Why the Kelly Criterion Kinda Sucks

We are now officially in the political betting off-season! I think I predicted this is about when it would feel like PredictIt was entering the doldrums, and also I think I promised to do some more data-focused blog posts when this time rolled around. This is sort of going to be one of these, but only sort of. This will be a general betting strategy blog, wherein I gently pick on the famous Kelly criterion. Here’s what I’ll say:

  1. The Kelly criterion doesn’t actually suck, it’s quite mathematically sound and if its inputs are computed correctly it will produce optimal wealth growth.
  2. That said, it’s really hard to achieve or even approach optimality, because many situations require the bettor to generate their own fairly complex functions for calculating the various parameters that go into the Kelly formula.
  3. There are a few situations where it breaks altogether.
  4. If math is not your thing (it’s not really my thing!) you can get by just fine by internalizing some simple lessons that Kelly teaches like “The further the market’s price is from your odds, the more you should bet” or “Don’t blow it all on one bet like an absolute donkey” or “The more certain you are of an outcome, the more you can bet”. At the end of the day, even really good bettors just go on instinct most of the time anyway.

What is Kelly?

Kelly is a way of managing your bet sizing invented by (get this) a guy who’s last name was Kelly. He was a pretty smart fellow, I gather, who did some proper math and wrote a function that will calculate for you the optimal amount of your bankroll to bet on any given proposition in order to maximize your wealth in the magical “long run”. In betting, sizing is a rather critical part of the game! If it makes sense to you that you should bet more when your edge is huge and less when it’s small, congrats, you’ve already internalized the lessons of Kelly. But exactly how much, and how does it vary according to the odds you’re betting? The formula is:

f = p/a – q/b


f = fraction of bankroll you ought to wager

p = the real probability that the proposition happens

a = the fraction of your wager you’d lose if it doesn’t (for a bet at the race track, this is generally 1).

q = 1 – p (or the probability that you lose)

b = the fractional return on your wager if you win. In its simplest form, you can calculate it at a fractional probability price point P as follows:

b = (PsPb) / Pb where

Pb is the average price at which you intend to buy your position and Ps is the average price at which you intend to sell (let’s assume for now that you’re holding until resolution, so Ps = 1).

(So for Pb = 0.5, or 50c, your b is 0.5/0.5 or 1. For Pb = 0.7, or 70c, your b is 0.3/0.7 or 0.43. For Pb = 0.1, your b is 0.9/0.1 or 9. For PredictIt, you’d multiply the (PsPb) term on top by 0.9 to account for the fee on profits).

You can (and should) read through the wiki, but here’s my toy example showing how it works:

Let’s say it’s 2017 and you’re betting on PredictIt on the following question: “Will FCC reverse net neutrality rule in 2017?” It’s November 16th. The market has been pretty quiet, but has suddenly spiked today from 16c YES all the way to 59c. Now there’s a big offer sitting at 37c, meaning you can buy a full $850 worth at 63c if you want it. Should you buy? If so, how much?

(Here’s where we were in the market’s history at that time, I’ve covered up what happens next – will it go up? down? both?).

So we have b already. That is, if we pay 63c for NO we will earn 33.3c per share (37c – 3.7c for fees). 33c / 63c = 0.53. We’re getting a 53% return if it hits! This is not so hard to calculate.

But what about p? What are the odds we give this event of transpiring? Well, you’re a pretty sharp bettor, by which I mean that you can read and you can think a little bit, so you notice that the rules stipulate that in order for YES to resolve, the FCC “shall publish a final rule” to do with eliminating net neutrality. That’s interesting language! What does it mean to “publish a final rule”? Well, rules are written by agencies and then voted on and then submitted to the Federal Register where they are published as final rules. Generally, rules aren’t in effect until published in the Register. Even better, you know that PredictIt had a 2015 market on this same question that resolved according to the Federal Register. There’s just one more piece of the puzzle, which you also happen to know, which is that it takes a while, usually 4-8 weeks, for a rule to go from agreed to by the agency to be finally published in the Register. Armed with this knowledge and the knowledge that the FCC isn’t meeting to consider the rule in question until Thursday, December 14, you now know that it’s incredibly unlikely the final rule will be published by the end of 2017.

Being the sharp bettor you are, you set your p at 0.98 that the contract resolves NO – maybe it gets published before the end of the year but this is extremely unlikely in your view (and you are correct! The market does resolve NO in the end). This also gives us q: 0.02.

You’re also willing to buy and hold, which means that if you’re wrong, you’ll lose everything: a is 1. How much should you wager?

f = 0.98/1 – 0.02/0.53

f = 0.94, or 94% of your bankroll.

Wow, that’s a lot! But it makes sense. After all, this is virtually certain, but it’s not guaranteed so you’re not gonna blow everything on it. You make the bet, filling the order at 37c for YES and taking 63c NO, and, six weeks later, you win. Neato!

You could have bet 100% of your bankroll and made more, but in the long run this would cost you money as those 2%-of-the-time losses would eat into your gains. (Practically speaking, the PI max bet limit means there’s very little difference in the long run between a “full” Kelly bet, a 90% Kelly bet or even an over-Kelly bet.)

What Kelly is good for

The Kelly criterion is best understood (and used) in the gambling world by people betting on horse races (it can be adapted to multi-outcome events) or sports outcomes. You go to the sportsbook, you’re offered a line, and you decide whether to bet and if so, how much. Kelly tells you how much. [Now, many will swear by “half Kelly” or “quarter Kelly” which is only betting half what Kelly says (and so on) with the idea that reducing your sizing minimizes any risk you would otherwise incur for things like miscalculating your edge (i.e. getting p wrong).]

Kelly absolutely and mathematically works. It also jives with common sense. Big edge -> big bet. Little edge -> little bet. It’s particularly useful if you’re a set-it-and-forget-it bettor. But things do get more complicated when you’re trying to apply it to actual prediction market trading (which is what I and many of you readers do). Let’s take a stroll through the practical and theoretical limitations:

What makes Kelly hard to use in a prediction market

1. What is the real probability p anyway? If you think the odds of a fair coin flip are 75/25, you’re gonna lose money betting on coin flips using the Kelly criterion. Bad parameters -> bad results. If your model (which could just be a gut feeling) is off, the formula ain’t gonna save you.

2. The other parameters. You might think getting p right is the hard part (it is a lot of the game!). But getting the other parts right (b and a) is just as important. Think of these two as containing, among other things, information on when you bet. Kelly tells you how much to bet (but just as a fraction of bankroll, more on that later!) but it does not tell you if the price facing you is the price you should pay now or if you should wait until later. Remember net neutrality? Turns out you weren’t that sharp. The real sharps knew the market wouldn’t figure out the Federal Register requirement (not explicit in the rules!) and that the market would spike on the December 14th meeting as illiterate lemmings would gleefully throw themselves off the financial cliff. While 94% of your bankroll was invested at 63c, the real sharps got in 97% of their bankrolls at 25c (okay, you both maxed for $850 but they nearly tripled their money while you only got ~1.5x yours). That’s a big difference!

(A Kelly optimal strategy depends on you getting the parameters right – if you’re off on your entry timing, your return could be too small! Here, entering at 63c for NO was way too premature.)

Now – you can definitely include predictions of price movements into a Kelly framework. You can imagine predicting a probability distribution over prices that you would be able to enter a position at and use these to generate your Pb and thus your b. But that process, getting the entry right, is not covered in Kelly. You have to do that on your own, and there’s not going to be an easily google-able formula for it. Remember that if you’re working on an order book market system (like PredictIt) even the act of placing offers will influence the probability that those offers get filled. It’s not as simple as looking at the market price and plugging that into your Kelly calculator (same logic holds for sports betting – just because a line exists doesn’t mean you should bet it, even if you have an edge at that line… you might hold out in case the line keeps moving into your favor).

To restate: a Kelly strategy is “optimal” if and only if it is parametrized optimally.

3. In a prediction market, you can sell prior to resolution either for a profit or a loss. This not only affects b (whether or not you’re holding to expiry or planning to sell obviously changes your Ps and thus your return) but also means you need to have a really solid way of calculating a. Are you really going to let your position go to zero if the odds move? Or are you going to mitigate your losses by always selling a certain price point? Now your a will be a function of the probability that the price hits your stop-loss and the probability that you don’t change your mind and actually stick with your plan. Again, it’s possible to model this, but as the number of parameters increases so too does the likelihood that you’ll fuck something up. You might be tempted to say “okay fine, I’ll just stick to straight-up bets where if I win I win and if I lose I lose” and you will find Kelly incredibly easy to use in this scenario – but that will come with the tradeoff of not using a better-tuned parameter set (see the FCC market example). Your bets will be optimal but only within the constraints of the style you’ve chosen. Your play won’t reflect the optimal overall strategy if you’re ignoring, for example, future price movements or future changes to liquidity/volume.

4. Real odds change. Kelly adherents tend to come from the sports betting world where lines do move around before the event but usually within a relatively narrow range. You want to end up getting the best of the line (closing line value) most of the time at a sizing set by whatever Kelly fraction you’re betting if the limits permit. Great. But if you’re betting on stuff like politics, lines can move across an enormous range. In fact, the real probability of the event can and does move with time fairly substantially. Kelly tells you how much to bet for a given moment in time, which will commit some of your bankroll at that time. If, later, the real odds have moved (your own p has changed), Kelly may tell you a larger or smaller sizing is appropriate. If larger, no big deal, you can always add more (remember to adjust your b to account for what’s already been bet). If smaller, you may face a decision that the wikipedia version of the Kelly criterion or an online calculator isn’t going to help you with, particularly if you’re underwater. Many are the captains that go down with their ships saying “well, I still have an edge so there’s no point in me selling.” [You can probably adapt the formula somehow to tell you how much to dump, if any, if Kelly tells you that you have too much invested, I don’t do math but it seems possible to me.]

5. Kelly doesn’t account for what you’re betting on. Using a Kelly strategy to bet on the outcomes of elections will absolutely work in the “long run” (side note: if you’re just betting on US presidential elections the long run is like 20 events in your betting lifetime at most so I hope you like variance). As will using a strategy of betting outcomes generally in PredictIt markets or PolyMarket markets or I’m sure Kalshi markets when that launches (please launch). But betting outcomes is just one subset of betting on price movements. Your strategy may be “optimal” but that doesn’t mean it will earn you more money than correctly predicting each and every flip of that market and betting on those swings (using Kelly for sizing, if you’d like!). One other benefit of betting on price movements: as there are lot more of these than there are outcomes (by definition, and often by an order of magnitude), you approach the long run a lot faster, which means you learn a lot faster. The disadvantage: it takes more time.

