

This includes (but is not limited to) withdrawal of the nomination by the President, withdrawal by John Bolton himself, failure to be confirmed by the US Senate or appoinment to an &#8220-acting UN Ambassador&#8221- role under the Vancacies Reform Act.

Due to the nature of this contract please also see Contract Rule 1.9 Unforeseen Circumstances.

The Exchange reserves the right to invoke Contract Rule 1.8 (Time Protection) if deemed appropriate.

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This entry is a follow-up on my previous blog post.

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Price for John Bolton as US Ambassador to United Nations at TradeSports.com

Does Liquidity Affect Securities Market Efficiency? – Paul Tetlocks new abstract

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Does Liquidity Affect Securities Market Efficiency? – (PDF – Listed at CFM) – [previous title: Does Noise Trading Affect Securities Market Efficiency?] – by Paul Tetlock – 2006-11-XX

The basic idea of the paper is simple. I measure liquidity and expected returns for various securities, and show that the two are linked. In an efficient market, the benchmark is that all securities should have zero expected returns. I find that the illiquid securities markets have (close to) zero expected returns, implying that these markets are efficient. But the liquid securities show certain mispricing patterns. The nature of these patterns suggests that individuals&#8217- probability misperceptions are the cause of the mispricing in liquid securities.

Note: the zero expected returns benchmark is a simplification. It&#8217-s based on the assumption that the equilibrium price of risk is negligible, which is a good approximation for most securities on TradeSports &#8211-e.g., sports contracts, and most of the short-term financial contracts. Obviously, this assumption would fail in conventional financial markets, where risk premiums may be large.

Previous Blog Posts:

Paul Tetlock on the inner working of TradeSports-InTrade

– No change: Mispricing is greater in illiquid markets + Justin Wolfers&#8217-s comment

– Does Liquidity Affect Securities Market Efficiency?

Short Odds for Ignorance

Gambling and a New Approach to Regulating Information Markets

External Link:

– TradeSports forum thread

Parting Shot:

Yeah, it was the Paul Tetlock festival, today.

Ouch! – Finding from a Web usability expert (Jakob Nielsen): 50% of Web readers dont scroll down the webpage.

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From today&#8217-s New York Times:

Studies by Mr. Nielsen’s company, the Nielsen Norman Group, an Internet design firm in Fremont, Calif., show that only 50 percent of Web visitors scroll down the screen to see what lies below the visible part on their PC monitor. “Users spend 30 seconds reviewing a home page,” Mr. Nielsen said. “A business must encapsulate what they do in very few words.”

Web Usability Links:

– Jakob Nielsen: UseIt.com – AlertBox –

– David Pennock and Robin Hanson, the wannabe bloggers, would probably pass the following Jakob Nielsen test: Weblog Usability: The Top Ten Design Mistakes – by Jakob Nielsen – 2005-10-17

– Alex Kirtland – Blog: Usable Markets – E-mail interview with Alex Kirtland.

Prediction Markets vs. Political Pundits – 2006 US Senate (GOP control + individual races)

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&#8230- More exactly TradeSports-InTrade and Iowa Electronic Markets VERSUS The McLaughlin Group (PBS).

Reason Magazine writes:

Weirdly, the McLaughlin Group, the fustiest of all the talking head shows, had one of the best records this cycle, with Eleanor Clift, Lawrence O&#8217-Donnell, and John McLaughlin all predicting Democratic takeover of the Senate and calling nearly all of the close races correctly. Still, that old line about stopped clocks comes to mind.

Reality Check:

Vo, vo, vo. Not so fast. The McLaughlin Group is made up of five members. Three of them predicted the Dems in the US Senate, and so (if I&#8217-m correct) the associated probability was 3/5 = 60%. It does not strike me as an unanimous consensus.

As for TradeSports, Professor Lance Fortnow wrote that all (NOT: &#8220-nearly all&#8221-) individual 2006 US Senate races were predicted correctly.

More Links:

– The McLaughlin Group (PBS + CNBC Europe)

– 2006-11-03: Transcript – Audio (MP3) – Video (MP4) –

Parting Shot:

If the small-L and capital-L libertarians at Reason Magazine sides with the leftist bloggers and media in the anti-PM backlash, and if some from-day-one prediction market supporter goes amock, then the logical conclusion is: The Prediction Markets Have NOT Arrived Yet.

Why the Hollywood Stock Exchange was sold to Cantor Fitzerald. – An insiders account.

