[extropy-chat] Bayes, betting and derivatives

[Samantha Atkins]

On Jun 5, 2006, at 6:54 PM, Eliezer S. Yudkowsky wrote:

>
> Why would Bayesian wannabes with common knowledge of each other's
> rationality have any expectation of gain in a betting market?

The prices of the underlying stocks, commodities and so on cannot be  
fully (to say the least) predicted.  If it could there would be no  
point in derivatives.  Thus different Bayesians, even with full  
common knowledge (very hard to come by in practice regarding markets  
especially) may make different derivative plays.    It is not 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?

Because your market theory, fundamental and technical analysis may be  
more accurate at least in the short  run.   This notion that exactly  
the same knowledge, mathematically rendered the same is available to  
all players and they all have effectively equal skill and  
intelligence to boot is a far-fetched fantasy.

>   Wouldn't I just adjust my estimate
> of the fair price upward, and then refuse to sell?

No.  You might  decide to recheck your conclusions though.

- samantha