Sometimes Kelly breaks

1. Let’s imagine I’m penny-flipping shares from 1c to 2c in some VP contender. What fraction of my bet is at risk (the a parameter)? Honestly, not a lot of it! If I know that I’m always gonna be able to dump most of my position for cost, a will approach 0. As a approaches zero, well, the first term in the Kelly formula approaches undefined territory and the whole thing blows up. And if you think about it, the lower your risk, the more Kelly is going to tell you to bet, which makes sense but also fails to account for things like liquidity and volume, which brings us to…

2. Kelly gets very weird in the situation where your risk a is itself a function of f. For example, when penny-flipping in a high-volume market, I know for a fact my risk on 1000 shares is pretty much zero. But if I’m 10k shares deep, well… now it’s going to be hard to exit that at cost if I see the tide turning (with PredictIt’s liquidity). So at n% of my bankroll, Kelly would tell me to bet my entire bankroll, but if I were to bet my entire portfolio, Kelly would tell me not to. It melts my puny mind. Idk. You tell me if there’s a good way to solve for f in this equation (or maybe you’re just supposed to maximize b?):

f = p/a(f) – q/b

(I mean even if I were a math guy I think if I ran into x = f(x) in a dark alley I’d just throw my wallet at it and run.)

3. There is an uncommon (but certainly not unheard of) situation in which a bettor placing a bet actually affects the overall market (and I don’t just mean that the price reflects the price of their trade). For example, if a sharp walks into a sports book and hits a line fairly hard, the bookie may move that line more than if a fish hit it at the same size. You can imagine this creates a situation where you could hit a line at one shop, move the entire market that thinks you have something (shops react to each other’s movements and maybe you have a reputation for getting player injury details faster than everyone) and then cover back the other way at another shop. In this case your b is actually a function of f, as this move is less likely to work at smaller sizings. This kind of exploitative play is particularly interesting on a place like Polymarket, where every trader can see what every account is doing. Is a big profitable whale entering a position? That might cause some minnows to follow, allowing the whale to exit.

4. Kelly cannot anticipate future needs for your bankroll. This is actually a huge point – if the whole goal is to figure out what your sizing should be, every bet you make needs to also consider your opportunity cost on other bets you won’t be able to make with the money you invest – again b starts to become a function of f. Let’s return to the FCC market. Yes, it’s Kelly-optimal to bet 94% of your bankroll at 63c for something worth 98c. But now that you’ve blown your wad on those FCC shares, you won’t have anything left to play any other number of hot markets that might already exist or that might be created in the six weeks between now and payout. (In late 2017, these missed opportunities would have included a lot of the action in the Jones v Moore election!). On PredictIt, this is a very very real issue for most users that only really goes away at very large bankrolls. In other markets without limits, it can affect a bankroll of any size. Now, you can rewrite the formula to consider all possible markets available to you at a given time, but unless you’re literally God you’re gonna have a lot of problems optimally modeling what future markets might be created or what wild news will break.

5. Sometimes, Kelly is just impractical at a basic implementation level. If you see a breaking news tweet that’s gonna move a market, often you really don’t have time to do anything other than mash the buy or sell button. Yeah I guess you can imagine a bot that spits out some stuff but like… nah. In real life, when prices are moving fast, you just gotta develop a good touch in order to capture value.

Wow this is a lot of words about a mathematical formula huh

Okay, okay, yes. I don’t use it (for the limitations above) and I don’t know anyone who religiously use it. Whenever you hear the word “Kelly” from a PM trader it’s from someone saying “ugh I think Kelly would have me betting more here” (for spots where they’re in good but scared of going bigger) or “I can’t bet anymore because I’ve hit my Kelly maximum” (for spots where there’s no way the guy has actually calculated their Kelly max, but because they simply intuitively feel like they don’t want to put more on it). But Kelly is an influential part of many betting strategies and it’s something intermediate traders may come across as they start thinking about how to improve. The point of this blog is just to show that actually applying rigorously it to PMs ranges from very difficult (given the uncertainties that go into each parameter) to the impossible (in the semi-edge cases mentioned in the third section). Finally, there are real bankroll management issues that aren’t addressed by Kelly at all and are probably a lot more important anyway.

All of that said, you can still learn a lot from Kelly. It’s not a tool to tell you when to bet, or what to bet on. But it is a tool that can confirm your intuition about how much to buy in some scenarios relative to others. If you think something is worth 99c and the market’s price is 95c, it’s going to have you put down a fair chunk of your bankroll: f = 0.99 – 0.01/.0526 = 80%. On the other hand if you think something is worth 15c and the market is at 10c, you’re only going to put down f = 0.15 – 0.85/9 = 5.5%. That’s useful conceptually: even with the same raw edge (~5c), you’re going to be betting a lot less if you’re likely to lose even than if you’re likely to win.

Long story short? There’s no easy formula that will tell you how to win.

CPAC and what the right wants to hear

Where’s the GOP going? There’s been a lot of coverage on this question – whether the party is the party of Trump or the party of McConnell/Cheney/Romney. I think this is largely the wrong emphasis – Trump of course remains the overwhelming favorite to win the nomination in 2024 should he choose to seek it. But if he doesn’t, the ideological forces he taps into (many of which predated him) will very likely power the coalition that selects the 2024 nominee and animate all politics on the right regardless. The wing that picked Romney over Santorum in 2012 is simply outnumbered now. The question isn’t really which side of the party will win – the question is “What are the issues that capture the attention of the ‘populist’ right, and how are they changing?” To answer this, I undertook the masochistic task of actually listening to CPAC 2021, and this is what they talked about.

I don’t know why I made this, it just looks like tetris.

“Cancel culture”

The dominant complaint about the left expressed by speakers at CPAC (entitled “America Uncanceled”) is that the left (and their allies, corporations!) are responsible for a repressive culture in which we are no longer allowed to say impolite things without repercussions. DJT Jr. brought up Mr. Potato Head; Tom Cotton talked about getting canceled for his NYT op-ed; Josh Hawley complain-bragged about his book being canceled (then plugged it). The closest any speaker came to really articulating the root appeal of the issue was, surprisingly, Ted Cruz, who exhorted conservatives to “have fun“. The problem with many on the right is that they have a “stick inserted somewhere it doesn’t belong” (shots fired, Tom Cotton) and the problem with the left is that they’re “angry” and humorless. Of course, Ted’s delivery is, as usual, insincere and faintly to overtly cringe, but what he’s attempting to do is smarter than those who were just whining about getting canceled: recruit guys (it’s mainly guys) who just feel like they can’t joke about the things they’re used to making fun of. Changing habits is annoying, fuck that! Why can’t everyone else just tell that I don’t really mean it? Hey, have you ever listened to the Joe Rogan podcast?

Ted’s angle on cancel culture was also interesting in that he’s one of the few speakers that seemed to really connect with the CPAC audience on the topic. Everyone else… it kind of fell flat? When DJT Jr did his Mr. Potato Head bit (very topical!) the audience was more in appreciative chuckle mode than a “yeah that’s fucking hilarious and bullshit, dude” mode. They’d already seen it on their phones! Maybe it was because almost every speaker was talking about it or maybe it’s just that CPAC attendees are extremely online, but I got the sense that “cancel culture” is starting to get a bit stale on the right.

The new boogeymen: Big Tech, “the oligarchy”, and “corporations”

It isn’t tremendously surprising now, but what a shift to see so much corporate-bashing coming from the right. I don’t think I heard one speaker talk about “job creators” and the economy. Instead, Big Tech is responsible for censorship. Corporate media fact checkers are the tip of an oligarchic authoritarian spear designed to suppress dissenting speech. And “corporate America” broadly enforces new cultural norms in thrall to the demands of radical leftists, particularly young people who just sit at home on the couch enslaved to their smartphones all day (this specific complaint about young people and smartphones came up more than once!).

The root of the complaints on the right is an objection to the idea that corporations should play any cultural role at all. They shouldn’t be out there making #blacklivesmatter tweets or engaging in advertising boycotts and they definitely shouldn’t be in the business of ever saying that I can’t say something on their private platforms. Conservatives are now fully adopting the principle that, because of their monopoly powers, the relationship between Big Tech and its users should be fully controlled by the First Amendment. Others argue that the companies should be broken up. Who said this, Josh Hawley or Elizabeth Warren?: “And I can tell you how I would start. I would start by breaking up the big tech corporations. Just break them up. Break them up in the name of the rule of the people. For the good of the American people and our liberty, we need to break those corporations up and cut them down to size.”

I’ll close this section out with another quote from Hawley that fairly succinctly articulates the anti-corporate thesis on the right. Let’s see how this morphs over time as his pre-candidacy evolves:

“This is one of the great moments of crisis in American history. We’re facing a fight for the republic itself, and we are facing an unprecedented alliance of radical liberals, and the biggest, most powerful corporations in the history of the world.”

Tom Cotton’s dog whistles

It ain’t a gathering on the right without implicitly evoking racism! (For explicit racism, you had to go across the street to Nick Fuentes’ joint, as Paul Gosar (R-AZ) did). CPAC speakers loved bashing the BLM protests! These were all riots, or “fiery peaceful protests” and we of course have to back the blue. Tom Cotton leaned the heaviest on this. Some quotes of his:

“After all, we’ve seen what happens when people lose the nerve to defend America. Last summer, chaos and riots engulfed our streets. Police stations were firebombed. Buildings, businesses were looted. Courthouses were attacked. Statues to our heroes were toppled.”

“Have you seen that Joe Biden wants to ban the term illegal aliens? What does he want to replace it with? He wants to replace it with undocumented non-citizen. Very words. True, I’m not making up. Why are they undocumented? Because they’re illegal.

“America truly is a great country. It is worth fighting for. It is worth dying for, and it is worth defending our history.

“there is no more pernicious threat to America than the rejection of our founding principles and our heritage and our tradition.

To be sure, you can find enough technically exculpatory context around these quotes. But it’s also a pretty straight line from protecting “our heritage and our tradition” to “we must secure the existence of our people and a future for white children.” Such is the nature of dog whistles.

Aside from playing these hits, he had a section here that didn’t really connect with the audience but that I had never heard before and thought I’d highlight:

“Now, many on the left have concluded that America is a fundamentally flawed, irredeemable, wicked place. They have a lot of names for it, but whatever banner it flies under, it gets back to that anti-American idea. You can call it woke-ness or political correctness, cancel culture. You can call it critical race theory, critical gender theory, critical whatever. Some people call it systemic racism, but here’s their point. The key word is not racism, the key word is systemic. It doesn’t matter so much what the system is guilty of, only that the system is guilty and it needs to be burned to the ground.”

