[extropy-chat] Bayes, betting and derivatives

[Robin Hanson]

At 09:54 PM 6/5/2006, Eliezer S. Yudkowsky responded to me:
> > Risk-averse Bayesian wannabes would not make pure bets with each other
> > seeking financial gain.   Risk-loving ones might make bets, but only to
> > achieve the risk they want, not because of any disagreement.    Derivatives
> > markets supposedly help people to hedge risk, and not just to make bets.
> > And a patron who wanted to get answers to a question might subsidize
> > a betting market, thereby inducing Bayesian wannabes to bet there.
>
>Why would Bayesian wannabes with common knowledge of each other's
>rationality have any expectation of gain in a betting market?  Why would
>I ever sell my bet - given the fact that you offer me more money than I
>thought my bet was worth, and I believe you to be rational, and I
>believe you expect to make a profit?  Wouldn't I just adjust my estimate
>of the fair price upward, and then refuse to sell?

My first sentence above reaffirms that they would not disagree about any
expected value, and so would not make pure bets.  The rest of my comments
were explaining why they might trade in a betting market even if they had the
same expected values for everything.


Robin Hanson  rhanson at gmu.edu  http://hanson.gmu.edu
Associate Professor of Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326  FAX: 703-993-2323