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From the Horse&#8217-s mouth (Max Keiser):

Max Keiser is a financial engineer who likes to turn things into markets. After working on Wall Street during the eighties, Keiser turned his hand to Hollywood, where, rather than chase starlets as every other man in Hollywood was doing, he began commoditising those same starlets by trading them on the Hollywood Stock Exchange, a virtual market in celebrities that he created long before the BBC ripped his idea off with Celebdaq. The starlets loved him for turning them into the commodities they always wanted to be and Keiser was awarded three U.S. patents for the virtual specialist technology on which HSX runs. During his weekly NBC appearances on &#8216-Access Hollywood,&#8217- Keiser became the first person since the days of McCarthy to be boycotted by every major Hollywood studio at the same time. When Keiser accurately predicted weekend box office gross for nine weeks running on his HSX segment of NBC&#8217-s &#8216-Access Hollywood,&#8217- the major studios decided that free markets were not so great after all and called for NBC to remove the heretic in their monopolistic midst or lose access to Hollywood &#8216-talent.&#8217- HSX was sold to Cantor Fitzgerald and Keiser moved to Europe where he created Karmabanque, a virtual market in monetising dissent.

Addendum (November 16, 2006): I received this disambiguation note from someone who knows the HSX history&#8230-

Max Keiser was not involved with HSX at the time of the acquisition nor was he part of the process.

Addendum (February 23, 2007): Max Keiser replies&#8230-

To say that I was not involved with the sale of HSX to Cantor is incorrect. I did not endorse the sale of HSX to Cantor – I voted against it – because the deal with Cantor was not, in my opinion, above board.

TradeSports-InTrade: United Nations > John Bolton as US Ambassador to United Nations

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I&#8217-m curious to see who&#8217-s going to be on the &#8220-yes&#8221- side of this brand-new contract. From what I heard yesterday on NBC Nightly News, this neo-con is toasted. But maybe I don&#8217-t know the full story.

Addendum (November 15): Sacha Peter posted a comment&#8230-

Well, at least one person out there is currently willing to lay you 999:1 odds that he will get confirmed and he’s willing to stick his neck out to the tune of $10 against your $9,990 for it. It’s too bad even if you win you’ll still have to shell out $30 in commissions and $100 in expiration fees to collect your $10 in winnings. What a deal!

No change: Mispricing is greater in illiquid markets.

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Paul Tetlock’s latest paper on the subject of prediction markets “Does Liquidity Affect Securities Markets Efficiency?” follows the lines of the other authors whose model starts with the concept of first generation prediction markets, designed in such a way that their prices express probabilities.

First: We should not be surprised that those markets “underprice high probability events and overprice low probability events”. This is a consequence of continuous information arrival. Any binary option MUST show this behaviour, mathematically, depending on its In-the-money or Out-of-the money state.

In the framework of Price Information Theory, with continuous information arrival, you “lose” probability until the prediction horizon sigma sqrt T of the price differential. No “irrationality” there. (Remember: “Austrians” start on the premise that man is rational.)

Second: The immediate analogy from such binary contracts to behaviour of securities markets is not permissible. Securities markets price discounted future cash-flows in consideration of the two risks (ex-ante volatility and noise) affecting them. Applying the problematic binary framework to securities prices does not make binary options a security, they stay what they are. (Price predictions on rice in China does not make them edible.)

Third: Based on this, it is easy to explain why the conclusions of the paper appear overdrawn: The better the probability of a binary follows the information decay, the more mispricing the presented model would detect. Mr. Tetlock final thoughts appear to run in a similar vein by stating in the end that “…, liquidity may only appear to be a priced risk factor because it captures some systematic element of mispricing.”

So: On this one, let’s stay with the cited conventional models (Kyle) plus some empirical evidence from “real” securities markets: Mispricing is greater in illiquid markets.

Hubertus Hofkirchner

Chris, I need an internship or job in the prediction market industry, this summer.

My answer to him/her:

Don&#8217-t give the first fig about the prediction market industry.

Go working at an exchange, preferably in Chicago, and learn everything you can about markets.

In 10 years, all the Chicago exchanges will float event derivatives.

Good luck,

Signed: Chris Masse

External Links:

To get all the links to the exchanges, visit the &#8220-Links&#8221- page on this blog (which David Pennock is so jealous of), or visit the &#8220-Exchanges&#8221- webpage at CFM.

That is all, folks. Read the previous blog posts by Chris. F. Masse:

Nominatibility and Electability – 2008 presidential prediction markets

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Via our usual suspect Mike Linksvayer (recently featured in the New York Times for his weird diet), David Schneider-Joseph (a Foresight Exchange fanboy) on how to measure real electability of the US presidential candidates. Go reading his reasoning. His conclusion:

Put this way, it&#8217-s not a surprise that candidates with greater party ties have a greater chance of being nominated than their electability deserves. But that&#8217-s not the same thing as saying that their electability is actually lower than that of their competition.