A full-throated defense of “the system”? Is this what the newer elements of the right, who were told by Trump that the system was rigged against them, want to hear? I am skeptical, but I do think it says a lot about how Tom Cotton thinks about the world (and also basically communicates: “hey, you know the America you grew up with where you didn’t have to feel guilty about Black people? That’s the real one.”).

The continued rise of anti-trans rhetoric

Anti-trans sentiment is nothing new (historically or otherwise) but it is now notable how strongly it registers as a wedge issue on the right. At CPAC, I’ve heard very little about abortion (some! at least one panel!) or church/religion (mainly from the Black speakers at CPAC that center their conservatism in God and particularly education/how to raise kids). Guns are mentioned in throwaway bits about the Second Amendment. In the 2012 Republican primary, whether or not same-sex marriage should be left to the states or banned via a constitutional amendment was a dividing issue – in 2021 and beyond, this will be supplanted by anti-trans content. Some thoughts on this:

  • It hooks with anti-“cancel culture” because joking about men dressing as women or men thinking they’re women is a thing a lot of people want to laugh about (either in ridicule or because the idea of trans people makes them deeply uncomfortable). Here’s Ted Cruz‘s anti-trans joke: “In 2020, the New York Times reported that 60% of women named Karen voted for Joe Biden. That’s actually real. You can look it up, the fact checkers. That’s what the New York Times reported. And I’m willing to bet 80% of the men named Karen voted for Joe Biden. Just have fun.
  • The GOP is a boomer party, but a lot of this anti-trans stuff is emerging from the younger wing of the right. It’s looong been a topic for young men on the right to mine for clicks on YouTube (since at least 2015/2016; see the entire career of Ben Shapiro). For history on the topic, of course you must watch ContraPoints.
  • Mainstream GOP last touched anti-Trans stuff during the whole “bathroom bills” saga of 2017 and 2018. It’s now back with Senators proposing legislation banning trans women from playing women’s sports (of course, trans women are called “biological boys” by this cohort). Look for this to intensify.
  • Most of the rhetoric aims at trans women rather than trans men. The root of the whole thing is that conservatives (and probably many Democrats, tbh) find trans people icky and think their existence is wrong in some way. And rather than grapple with and accept the humanity of these people, why not otherize them the way we always have? Kindness is for liberal pussies.
  • Notably, Trump is now embracing the rhetoric. Aside from his actions (the ban on military service for trans people chief among them), he’d previously not shown much of an interest in exploiting this issue.

The usual stuff

There was plenty of muh China, some talk about energy policy, a lot of discussion on election policy (this is a real outgrowth of Trump himself), and some socialism vs capitalism talk. On that latter topic, I was surprised how few of the 2024 hopefuls spent a lot of time calling Democrats socialists. It came up, but generally in passing, or as a throwaway. Mainly the whole thing seems to be a way to call young people uninformed and naive. Tom Cotton, again: “Total meltdown with the little social justice warriors at the New York Times. All these children that have been marinated in the language of the campus seminar room. They said things like, “Your words put my life at risk,” as if typing on their phone, sitting on their futons was as dangerous as being a cop trying to stop rioters in the streets.” I love this imagery because young people are naive and stupid for using smartphones while sitting on futons (they’re poor!) rather than the very intelligent men who watch Fox News while fully reclined in their La-Z-Boy with two built-in cupholders and snack tray.

All this to say that CPAC was pretty light on policy. Not one 2024 hopeful talked about the covid relief bill. This is a meeting about what the GOP cares about, not what they want to do. And they care about is winning the culture war. I will say, as a passing note, that one area of policy that did get plenty of coverage was lockdown policy (shitting on Cuomo, California, liberal hypocrisy associated therewith, etc) but I’m skeptical this topic will still have legs in 2024 (or even 2022). But right now it’s definitely part of the conversation (see below, esp. with Kristi Noem / Ron DeSantis).

What the audience loved

In the speeches I listened to (I gotta admit, some of the panels I just tuned out of), the biggest reactions came from election and Trump-related content. They wanted to hear people say that January 6th was ok, or maybe even okay to celebrate. The audience absolutely popped off when Hawley hit them with “The last two months, the big tech corporations have deplatformed conservatives left and right, shut them up, shut them out, shut them down. Heck, they censored the president of the United States. If they can censor him, they can censor any American citizen. And I’ve got my own experience with this, unfortunately. On January the 6th, I objected during the Electoral College certification. Maybe you heard about it. I did.” He goes on to complain about how he was just trying to have a debate, but that’s not what the audience cared about. They cheered that he did it – not that he did it for some principled free-speech principle or whatever. They want power!

Another big applause line: Kristi Noem saying “I don’t know if you agree with me, but Dr. Fauci is wrong a lot.” (She otherwise failed to connect with the audience’s energy after that).

And finally: Donald Trump got plenty of applause, particularly when he teased running again…

What the audience snoozed

I’m sorry to say it but Tom Cotton is just as stiff as he looks, and Rick Scott is at risk of being relegated to the JV debate stage in 2024 (dear god, he was terrible). But aside from politicians whose ambition far outstrips their charisma, I also found it interesting that DJT Jr.’s attacks on Liz Cheney didn’t really land. It got some reaction but not a lot? Perhaps it was the delivery.

Another notable snoozer: Joe Biden attacks. Very few speakers even bothered, with the notable exception of the final speaker (and for Trump, attacking Biden as demented was a bigger crowd-pleaser than going after him on energy policy). Dave Weigel notes that merch sellers there couldn’t “give away” the anti-Biden stuff. He ain’t Hillary!

The 2024 Hopefuls

My impressions:

  • Ron DeSantis: Fine speech on lockdown stuff but also dude has put on a bit since 2018, damn.
  • Ted Cruz: Cringe, tryhard, but at least he’s carving out a lane for himself. Lighthearted MAGA.
  • Tom Cotton: rigid posture, rigid worldview.
  • Rick Scott: looks like an alien, talks like a robot.
  • Josh Hawley: smooth, a bit nervously fast. Will be in the top three or four – watch how he tries to own various aspects of economic populism (trustbusting, the $2k checks support).
  • DJT Jr.: it just ain’t the original. Ya know? He might be able to claim the 2nd amendment lane I suppose.
  • Marco Rubio: family issue prevented his speech. Will be an afterthought in 2024 anyway.
  • Kristi Noem: talk about the right to bare arms my lord. Is there any doubt that she is the Republican nominee if Trump doesn’t run?
  • Mike Pence, Tim Scott, Nikki Haley: the CPAC skippers.
  • James Lankford, Marsha Blackburn: oh, you guys are here too?
  • Donald J. Trump: typical.

Cabinet Countdown

Who will make it into Biden’s cabinet by March 1?

It’s a great question, not least because literally no one else cares except for PredictIt traders. Joe will get his Cabinet (except for maybe Neera!) at some point, and Hill reporters are understandably focused on the American Rescue Plan (I shared my research process for the related minimum wage market in the previous post). No one seems to really care what happens next week on the Senate floor. Will Ted Cruz lift his hold on Raimondo or will Schumer invoke cloture on her? Will Cardona be given a higher priority after the WH Press Secretary expressed the administration’s hope that he’d be confirmed this week? What about Granholm given that “energy” is vaguely part of the conversation post-Texas disaster?

With almost no reporting, it’s virtually a complete guessing game and I’m on the sidelines in almost all markets. Nonetheless, here’s what I think I know:

Vilsack will be confirmed

The USDA nominee has widespread bipartisan support (he made it out of committee via voice vote and had a “friendly hearing”). His confirmation vote is TBD Tuesday, and the market expects him to earn north of 85 votes (I don’t disagree). There’s been some discussion on twitter of late as to how to play these vote count markets – the way I do it is to use a spreadsheet where I can check off the votes as they’re announced for each senator. It’s useful for knowing who has and hasn’t voted along with keeping an actual count. Beyond that, the usual “NO” suspects are Hawley, Cruz, Cotton, etc. Worth pointing out that some of the frequent-ish NOs like Braun are on the Ag committee and seemed favorable. (Although also note that Tuberville and Marshall were not on the committee yet when his hearing took place and were not present during the voice vote). Finally, this is a Tuesday vote, which means we should have a pretty good sense of who is present or not based on the Monday vote(s) on Linda Thomas-Greenfield for UN Ambassador. Party lunches are on Tuesday so it tends to be a higher-attendance day anyway.

Linda Thomas-Greenfield will be confirmed

She faces the vote to invoke cloture on Monday at 5:30 pm, which will succeed. Technically she is going to take two positions, though I suspect the votes will be combined as they were for Nikki Haley. After cloture is invoked post-cloture time begins which can last as long as two hours (she is not a Level 1 pay schedule nominee, therefore she is not subject to 30 hours of post-cloture time). So her confirmation vote could come as soon as Monday night, or might wait until Tuesday morning or early afternoon (I expect them to wait because since when does the Senate act in an expeditious manner?). Nonetheless, her cloture vote will give a fairly strong indication of which way things are going, but make sure you note who is absent and who isn’t if the final vote indeed does take place the following day. As for the number of votes? Well she faced some opposition over some speech she gave at a China-funded think tank that Republicans don’t like so it’s not going to be a 96-4 vote like it was for Nikki. So the “muh China” caucus will probably be NO – Cruz/Cotton/Hawley through Scott/Scott and maybe even Ernst. She got four NOs in committee: Rubio, Barrasso, Cruz, Hagerty, but did earn AYEs from RonJohn and Rand Paul.

The rest of the week: ???????

The big open question is who the Senate moves to confirm next after Vilsack and LTG are handled. Will Schumer invoke cloture on Raimondo on Tuesday, setting her up for a confirmation vote as early as Thursday night? Will he go for more easily confirmable nominees that don’t require cloture? Will he advance more than one in a day? He has provided precious little guidance, except for a generic Dear Colleagues letter that suggests he wants to confirm…. everyone who is on the executive calendar. Cool, Chuck. Thanks.

Nonetheless, we can sort of plan around things. We know that after LTG and Vilsack are confirmed, we’ll be at 9 confirmed cabinet members, which will kill off the 7-8 bracket in the “Number of confirmed Cabinet positions” market. That market currently expects another two-three to make it by the end of the day on March 1 (swearing-in does not matter for this market, only the vote) which seems about right? If Chuck announces Raimondo cloture and no other intervening nominees then I think you’ll see 9-10 get some love (there’s a rumor going around in Rhode Island that the Lieutenant Governor will be sworn in next Sunday). OTOH if he goes hard in the paint and gets UC to advance on like five positions in a single day things will get spicy… but this seems like a reach.

