Anyways, Agent Dwight Harris (played by the versatile and gifted Matt Servitto) is a compelling reflection of Tony Soprano, in all the same basic ways:

+ quid pro quo on inside information to help one’s personal interests
+ common fundamentalist muslim enemy (due to similar xenophobia?)
+ maintaining a mistress on the side
+ gambling–the FBI unit seemed to have a pool on which mafia executive would get hit next

I maintain that free and unfettered prediction markets can bring a little more clarity and accountability to government behavior. While I am a big supporter and advocate of democracy, it has its limits. One big noise factor is special interests having too much influence–hard working parents taking care of their kids and elderly parents are too busy to lend their voice to counterbalancing fringe interests’ lobbying.

An example from the last decade was government spending on AIDS, cancer and heart disease. AIDS spending equaled cancer + heart spending, even though the latter two killers claimed 36 times the victims of the former. While I think a reasonable case could be made to prioritize AIDS research, since it was an emergent and therefore more uncertain disease, I think it also shows that special interests of a 2% demographic minority are able to hijack a conversation that leads to uneven government behavior.

Now if a prediction market could be set up to predict fatalities of every kind–disease, traffic accidents, war, etc–there would be a much less emotional and biased, and much more logical and objective indicator on the cause of death, to which the government could respond to and from which the press might derive more insight and intelligent questioning of the government.

I continue to maintain that prediction markets will improve democratic capitalism from our current implementation. To quote Tony Soprano’s jukebox preference: Don’t Stop Believin’ (by Journey).

Cross-posted from Caveat Bettor.

But if that is the case, then why all the gambling/prediction market interest in the fates of two fictional characters – Harry Potter and Tony Soprano – and their equally fictional associates?

These fictional worlds do not produce widely dispersed bits of information that can be usefully aggregated by a market. Careful study of, say, the first six Harry Potter books and reading interviews with J.K. Rowling may produce some sense of what will happen, but ultimately whether “Harry Potter must die” (as Marginal Revolution suggested) or “Harry Potter will NOT die!” (as Chris. F. Masse at Midas Oracle interprets prediction market prices to suggest) will depend on what Rowling wants to say through the book and how she decides to do it.

I don’t think there is sufficient information available to form a good probability estimate. So the betting is all based on emotion, and some bettors will be lucky and others not. An informed insider can enter the market and clean up.

A lot of people enjoy betting on entertainment events (a category broad enough to include everything from the Super Bowl winner to week-end movie box office totals to the survivor/winner in the TV show “Hell’s Kitchen), and far be it from me to want to squash people’s fun. Fun is good (and good for business if you are a prediction market maker).

But if you are an investor trying to maximize long term returns and have no inside information, this is a case where Kelly’s criterion for betting comes into play. Kelly’s criterion for bet size can be described as “edge over odds,” implying, as Wikipedia explains: “If the gambler has no edge, … then the gambler should bet nothing.”

[NOTES: This post is a lightly edited version of "Will Harry Potter Die? Don't Bet on It," originally posted at Knowledge Problem.

The Wolfers and Leigh piece provides a good general background on prediction markets. HT to Midas Oracle for the heads up on the Wolfers and Leigh article.

Also at Marginal Revolution: Tony Soprano must live, citing a Washington Post story among others.]

I can’t find an early post of mine, which advised folks here not to risk more than 4% of their allocated assets on any single event or contract series. If Tony only had read it. Sorry I can’t find the link, but hopefully you’ve learned something from this.

As a risk manager (as opposed to a noise trader, speculator, or gambler), I don’t mind taking other people’s money, as they might be a little more irrational about risk than I am. But it doesn’t serve the long-term liquidity of these prediction markets well to have people lose their money and interest forever. So remember, keep each play to 4% or less. The more you are a proven winner (a track record of profits doesn’t lie), the more you can put at risk.

Race of the tortoise, baby.

Cross-posted from Caveat Bettor.