Two years ago, I made the following bet with a brave young economic pessimist, Jackson Taylor:
$200 on whether or not America will have
a recession, defined as two consecutive quarters of negative real GDP
growth, in the next two years. Q4 of 2017 being the end of the period.
But if that quarter happens to be negative, then we can look to the next
one to see if we were or were not in the middle of a recession.
Fourth quarter U.S. GDP numbers are now in, showing +2.6% annualized GDP growth. Since growth was positive in every preceding quarter since the bet, I have clearly won. The commendable Jackson prepaid, so we are all settled up.
Why did I make this bet? As I explained at the time:
Base rates. U.S. quarterly GDP growth is about 3%, and there’s a high
short-run positive correlation for quarterly growth. So we’re extremely
unlikely to have negative GDP growth for the next two or three
quarters. The chance we actually get two consecutive quarters of
negative growth before the clock runs out therefore seems well below 50%
to me, making this a good bet.
By my count, this leaves me at 16 wins, 0 losses for my public bets.
READER COMMENTS
robc
Feb 2 2018 at 10:09am
Which means you aren’t taking enough risks, you are leaving money on the table.
I am 2-0, so ditto, although my sample size is lower (and mine are weird sports related prop bets).
Thaomas
Feb 2 2018 at 11:36am
Where do you find people to make these crazy bets? I recall having dozens of people predicting all kinds of disasters during the Obama years, but none would ever put money behind their predictions. đ
Francisco Garrido
Feb 2 2018 at 11:37am
Would you be willing to make a meta-bet? Something like “$100 dollars at even odds that you won’t lose any of your next 10 bets currently closest to completion”.
David R Henderson
Feb 2 2018 at 3:31pm
@Francisco Garrido,
Thatâs not a great bet for Bryan. If his probability of winning each bet is 0.9, then his probability of losing the bet to you would be 1 – 0.9^10 = 1 – 0.35 = 0.65.
robc
Feb 2 2018 at 3:42pm
David,
If his probability of winning each bet is .9, then there is only a 18.5% chance that he would have won the first 16.
His probably on each is more likely to be at least .958, which gives him a 65% chance of winning the next 10.
Tom Jackson
Feb 2 2018 at 4:45pm
So where do we go to view Bryan’s current unresolved public bets?
Chris H
Feb 2 2018 at 5:59pm
@Francisco Garrido/David Henderson/robc – That meta bet may be inordinately impacted by his “no country leaving the EU” bet. From what I understand, Brexit seems very unlikely to be reversed in part because there are countries outside of the UK that would veto any attempt to keep them in. If that’s within his next 10 bets that might seriously throw the chances in favor of the “Bryan loses one of his bets” side.
James
Feb 3 2018 at 10:30am
Bryan,
Have you ever made a bet that some number would deviate from its base rate? If not, that says something a bit bleak about economics. You have a PhD and are probably more knowledgeable than most professors in the field and yet your performance as a forecaster is no better than an amateur relying on a table of long term averages.
magilson
Feb 3 2018 at 11:07am
James,
That should tell you something about the economy; not Bryan.
Francisco Garrido
Feb 3 2018 at 5:32pm
@David Henderson
Well, if the winning probability is 90% then his current track record (16 wins and no loses) has a 19% chance. Not exactly impossible, but unlikely.
If we pump up the winning probability to 95% the chance of his track record more than doubles to 44%, and this would make the chance of winning the meta bet equal to 60%. Not exactly a no brainer at even odds, but pretty decent.
However, If one bet is already compromised, as @ChrisH points out, then this probability could be a lot lower.
RPLong
Feb 5 2018 at 10:26am
@ Francisco re: meta-bets
Bryan should take Curry’s Bet: If Bryan loses this bet, then Germany borders China…
Comments are closed.