We also don’t know how long the Senate plans to be in town. I expect that they’ll all be full jet-fumes mode on Thursday, but it’s not out of the question that they stick around to finish up some business Friday morning either. There’s really not much for them to do on the floor this week other than nominees, which maybe facilitates some deal-making so they can get home early? Particularly with CPAC that weekend? Pure speculation.

Hawley votes

We have a funny market on how many of Biden’s cabinet members Hawley will vote NO on. Will he go for the full Gillibrand and vote NO on all 23 of them? Apparently he’ll be at CPAC, so in principle he might miss a vote or two on Thurs/Friday (I’m somewhat skeptical) and there’s also some pumping that he could be AYE on Vilsack. Though this somewhat generic interview suggests he’ll be NO to me:

So that market could see some action next week, who knows. You’ve even got people in there convinced that there will be two OMB votes (if Tanden doesn’t have the votes, she’ll be pulled, folks). This is also one where it might be helpful for people to do some research. For example, did you know that not once in its entire history (as far as I can tell – I went back to the ’80s but couldn’t find the votes for the first two directors) has the OSTP Director been confirmed by anything other than a voice vote? Yes, even Trump’s OSTP Director was confirmed via voice vote. This was also true until recently for SBA Administrator and CEA Chair (Kevin Hassett was, I believe, the first to face an actual roll-call vote for that job – he advanced from committee via voice vote with only Warren opposed; Rouse advanced from committee via roll-call vote 24-0). Of course, OSTP wasn’t made “Cabinet-level” before so perhaps Hawley will want to keep his streak up and force a roll-call vote on Eric Lander? (Lander has only ever gotten in hot water in scientific circles for things that would upset the left, not the right – like when he gave a toast to Jim Watson or tried to downplay Doudna/Charpentier on their CRISPR contributions. He’s also been critical of Chinese research efforts to employ CRISPR in humans, and his appointment letter from President Biden stresses the need for him to develop technologies to compete with China). Anyway if you couldn’t tell I have taken a NO position on 23 or more and some YES in the brackets lower than that. We’ll see what happens. [One final note here: Hawley is on the Small Business Committee and asked generally polite if politically-tinged questions of nominee Isabel Guzman about Planned Parenthood and PPP loans, Guzman comes up for a vote before the committee on Wednesday at 2:30 PM. If Hawley is AYE or it passes via voice vote, watch out].

So what to bet on?

Well, I don’t gamble. If news breaks, it breaks, and if I’m lucky I’ll be there to react to it. Otherwise, I plan to just make sure I’m always listening when Chuck heads to the floor to tee up Senate business and that I have the Executive Calendar handy so that I’m ready to pounce as soon as I hear the number of the nomination called up. This is the last hurrah of the major money events of early 2021, so good luck and may we all feast!

It’s Byrd Bath-time for the Minimum Wage

It’s an off-week for political betting, so I thought I’d take the time to do some research on some other medium-term markets that have been on the back burner given more immediate concerns (how about those impeachment markets, folks?).  And to make it fun and to back up the advice I gave about putting the work in when trading, I thought I’d just share everything here to provide a real example of how much/little effort I put into this stuff.  Presenting: what I learned about the minimum wage markets.

The markets

Will the federal minimum wage be $9.50 per hour or higher by September 1? (34c YES)

Will Biden policy to raise minimum wage to $15 per hour in 2021 succeed? (5c YES)

Now, right away we can rule out the latter market.  As many noted at the time of its launch… the Biden policy was never to raise the minimum wage all the way to $15 in one shot (though we forgive you if you thought so).  Joni Ernst tried to score some Gotcha Points during the vote-a-rama on the budget resolution by asking for a roll-call vote that this exact thing not happen… and Bernie stood up and agreed with her, pointing out that his proposal was for a gradual phase-in, and the amendment passed by voice vote.  So!  That one resolves NO, but tying up your money there for 5% next January 1 is probably not worth it.

The first market, however, is very much live (as the price indicates).

The rules

Always read the rules first, kids:

“This market shall resolve to Yes in the event that the federal minimum wage in effect for covered non-exempt employees is $9.50 or more per hour at any point between the launch of this market and the End Date listed below, according to the U.S. Department of Labor.”

Seems fairly straightforward!  I note the keyword “non-exempt” but that seems like the right category for what people talk about when they talk about the minimum wage.  So!  Let’s dive in.


The first thing I do when presented with a market like this (where I basically have no clue what’s going on) is to generate a list of questions I feel I need the answers to in order to get a handle on things.  For this topic, these go something like this:

  1. What’s up with $9.50?  Does the legislation being considered raise the minimum wage to $9.50 first?
  2. What’s up with September 1?  Does the legislation being considered raise the minimum wage by September 1?
  3. What will it take to pass the minimum wage hike in the COVID relief bill?  Is it in there to begin with?
  4. Okay, what is the deal with the Byrd rule?  How does that work?
  5. What are the political considerations?  Does it have the votes?
  6. If not the COVID relief bill, what?

I sort of have half-answers to a lot of these – I know that the minimum wage hike is part of Biden’s COVID relief bill; that there are strong parliamentary concerns that it won’t pass the Byrd rule; that Manchin and Sinema are opposed to violating the Byrd rule (at the least).  All of that seems to justify the market’s skeptical 35c price, and further suggests that this is a market that either goes to 99c or 10c some time in the next couple weeks (perhaps this week!) as we learn whether or not Dems are going to keep fighting to include in the COVID bill or, if they do, whether or not it gets stripped out by the Byrd rule.

Alright, with these vague contours in mind, let’s dive in.

The bill

The legislative vehicle at hand is the COVID relief bill.  Now, we don’t know what the final legislation will look like.  The House is likely to move on its bill next week.  Will the Senate make its own bill?  Reporting suggests this is very unlikely (they’d have to repeat a lengthy mark-up process) and that if anything the Senate will simply hotline the House bill to the floor, whereupon it may be amended or whatever before final passage and getting kicked back to the House.  (Current schedule: House passage by Feb 26-28, on Senate floor starting somewhere in March 1-3, back to House week of March 8 to pass the final version.)

Okay!  So what’s in the House bill?  Well, for that I’ve gone ahead and done the necessary googling, and here is the markup as passed by the House Education and Labor Committee (pdf): https://edlabor.house.gov/imo/media/doc/ANS_CommitteePrint(ReconciliationDirectives).pdf

And here is the relevant passage:

So, yes, it turns out that a $9.50 minimum wage is very much on the cards this year.  What about by September 1?  Well, let’s look up the “effective date” in section 2101(e):

And so yes, we can see that if this becomes law in March, the minimum wage would rise to $9.50 on June 1st (June is the third month that begins after the date of enactment).  (It’s worth keeping this third-month-start-after-enactment lag in mind in the event the minimum wage doesn’t make it through the COVID package: if Congress returns to the topic shortly thereafter and uses similar language, such legislation would need to be enacted prior to July 1 in order for the market to resolve YES).

This dispatches questions 1-3 above!  It’s in the bill (thus far).  The bill’s passage would satisfy the YES requirements.  There are no obvious rules cucks.  So now let’s move on to meat of the issue: the Byrd rule.

What is the deal with this Byrd Bath nonsense?

Vaguely, the Byrd rule is a piece of federal law (it’s actually in the law, apparently) that says that any senator can raise a point of order to strip extraneous provisions from any reconciliation bill.  If they do so, the Parliamentarian advises the chair (the presiding officer) on what to do, and the chair then issues a ruling.  If they rule the matter is extraneous, the measure is stripped – though senators can also move to waive the Byrd rule for a given measure (which requires 60 votes).  From our gambling perspective, we know that everyone is saying that the minimum wage will get axed in the “Byrd Bath” but can we know that for sure?  Does the chair have to listen to the parliamentarian?  How does this stuff work exactly?

I’m not sure I’ve been able to completely answer these questions, but I have at least read a comfy CRS report on the topic and so here’s the tl;dr: the minimum wage provisions are at least facially at risk of getting slain by the Byrd rule and though the Senate has the power to ignore it, they likely won’t.

First, if you’d like to read the rule, it is here: https://www.law.cornell.edu/uscode/text/2/644

Next, here’s what criteria are used to define something as extraneous to a budget reconciliation bill:

So yeah, a minimum wage raise doesn’t directly produce a change in outlays or revenues, though it likely has foreseeable indirect impacts (which are definitely not just “incidental”, though I don’t know how these terms are defined in practice). But more on that later –  now here’s what happens if a reconciliation bill makes it to the floor and a senator wishes to challenge a provision therein under the Byrd rule:

Now, there are some other considerations in mind: first the Budget Committee Chairman (and Ranking Member) are supposed to submit lists of provisions in the bill that might violate the Byrd rule.  Second, a lot of Byrd issues are dealt with behind closed doors.  In order to skip a lengthy set of points of order and floor business, the majority leader and minority leader get together with the parliamentarian and argue over which provisions should be kept and which shouldn’t, and the parliamentarian (a woman named Elizabeth Macdonough) issues her ruling. This private proceeding is the Byrd Bath.

And why the hell does Elizabeth Macdonough get to have so much power?  Well because she is allowed to have the power.  The chair (the presiding officer) is the one who rules on points of order, but they do so at the parliamentarian’s advice and recommendation.  And overruling the parliamentarian is just… not done?  Because “muh norms”, I guess?  But, in principle, yes the chair can ignore the parliamentarian and any motion to appeal the ruling would require 60 votes if the CRS report above is correct.  However!  A senator could also then presumably offer a motion to commit the legislation back to committee with instructions to strike the provisions, and such a motion would require a simple majority (I believe) and therefore Manchin and Sinema could simply vote to commit and effectively force the language out that way if they so choose.  And about Manchin and Sinema…

The political considerations

First, raising the minimum wage is a clear political winner in the eyes of Democrats.  Hell, even Tom Cotton (whose home state has an $11/hr minimum wage) is out with a proposal to raise the minimum wage.  Senator Manchin has made some noise suggesting $15 might be too high for West Virginia but he’s basically backed down from all that and has now retreated to purely procedural grounds, drawing a “Hell or high water” hard line at protecting the Byrd Rule (i.e. he won’t go along with any schemes like the one I proposed wherein the chair ignores the parliamentarian).

So Democrats want the minimum wage raised.  Yet they also almost certainly lack the spine needed to upend decades of precedent and ignore in the parliamentarian.  But if something gets past the parliamentarian, are Manchin/Sinema really going to vote the whole thing down?  Nah, come on.

The actual fight

Is there a path to passing the minimum wage increase via reconciliation that squeaks by the parliamentarian?  I am somewhat skeptical (mainly because the Hill reporters seem to be), but Bernie has been notably bullish on it and Schumer has also been as optimistic as possible.  This is where the real fight is, and what will most likely determine where this market goes in the short term.

