Thursday, June 28, 2012

The Real Health Care Surprise

I was surprised this morning AHCA was upheld. When the whole Supreme Court thing started, I thought sure it would be upheld but the Intrade predictions (bouyed by the hearings, commentaries, etc.) changed my mind. Here's the Intrade chart as of today:
For those who don't know, Intrade creates these tickets where are worth $10 if some event happens and $0 if it doesn't. By seeing how much people are willing to pay for the ticket, we estimate how likely an event it. Rather than rely on predictions of people who lose little-to-nothing if they are wrong, prediction markets like Intrade make people put their money where their mouth is.

Thus Intrade is usually very accurate, predicting presidential elections, economic conditions and academy award winners very accurately. This morning, a ticket that the SC would rule the mandate unconstitutional was going for $7, or a 70% chance they will do just that. But Intrade was very, very wrong. Why? Two theories.

Few Decision Makers. It's very hard to predict anything that a very small number of people decide. Here, there were really only two decision-makers. In fact, most thought it was just one--Justice Kennedy--who indeed sided with conservatives. But no one predicted Justice Roberts would switch sides. Like a sample size that's too small, it's really hard to predict what will happen when so few determine the outcome.

Sample Bias. Go ahead and try to set up an account. If you try to get starting money via a card from your American bank account, you'll see this message:
If your credit or debit card was issued by a US bank then unfortunately you will not be able to use this card to fund your account. This not the decision of Intrade but due to regulations in the US that restrict what US residents can do with their cards.
So that puts a bias on who uses Intrade and it makes sense that non-Americans wouldn't be very good at predicting what our highest court does, especially since American's can't seem to predict it, either. It is worth noting that every expert, not just Intrade, was surprised by how the Supremes ruled.

Friday, June 15, 2012

The Schizophrenic Keynesian

From Robert Reich:
The major reason this recovery has been so anemic is not some liberals contend, because the Obama administration hasn’t spent enough on a temporary Keynesian stimulus. The answer is in front of our faces. It’s because American consumers, whose spending is 70 percent of economic activity, don’t have the dough to buy enough to boost the economy
Wait, wait, wait. The whole theory behind the stimulus package--any stimulus package--is to put money in the hands of consumers.

Yes, Reich's article is about long term growth (he credit our long run problems with inequality). Stimulus is about short term growth; it's not like he's saying there's nothing we can do in the short term.
What to do? There’s no simple answer in the short term except to hope we stay in first gear and don’t slide backwards.
Okay, Okay. Maybe Reich isn't a Keynesian. It's not like he advocated for the stimulus back in 2011, only criticizing it for its meager size.
The economy is in crisis. People are hurting. So government must act, and act quickly. It’s irresponsible at a time like this to suggest that government should simply close down.

But a jeer because the jobs plan he presented isn’t nearly large enough or bold enough to make a major dent in unemployment, or to restart the economy.
I have no idea what Keynesians believe anymore.