It seems the argument Bernie et al. will make to the parliamentarian is that of course raising the minimum wage will end up influencing the budget because it will have knock-on effects on both incomes and outlays to and by the government.  Bernie sought out and got a letter from the CBO endorsing this case (The letter itself).  Specifically, Bernie is going to say that if the parliamentarian let through measures like setting the ACA non-insurance penalty to $0 or the ANWR drilling provisions within the 2017 TCJA (passed via reconciliation), she also ought to let through the minimum wage.  And he’s gotten the CBO to agree:

Will the parliamentarian agree with the CBO?  Well I don’t know – but that’s what the entire market comes down to!

The market

Let’s talk about the market itself.  Here’s the price history:

It opened up fairly optimistic (around 40c) but then collapsed to sub-10c on news that it likely wouldn’t survive reconciliation (Biden himself was saying as much at that time).  But since then it’s made a nice charge back up, holding steady now in the 25-35 range.

Is 35c about right?  To me, 35c says “we’re getting a little bit optimistic but overall it probably won’t happen”.  And I think that’s kind of a fair assessment of the current collective opinion on whether or not the minimum wage gets through.  As to whether it’s an accurate price – well that depends on whether you think Bernie’s argument to the parliamentarian carries water.  At least from my point of view, with research done thus far… I don’t feel comfortable entering either side.

Price-moving events

At this point in the research phase, I feel like I have a reasonable enough handle on the underlying market question to pencil in some predictions about how various events might move the price. Here’s a list of things that *could* happen, along with what I think the market reaction would be:

  • Continued bearish posts from Hill reporters: will contribute to gradual erosion of price, maybe sinking down to 20c.
  • A report suggesting that Schumer and Dems are abandoning the minimum wage push for now: complete market death to 5c, with some rebound to 15c possible.
  • A report that Schumer and Sanders have “growing optimism” or that senate Dem aides are quietly growing bullish after meeting with the parliamentarian: YES rises to 50c, slides back to 40-45c.
  • A report that the parliamentarian has let the minimum wage hike through: YES to 83c, sliding back to 70c with panics to 60c possible on Manchin/Sinema concerns or confusions on parliamentary cuckery.
  • A report that Schumer or Senate Dem leadership is unironically considering ignoring the parliamentarian (v. unlikely): YES to 45c minimum (depends on strength of rumor) with backsliding highly likely as no one thinks they’d have the actual stones to do it.
  • The House Budget Committee alters the bill in mark-up in such a way to reduce the initial wage jump or its effective date: instant death to 5c with some rebound to 15c possible.

Finally I’ll note here that one question remains unresolved from my list above… what happens if it doesn’t make it in the COVID bill? Is the market dead? Well, nothing is dead until it’s dead. I expect this one to not fall much below 10c until like July or so or whenever it becomes clear it just ain’t happening.

In conclusion…

It could happen but it kinda seems like it won’t, idk! What, did you think I would know the answer? I don’t do predictions. But hopefully showing the process is a little bit helpful! Good luck out there and if you want a tweetdeck search column string, maybe try ("wage") AND ("parliamentarian" OR "Byrd" OR "Schumer" OR "Sanders" OR "Manchin" OR "Sinema").

Happy trading!

Boring is back, baby!

Welcome to the Biden administration! Does “muh unity” mean we get to scold Democrats for passing a bill using reconciliation? Did the administration set too low of a goal for vaccinations in its first 100 days? How about how long that organizing resolution took, eh? Yeah. Where is the drama? Journalists and politicos can barely even pretend to be interested in the inevitable slog towards party-line passage of the covid stimulus because the storylines are so well-trodden there’s no juice left in it. Thank god for Marjorie Taylor Greene and her Jewish space lasers, at least.

The political betting community has been quietly dreading the potential boringness of the Biden presidency – without politics being so crazy, engagement should fall off and so should the deposits of new accounts coming in to bet on whatever wild stuff Trump was up to next. I’d more or less written off this year as one in which I’d be happy to earn a third what I did last year on PredictIt and maybe try doing some grown-up work or something (lol, as if). Then it turns out January was one of the most interesting months in politics of the entire Trump presidency (to put it mildly) and engagement has remained fairly substantial. But that doesn’t mean the doldrums aren’t coming.

February fun

For now, the most interesting game in political betting remains the “who will be in the cabinet by March 1?” hustle. It’s the kind of market set I love that makes really boring stuff actually kind of an interesting puzzle to solve. When will the committee hearings be? Who will need cloture? Will they run the executive calendar in the mornings of the impeachment trial? Any chance they will cancel the recess? Which are the priority nominations on the executive calendar once we get to the last week of February? (By the way, I don’t really have the answers to these questions, the gentlemen at StarSpangledGamblers have been covering this story much more in depth throughout. It remains more or less an educated guessing game at this stage unless you happen to know people that know things. If you forced me to guess I’d say McTurtle cucks morning session during the impeachment calendar, they don’t cancel the recess, and Vilsack and maybe Granholm make it at some point thereafter and beyond that all I do is smile and shrug while waiting for news to break. As is always the case with me and my approach to betting: why predict the future when you can just react to the present?)

There’s also the sideshow of the Trump impeachment trial next week, which no one seems to really care about although there are some interesting markets on it, particularly if we get any surprise convictions or acquittals (all the subpoena/testify nonsense will resolve NO). Again I have no insight here, other than that the political betting gods owe us at least one market flip somewhere or the other. If you’re a believer in the new era of Predictable Boringness, then probably the “fast trial” brackets in the vote timing market (next Friday/Saturday) are somewhat enticing. I have no idea what the full two-week trial bettors are doing (feels like a complete meme to me) though I suppose where there is a “what if” there is a way.

The void beyond

And what happens after February? This is where I think we start to really settle into the boring and predictable rhythms of the Biden presidency. I guess we’ll be betting on random votes here and there? On the few special elections we have along the way? The NY mayor’s race? Figure out whatever is going on with the California recall thing? I’m sure there will be something, there always is… it just feels to me like a dry spell is coming. Volume will start to fall off, the new money will evaporate, and those of us political betting addicts will be left to wander in the desert praying for fun markets until the midterm monsoon arrives. I’m already sitting here looking at Polymarket’s crypto offerings asking if I really want to figure out when Kim Kardashian serves Kanye with official divorce papers. Should I start a Substack or something? Is that what people do these days?

I think perhaps the answer and the point of this blog is that I figure I’ll slowly be transitioning to more “off-season” work and I’ll hopefully be able to share some of that here. Revisiting election data and modeling, market behavior, trading strategies, and so on. So: thanks for reading this somewhat pointless blog! And more to come later that might be actually useful 🙂

How to Get Good

A fellow trader wrote to me a couple days ago asking for advice. His 1099 from PredictIt showed relatively flat growth from 2019 to 2020 and he wanted to know some tips and tricks on how to improve, whether I had ever had an “aha!” moment, what markets to look for for the most edge, and so on. So to the extent that I’m even qualified to answer these questions, here is what I did to get better and how I approach my trading. Maybe you’ll find it useful?

Step 1: Make Mistakes

When I started trading on PredictIt in May of 2016, I had zero clue what I was doing. I did not trade the stock market, I did not trade crypto, I had only a vague idea of what words like “arbitrage” or even “risk” meant. I did, however, know that there was a greater than 90% chance Hillary Clinton would be the Democratic nominee come July 2016! Free money! (Imagine my chagrin when it dipped into the mid-80s following Comey’s non-indictment press conference in June). I parked my cash, waited, and eventually made my $5 on my initial $50 bet or whatever it was.

Right away, I made some pretty basic mistakes. First, I took the website for what it said it was supposed to be. That is, I traded with the idea of making a prediction on what the final outcome would be and whether or not I thought the likelihood was higher or lower than the price the market was putting on it. (This is still how most people trade and – by the way – if you are doing this and you are right more than you’re wrong you will win money!) Second, I was just kind of generally afraid of the markets if I was uncertain of an outcome. Every time I went to place an order I’d be like “Hmm, 100 shares costs me $60, do I really want to bet $60 on this?” And then if the market moved, I’d assume it was moving for a good reason, otherwise why would it be moving? So, I’d panic-dump sometimes. And third – and this is the worst – I’d get stubborn if I initially had high confidence. I had made my prediction, damnit, and I am still right. There’s no way Obama’s job approval would fall 2 points this week! I’d often watch 89c maxes rise to 97c, fall to 85c, rise back to 93c, and then eventually win while I did nothing. Yes it would dawn on me that maybe I should try capturing the value in those market movements, but how the hell was I supposed to predict that? Instead I’d just click on the risk chart and vacillate between going starry-eyed thinking about how much I would make when my position hit or wide-eyed thinking about how much I would lose when it didn’t.

The upshot of all of this is that I wasn’t a very good trader. I broke even. I’d win lots of small wins then get one thing wrong and welp I guess we’re net down $1000 now so let’s go ahead and deposit another $100. I got pumped by the comments and panic sold in polling markets. I bought on the news in fundraising markets without understanding exactly how they resolved, then held to the bitter end just in case all the smart people in the comments were wrong (they were not). I saw all my investments in Hillary’s obvious win rise to 90c and above and held because why leave a free 10% on the table? All in all, my mindset was wrong. I was trying to be a perfectionist that always gets a dollar for each of his winning shares. I was trying to be right. Don’t try to be right. Try to earn. There’s a big difference.

Step 2: Learn from the mistakes

I never had an “aha!” moment when it came to figuring out how to consistently earn on PredictIt. It was more of an “oh shit” terror. It was Wednesday, November 9, 2016. Trump had just been elected and I was numb and pissed at myself. Here I had spent god knows how much time on this website and instead of selling while I was up, I had let it ride and found myself $2500 lighter in the aftermath. My overall portfolio had gone from +$8500 to +$6000 or so. And I decided in my disgust that I was going to withdraw everything but my profits plus a little bit (so I could at least say that I hadn’t lost money doing this). I was left with about $775 and we would just see how long I could make it last. (I’d deposit once more: $125 in December 2016 and then that was it. I haven’t deposited since.)

I found myself with about $1600 in winnings on my 2016 1099, and this is what that year looked like:

My political gambling story likely would have ended with election day 2016 if it hadn’t been for one fortuitous development around the same time: I found myself in a group chat with a bunch of actually good traders. These were veterans of the polling markets where I had found a niche as “the guy who analyzes the day-to-day data for the USC tracking poll”. I started sharing information with them and they with me, and eventually was recruited to help track election day returns in various states. The goal was each person would pay attention to a different state and that together, we’d perform better than apart. The result was that we all were drinking and commiserating while Trump was on his way to winning and PI was completely unusable. But of course the real result was that we formed friendships and, for me, I gained some trading role models. Just listening to them talk through their positions openly (without the caginess that comes with public posts on the message boards) was invaluable. You could sell before the market expired! You could buy cheap stuff with lots of upside even if there wasn’t a clear path to victory for them! I know this isn’t rocket science (and it definitely isn’t neuroscience) but it turns out that you can learn from other people and that bouncing ideas off friends is actually pretty valuable. I recommend it!

Things eventually got better for me, as you can see from this plot of all the years since that newbie first:

Step 3: The actual lessons learned

And now here is a list in no particular order of things I have picked up over the years:

Know why you’re betting. If it’s just for fun, it’s just for fun! Stop reading this blog and go back to the fun. There is no reason for political betting to become a time-consuming part of your life! You can keep it completely casual and just show up on election nights like you would show up to bet on the Super Bowl. If you’re getting sucked in though, acknowledge that and try to see it clearly. I eventually decided that if I was going to do this, I might as well do it right. That meant forgetting about “committing” to a position. If my mind can change, so could my investment. My goal as a trader now isn’t to be the best predictor, to have the best record of picks made far out in advance. My goal now is much simpler: earn.

-Don’t get into a position you don’t have a plan to get out of. This, like a lot of the advice I’ll give, sounds pretty obvious. And yet…. many of you don’t do this. Here’s what I mean. It’s the end of January 2021 right now, so let’s say you’re about to bet whether Trump is convicted in his upcoming Senate trial. You think he won’t be, because everyone is saying there aren’t the votes for it. You buy NO, and your “exit strategy” is to wait until you are paid for your shares at a dollar. This is okay! But we could imagine fledging it out a bit more. PredictIt limits the number of share you can buy via its $850 cap. So if the price falls below your entry, you could have gotten a bigger number of shares to hold to the conclusion. Well that would be annoying, but what does this have to do with an exit strategy? Okay let’s keep going. What would cause the market to move substantially toward YES? Well, there could be news that breaks before or during the trial. A Senator thought to be borderline could change their mind. Potential upwards price movements could be small or they could be large, all depending on the event. And, if that big news does happen (some witness testifying that Trump was on the phone with rioters in the building or something – extremely unlikely), you’d probably want to sell your upper 80s NO shares for real! So maybe we can tack on some additional offramps to your position. Some of these might be real (“oh god, what if this does happen?”) and some might be strategic (“this won’t affect the outcome, but other people might think so, and I can rebuy at a cheaper price”). In the end, you may decide that nothing dramatic will happen, the YES price will rise slowly over time, and therefore you do just end up holding for the dollar. But in fleshing out your thoughts on what could have happened, you were more prepared as a trader. If those YES-spiking events had happened, you would have been ready to respond. And – and this is the biggest point – just the act of thinking a bit more deeply about the question has likely given you a better understanding of the issue in general. It’s a good habit to get into!

Don’t marry your position and don’t marry your plan either. Political betting is not the realm for long-term commitments. Stuff happens, things change, your plans will be thwarted, your positions will get blown up. When something breaks against you and your holdings are underwater and sinking, sometimes you have to cut bait. Stubbornness is your enemy. (So is panic, but we’ll get to that later). If you’re the type of person that gets really mad when the weather ruins your picnic or in general cannot accept that sometimes shit goes awry… you will be crushed in political betting. Stay away. You need to be flexible. You need to be able to accept that sometimes your initial prediction was just wrong. Maybe you missed a key piece of the puzzle. Maybe your reasoning was flawed. Maybe you really did get unlucky. Maybe when you bet on Trump pardoning himself, sometimes it turns out that report after report suggesting he’s not going to do it means that said pardon really might not happen and that even if it happens in secret it probably won’t show up on the official website and that maybe it’s time to admit your position really IS underwater for valid reasons and that maybe you ought to salvage what you can rather than just holding it to the bitter end (hi Zoltar).

-Don’t panic (and carry a towel). You’re going to panic sometimes. Your shit is underwater, perhaps suddenly, you don’t know why, everyone is typing “GG” in the comments, oh god oh god and I’ve sold and why is it rebounding and I’ve bought back in and oh no it’s falling again I hate myself. We’ve been there. How do we minimize these situations? Here are some things I do to avoid panics: if the price isn’t going to move from where it is for a while, just sell. You can always buy back in later and you avoid surprises in the interim. If you don’t know a lot about the market (what factors are at play, how to identify when something has changed that influences one of these factors, etc) then you’re much more likely to get caught completely clueless about a sudden price move that puts you underwater. But if you DO know how the market works, you’re more likely to be in a position to recognize when a market is reacting appropriately and when it is overreacting (it’s almost always overreacting). So learn the market! (See immediately below)

-Do some work. Like, not even that much! Read the rules of the market before you buy, for instance. Google stuff you don’t know. Ask yourself the “what if” questions, then google around for the answers. Does the market move before you see the news yourself? Figure out how to get the news faster. Build a spreadsheet (let’s say to track which Senator has voted in which way during a vote count market). If you want “edge” in a market all you have to do is go out there and get it. Remember if other people seem to understand what’s going on, then so can you, and that’s it’s probably easier than you think. Also, solving the puzzle of a market is actually pretty fun!

-Pay attention to yourself. Did you buy 85c NO shares in something safe, then dump them when the market moved to 75c on some pump that you didn’t really understand but that seemed sort of plausible and you were down $85 and oh god what if I lose it all? That’s fine, it happens. But if you made that move for that reason, probably other people did too. Which means the next time you’re in a “safe” market and some similar kind of halfway nebulous pump emerges, you’ll know what might be about to happen, and you can exploit it either by getting out early, or by hopping along for the ride. Unless you’re full Kefka – a guy who bet on tweets purely based on hurricane severity – the chances are pretty good that whatever thought process you have is shared by many other traders. Learn thyself to learn the markets.

-Keep track of how you’re doing. A lot of traders don’t really track their progress. And you don’t even need that much in spreadsheet skills! Let me walk you through the basics. If you’re downloading your history from PredictIt, you can open that sheet in excel or paste it into google sheets, and somewhere off to the side you can type “=SUM(G:G)+sum(H:H)”. This is the sum of the profit/loss column + the sum of the fees column. Why do we add fees? Well, because fees are represented by negative numbers, so in effect you’re subtracting them. The result? Your profit less fees! As realized, not accounting for withdrawals (multiple by 0.95 to see this) nor taxes (up to you how to compute, but just ignore this for now). I may be alone among most of the long-time semipros, but I barely look at my dashboard showing the current value of my portfolio. Who cares! What matters is what gets realized, so focus on that.

Okay: next step. Let’s calculate your fee ratio. Your fee ratio is the the ratio of the fees you’ve paid to the raw gains (before fees) that you’ve realized. (This is a great way to compare yourself to other traders, by the way, since it ignores portfolio size and so on). The formula here is “=-SUM(H:H)/SUM(G:G)”. I like to express it as a percentage and just slap a -100* at the front instead (the negative sign is there again to account for fees being represented by negative numbers). If your fee ratio is 10%, congrats. You are perfection incarnate, because PredictIt’s fees are 10% of profits. If your fee ratio is 50%, on the other hand, you have some work to do. Get it as low as possible – for reference my fee ratio for January 2021 is 12.5%; by contrast my fee ratio for all of 2016 was 56.2% (that’s right, my fees were greater than my profit after fees. This is bad.). Once your fee ratio is low, the next step is to keep it low while increasing the volume you trade. More shares being traded more profitably = more money (you want money). [Sidenote here after some discussion on twitter: you can be a great trader with a fee ratio of 12.5 or 15 or 20 or 25 or even 30… but you can’t be one if you’re over 50! The point of checking in on this is to see if your losses are hurting you more than you think. If you want some non-mathy advice: whenever you lose money, ask yourself what it is you could have done to avoid it. Sell earlier? Not enter at the price you did? There will always be some improvement you can make!]

Fifteen More Tips and Tricks

The other little things that I thought of and didn’t fit above:

  1. When deciding where to place an open buy or sell offer, ask yourself “at what price would I definitely buy/sell the other way on this?”
  2. If you’re making a short-term play, subtract 2c from your sell target just to make sure it gets hit.
  3. The market will always be a bit stupider than you think, even when you try to imagine it being stupider than you think. Think about it.
  4. You can always do more. Found the fastest stream to watch congress vote? Gotten yourself onto the WhiteHouse press mailing list? Posed as a freelance journalist and called a random state park in Indiana (eventually speaking to the general counsel of the state park system) to ask if Mike Pence had an event there because despite nothing on his schedule, the FAA had placed an air space restriction over the area according to coordinates entered into Google maps? (In November 2016, one PI trader legendarily got an entire market resolved in his favor by recording a call to the RNC and sweet-talking a receptionist into telling him that, indeed, Reince Priebus had resigned as head of the RNC already to take the COS job).
  5. If you’re going to sell when your position falls 5c underwater, then don’t sweat the purchase price. You’re not investing $80 for 100 shares at 80c. You’re investing $5, because that’s how much you’ll lose if you stick to your plan to sell at $75 if things go awry. Note: sometimes your plans will also fail (see above).
  6. You can always buy back later. Already said this above, but it really is good to keep in mind. Sure, your 85c shares are worth a dollar. But the market is at 90c and it’s not going to move for a few weeks so might as well just collect and rebuy later – who knows, you might be able to get back in cheaper or avoid getting destroyed by something you didn’t foresee.
  7. Buy a second monitor. What are you doing with just one to begin with? They don’t cost much and it’ll pay for itself in no time. Slap tweetdeck over on that bad boy with about four columns of relevant stuff in it and you’ve got yourself a handy-dandy info stream just a glance away. You would be shocked how easy it is to be the first to scoop a market on breaking news this way.
  8. Volatility is fun! I swear. Try trading just 10 shares at a time during volatile markets if you’re scared at first.
  9. If a market has been sitting at 95c for a while and something happens to perturb it, you will see a much larger panic than you would expect. The people who buy “sure things” are always the people who panic the hardest when things move against them. And the people who buy lotto tickets are always the ones who hold way too long when their stuff goes up.
  10. Beware the degenerate’s paradox: the only way to get an absurd winning position is often to be the kind of person who takes lots of absurd positions and ends up losing on a bunch of them that don’t get shared as screenshots in the comment section. It’s true that you only live once, but that doesn’t mean you have to YOLO everything all the time. Sometimes it works though!
  11. If you’re ever feeling really torn about selling a position, remember that you don’t always have to sell the entirety of your position at once. Sell 10% and see if you feel better or worse.
  12. Profit is good (it turns out). You should take it, even if it’s just a little bit at a time. Yes, you will be afflicted with horrible, stare-at-the-ceiling-in-bed, soul-crushing “why did I do that” about the time you sold too early and it would have been tens of thousands but I mean such is life. You also don’t want to be like a famous trader I know who took an Elizabeth Warren 8c max on a round trip up to 57c and back to 11c before selling. Even that $GME dude on r/wallstreetbets who turned $50k into a $50M position took some profit on the way up.
  13. If your position’s value in a multi-bracket market adds up to a dollar across all the YES shares you own…. sell. What are you doing? This is particularly true in a vote-count market like we’ve had recently on various cabinet nominees. Shit, if you can get 75-80c before the vote even happens I’d just take that and then bank on collecting more during the vote itself when things are at maximum fun (see number 8).
  14. It’s okay not to have a position. You would be amazed how many opportunities you miss by always having a position in a market versus being able to react as appropriate to the news. Sometimes, it’s best to be on the sidelines.
  15. You don’t need to stick your neck under a guillotine in order to feel alive. Is there an event, like the HELP committee scheduling hearings for Cardona/Walsh that could suddenly destroy half the value of your NO position on their pre-March confirmation? Being at risk to sudden blows or insta-death can be exhilarating, I guess, but also I mean see number 12.

Hopefully all of this is remotely useful; again I don’t claim to be the best political bettor out there and there are plenty of soft spots in my game. But I do win, at least! Good luck out there, and if you ever have questions about stuff you can always hit me up on twitter.

Mining the silver lining of the Trump presidency

It’s January 9, 2021. Yesterday, two days after the President (who by the way is Donald Trump, the guy from The Apprentice) ginned his supporters up into storming the Capitol (wtf?) and coming within minutes of possibly lynching the Vice President (okay, maybe this wouldn’t have happened), Twitter finally discovered the justification to shut down Trump’s account. This is all horribly and hilariously and unimaginably absurd.

Let’s get even weirder. For the better part of the last four politically insane years, a community of gamblers wagered stupid amounts of money betting on a simple question: How many times would Donald Trump tweet this week? The game ended for us before it ended for the President, but now that it’s completely over, I feel this tiny corner of Internet weirdness deserves some remembrance. After all, there are very few other people on this planet that understood Trump’s twitter habits – and by extension, Trump himself – more than the people who bet on them.

The Genesis

It starts with PredictIt, which of course readers of this blog are familiar with. In 2016, the run-up to the election featured a suite of recurring weekly markets in which traders bet on who would be leading in the polls, Congress’ approval, the direction of the country, and Obama’s job approval. These were fairly successful for the website in that degenerate bettors loved markets where small bets can hit big (which they did) and savvy bettors enjoyed the game (and gamesmanship) that came with figuring out how polling averages worked, polls were released, and how that information eventually reached the market. In the process, a community formed. In particular, the discussion boards for the Obama approval markets (OA) became a place for happy numerically-inclined (and often left-of-center) traders to hang out. Thursdays, for example were “scotch-and-base” nights when a trader (“baselevel“) and others would drink scotch and answer questions from newer traders who had no clue how polling markets worked.

The OA crowd got tight-knit enough that after the election, an IRL get-together was planned for Chicago (in the middle of the country). The organizers were baselevel and m4ry and it was relatively well-attended, with I think around 20-30 traders showing up in what was the first or one of the first real-life PredictIt trader meet-ups (I didn’t go – at the time my net PredictIt winnings were literally $1200 and I couldn’t justify the cost). John Aristotle, the founder of PredictIt, was so jazzed there was a meetup happening among people who met on his website that he even flew out from DC and came by himself, talking a lot about his big plans for site expansion and so forth (as I understand it).

Anyway, a few weeks after this meetup in the middle of December, John reached out to some of the traders he had met. Polling markets were drying up a bit and he wondered if the polling market crew had any ideas for any new weekly recurring markets. At this point, I was involved in the twitter group chat with a handful of the OA veterans, and we began tossing around ideas. At this time, the mainstream was just getting used to the idea of paying attention to Trump’s tweets. Every tweet was a news story in November and December of 2016. He was threatening GM and Chrysler via tweets and nuking their stock prices (briefly). Quants on Wall Street started building bots that would keyword search his tweets for relevant companies so they could automatically trade in response to a twitter attack (the stock market was the first tweet market). There was this notion that Trump “used” his twitter account strategically (we’ll get there, but any tweet market trader would laugh at this now), and his “grasp” of social media was being talked up and praised. Here was a President-elect who posted his own tweets in a way that was unpredictable and – at that time – seemingly unavoidable.

So in our brainstorming session, at one point I said something like “you know what would be cool – if we had a market on how many times Trump tweeted in a week”. I’d gone and done a PhD at this point and yet this tiny little thought ended up snowballing into the most lucrative idea I’ve ever had in my life (and probably changed the course of my life – which is a deeply strange and weird thing to reflect on now). Others immediately agreed, and we began working on it. Dmp (another trader) wrote up an email proposing a more fleshed-out idea (m4ry and I did some research on possible brackets) that everyone had contributed to at that point. We sent it in to Aristotle, heard back that he loved it, and then heard nothing else. (One note here: we weren’t the only ones thinking of this as a market idea, at least one other OA person, a trader that goes by “klumein” also posted about a week after we sent the email in that a market on Trump’s tweets would be amazing. I’m sure there were others.)

There was a problem in our proposal: we didn’t have a good way to keep track of the count. We suggested just manually counting the tweets, but we knew that the PI resolution people probably wouldn’t want to do that. As December went away, we figured our market idea was dead or otherwise found unworkable by the powers that be. Imagine our delight, then, when early January brought us this:


The very first tweet market. PredictIt had solved the tweet count problem: apparently you could just hover your mouse over the number of tweets on a user’s homepage and even if they had thousands of tweets it would give you the precise number. The game was on, and everyone was stoked:

The first comments of the first tweet market.

The Early Days

The early markets were instant classics. That first market? It did 1.7M in volume. And he barely tweeted back then! Look at these brackets, those of you who only came to discover tweets in 2018 or 2019:

(Amusingly, B45 would win three weeks in a row to start)

People had absolutely *no idea* what they were doing. 50+ opened at 33c then rose to 50c then fell back down then did it again (it hit 50c or higher six out of seven trading days and ultimately lost). Then there were the complex rules. Did retweets count? What did deletions do? We had to figure it out ourselves:

People didn’t know what “the count” was. A tweet would happen and it would take a minute before the market reacted and the comment section had sorted out what the current count was. Every time a tweet was posted, someone would post “BOOM” in the comments, leading to a cottage industry of shitposters spamming “BOOM” every so often just to see if people would react (hi, JonH). When a tweet killed a bracket, it would actually take longer than a second for it to die (no one was using Twitter’s API back then).

[By the time we got a few months in, people started creating websites to track the count publicly – there was cabalcount.xyz (now defunct) and then, most notably, picount.com created by PI trader Abe. This fantastic resource made it so everyone knew where the count could. Eventually, we even got to the point where traders like Dave were offering paid services of a twitter bot (pitwets, with free version pi_alerts) that would notify you of each accounts tweet instantly, the count, whether a deletion happened, what the “pace” was and so on. An entire cottage industry built within this little fairy garden of the internet!]

The first market also birthed the first Trump tweet analytics, with m4ry among the first to make a spreadsheet tracking his habits and attempting to model them:

(Using a Poisson distribution to model Trump’s tweets is, it turned out later, really hilariously bad).

And all the OG traders were there. The very first tweet market? RJ took an enormous bath:

Even Domer, who later came to more or less hate tweet markets (well, the non-Trump ones especially) enjoyed himself:

The early markets were pure. Degenerate? Very. But we were living in a world where Trump was about to be President. Weird stuff happens now. So, sure. Why not bet on how many times a madman will tweet?

Switch to POTUS confirmed??

As inauguration loomed, so too did a huge question for tweet traders. Would Trump keep tweeting on @realDonaldTrump, or would he switch to @POTUS? That market (I can’t dig up the link right now) was absolutely insane. The first few posts following his dark inaugural? All went to POTUS. The lowest bracket went north of 70c. Later in the afternoon? Trump tweets himself. Back down to 20c. Then back up. Over 4M was traded, with the final result landing again somewhere in the 40s for the weekly count.

With the uncertainty of an account switch, PI obliged us by creating a second tweet market for the @POTUS account, just in case. But then both markets did very well, and after a while – why not one for @VP as well? By summer 2017 we had four weekly twitter markets: @realDonaldTrump, @POTUS, and two for @VP (one that ended Tuesday and one that ended Friday, which never confused anyone ever causing them to make a trade in the wrong place). At one point in 2019 we had like twelve tweet markets (it was too many).

Tweet markets consume all

Around this point, it became clear that you could actually kind of make money trading tweets. I had started writing guides explaining how the markets work. Traders were getting more sophisticated. We understood what we had to do to win. For Trump’s account, that meant we had to know him. We had to learn when he tweeted and when he didn’t (waking up at 6am on a Wednesday was absolutely required – for years the “bong” of my computer signaling a Trump tweet was my alarm clock). We had to learn why he tweeted what he did (he saw it on Fox news – I bought a YouTube TV subscription at one point so that I could find where he was in his DVR-viewing-sesh and scroll forward to find likely topics). We had to learn how to get the tweets as fast as possible (I had begun learning to code in grad school, but it was PredictIt forcing me to do so for polling and twitter markets that actually taught me). We had to know when there were deletions. We had to learn how the markets reacted to a tweet. In effect, tweet markets taught me how to trade. (There’s honestly probably a prediction market research paper waiting to be written on tweet markets about how just the existence of a novel market type produces smarter prices over time as the participants gather experience.)

Yet for all the time-consuming nature of these markets (one of the things about Trump is that the man could get himself going at literally any time), they remained probably one of the healthiest outlets out there – for me at least – when it came to processing the manifestly insane shit that the President said. When you saw an amazing tweet from him, it wasn’t just some alarming thing that a reporter put into your timeline. Now there was an entire community of traders digesting it right along with you, marveling at how stupid or out of left field the tweet was, its typos (would he delete and repost?) and what it meant about what he cared about. Many times you’d see a Trump voter in the twitter market comment section even remarking how nuts Trump’s latest missive was. Looking back, it’s actually shocking how little political arguing there was among the tweet bettors despite it being full of folks on left and right and centering on Donald Trump. For better or worse, tweet markets took at least some of the craziness of this Presidency and boxed it up into an easy-to-understand game where everyone was more or less on the same playing field.

Trump is predictable

One of the biggest false memes in coverage of Trump and his twitter accounts over the years was how his tweets proved how unpredictable he was. In a sense – sure. He could tweet at random times, but mainly he tweeted while watching TV in the morning and the evening. Yes, sometimes things came out of left field, like when he wished Happy Birthday to Maxine Waters at 10am on a Wednesday morning, completely up-ending a market. But overall, betting on his tweets taught you how he worked. The profit incentive offered by the market forced you to learn how narcissism operates. There is a logic there. You just had to have a lot of money on the line to understand. A few lessons from over the years:

-Big news made him go quiet more often than not. When he doesn’t know what to say, he waits. He was quiet after firing Comey became a huge thing. He was quiet immediately after Charlottesville. He was quiet just now, after the Capitol was stormed. You’d get some tweets, sure. But you wouldn’t get a lot of tweets. He’s more conscious when he knows everyone is definitely paying attention. It’s when he was feeling loose that you’d really get some special tweets, or lots of retweets.

-He rarely if ever used twitter as a strategy. There was never a grand design in his tweets (other than some spam endorsements). He just posted. Mainly, if there was a goal, it was to shape the reality perceived by his supporters into the reality he wanted to live in (or thought that he lived in). For over a year leading up to the 2020 election, he would tweet stuff like “96% support in the Republican party – thank you!” Why? To remind people that he had control over the GOP but also to reaffirm the same to himself. You’d typically see these tweets during times of intra-party friction. The number, of course, was more or less completely made up, having derived from a straw poll of CPAC attendees in 2018 and metamorphosed from there (the original number was 93%, it got up to 97% by the time Trump was done with it).

-He was tweeting to his supporters. To him, if you followed him it was because you liked him. His follower count was one of his most prized possessions – narcissism craves validation above all else. He wasn’t ever really tweeting to the media or to his enemies. He’d tweet at them, sure. But the point of the message was always “hey guys, this is how we think about this, ok?”. His trademark ending of tweets with something like “Sad!” encapsulates the whole thing. He’s literally communicating how he feels and how he thinks you should feel too and he wants to make sure the message is heard loud and clear.

-Anger did not produce tweets, but fear did. Donald Trump is deeply insecure, of course. The thought of people laughing at you behind their backs or being otherwise humiliated is the biggest injury someone could ever do to you, in his mind (hence his use of that comparison in the soon-to-be impeachable phone call to the Georgia SOS). When Joe Biden received a firefighter’s union endorsement in Pennsylvania, Trump erupted with over 60 retweets of various purported firefighters that replied to some other tweet angry about it (there were several other PI traders in the replies hoping to land a retweet themselves so they could delete it later and flip a market at some point). Trump hates losing something he thinks belongs to him – his insecurities can’t stand it, hence the furious retweets signaling that in fact he hasn’t lost anything at all. (He will also have to lash out for losing his twitter account at some point. He needs attention and will find another way to get it).

-Retweets and his growing use of them in the back half of his presidency remains underappreciated. There was a time in 2017 where he barely knew how to use the platform (it seemed). He couldn’t thread his tweets, and would often end a tweet with “….” and start the next with “….” to signify they were connected (the two tweets might come hours apart). By the end of his presidency, he threaded tweets himself and engaged in hour-long retweet sprees, often going for 100+ retweets. He began to use the retweet button as a quick and easy way to amplify messages and people that he wanted his followers to internalize. His habit was to stumble on a good account, click through to the username, and scroll through their posts, retweeting as many as he could until he got bored and found another username to scroll through somewhere in the replies. No one else tweets like this. And no one other than tweet market traders really understood what was going on – by the time this habit formed, the media was more or less bored by his tweets and no one else was paying that much attention (probably not even his followers).

It’s All Gone Now

Of course, it’s over and these lessons learned don’t really matter. The markets died first in June of 2020 – victims of regulators who finally decided they crossed the line (the fact that at one point we had markets for Yang Tweets and someone trading on them threatened Yang’s life if he didn’t stop tweeting, getting the FBI involved, probably didn’t help). I’m pretty sure I legitimately grieved their loss, which is both sad (in the pathetic way) and also kind of amazing (also in the pathetic way). I mean, what a weird fucking hobby! The spreadsheets I maintained… good lord. While the money was cool (around +$120k lifetime in tweet markets), the fact that I have memories and stories about “that time when Trump retweeted 60 firefighters” kind of says it all. Normal people do not have these experiences! And all starting with one random kernel of an idea I had back in December 2016.

And now Trump’s account is poofed! Kind of have the feeling they’ll bring it back, maybe in some archival form in a few years. (Just had a thought: the Trump Presidential Library will probably have some sort of exhibit on his tweets). But what a change. No longer is the “I wonder what he’ll say about this” itch going to get scratched. Will GOP politicians try trashing him more often now that they don’t have to care about him tweeting? Are all those primary threats vacant now that Trump can’t drive headlines? Will we care as much about Trump’s 2024 run prospects without being able to rely on him keeping us informed? Or will he re-emerge elsewhere? (I’d assume so).

Whatever happens, we probably won’t be trading on how many times he Parlers (is that the term?) or whatever. So rest in peace to very weird corner of the internet that tried to make sense of a very weird presidency.

Hindsight is 2020

What did we learn from the 2020 election? The SSG blog invited some contributions from other traders (read it here) and I wasn’t able to come up with much at the time of asking. But now with the benefit of a few more full nights of sleep, I’m ready to tentatively sketch out some lessons to take from 2020:

1. The polls were wrong but not unpredictably wrong

If there is a silver lining in this election for MAGA bettors, it’s that at least they can claim that they were right about the polls underestimating support for Trump. It’s unclear exactly why this happened (I am intrigued by the nonresponse bias hypothesis, perhaps exacerbated by the pandemic polarizing stay-at-home-by-the-phone behavior on partisan lines), and even why the extent to which it happened varied by state. Preliminarily, states with lots of educated white college-aged voters were polled well, while those with high populations of white non-college voters were not (see: MN vs WI). Although, district-level polling of suburban educated districts also showed down-ballot Democrats doing a lot better than they ended up doing! So perhaps not the entire story.

There were some hints of reality in the polling. Biden’s softening support with Hispanic voters? It was there, but did not show up as dramatically as it manifested. And the polls did accurately capture the partisan splits in vote by modality (they nailed vote-by-mail preferences), but probably missed on turnout by subgroup. From a bettor’s perspective, what can we learn to minimize our exposure to polling error in the future?

My takeaway is that you have to always be vigilant in challenging assumptions. Did I consider that Biden’s support among Hispanics was soft and getting softer? Yes. Did I ask “what would happen if the floor really fell out for him in this group?” No. Did I take ABC’s Biden +17 in WI poll seriously? No. Did I ask “what would happen if there’s systematic partisan nonresponse among white noncollege voters?” Also no. Did I even fathom that polls of down-ballot Democrats would be so incredibly bad? No, but I mean, lol.

One final point on polling: the polls “felt” a lot worse than they will end up being, and a lot of that has to do with the order in which votes were counted. At the same time, they told a story (“Dems will have a great night”) that did not come to pass, particularly in the House and Senate. And any time the narrative is up-ended, people are going to be mad at the polls. (Note that in 2018, the polls also got a lot of stuff wrong, but people weren’t mad because the overall narrative was correct: Democrats gained a bunch in the House).

2. The models were both wrong and good

In terms of spitting out a win probability, both 538 and The Economist put out models that did a reasonable job given the inputs they had. The inputs were just kind of shit. Was Biden really 90+ to win? He was not. Polling error was not evenly distributed around the mean; it was always more likely that polls favored Biden than that they favored Trump. This shows up clearly when you look at forecasted margins: the prominent modelers had mediocre performances. (Notably, one modeler, Plural Vote, stands out in the crowd; they also had Joe only at 66% to win overall).

Here, “Presidential Battlegrounds” refers to a set of competitive states which I included in my election prediction contest. View the spreadsheet here.

3. The markets were right for the wrong reasons

Guess what! I think the market’s price for Joe’s odds of winning was closer to reality than what the models had. Fair value? Joe was worth 60-65c, well less than the 95+ that I had him at going into the election. The tipping point state margin was 0.6 points – and at the end of the day that’s just a close election. Certainly not a 90/10 election or a 95/5 election.

Do I think the market arrived at that price by carefully integrating information available to it? No. It got lucky that the combination of “smart” money and stupid money ended up putting things about where they should be. And if you’re of the mind that this proves markets work, please do go and look at prices right now. Yesterday (a week after the election! with most of the votes counted!) people were paying 10c that Trump would win the popular vote, when none of the lawsuits he’s filed makes that remotely possible. You can literally get paid for predicting what has already happened.

It’s also worth asking what the market’s price would have been if polls had zero polling error whatsoever. I think any universe where Trump is polling within a point in the tipping point states, +3 in Florida, etc, is a universe where the market prices him a 65c-70c favorite to win re-election. In other words, the market’s belief was that the polls *always* are wrong by some fixed amount, not that the market knew what the exact margins in each state would be (indeed, pricing in various states suggests the markets were not aware of the true odds).

4. Don’t rely on PredictIt

Those that follow this blog or me on twitter know that PI has a long history of crashing when many traders are trying to trade at the same time. I expected it. I just didn’t think it would crash so soon (nor last so long!) – and as a result I ate a lot of losses that I shouldn’t have had I been able to cancel orders when Miami-Dade nuked everything. My fault, really, and of course I was able to trade my way out of the hole relatively easily.

But the experience has led me to another (blindingly obvious) conclusion, maybe only relevant to people like me that are trading semi-professionally: I really need to learn how to use offshore sportsbooks and crypto exchanges. I would have absolutely crushed 10c Biden-in-Michigan lines had I been able to. There’s no excuse for this, and I think it only makes sense that to be a true professional at political betting (there are very few people that can claim to be) you simply have to know how and where to get your money down.

5. Which electoral shifts persist and which reverse in the coming cycles?

There are a lot of very interesting questions left over from this election, none of which I have any great answers to:

Is the lurch right among Hispanics reversible? Is it Trump-related? An artifact of the COVID economy? Concentrated among men but not latinas? Bigger in rural areas than urban? Are Hispanics becoming white, the same way that whiteness swallowed up immigrant ethnic enclaves in the past? How big a factor was disinformation?

What about white non-college voters, particularly in the north? If they are now culturally polarized, how much more margin can they give up? What about their turnout – can any Republican nominee other than Trump get that level of turnout in this group?

Will white suburban college-educated voters keep shifting left? Or does their higher rate of ticket-splitting suggest that they’ll be comfortable coming home to the Republican party – with a not-too-crazy nominee?

Will future Republicans continue to make up ground with Black men? Or was this, again, a function of Trump?

A lot to chew on and think about as we approach the next round of special elections, midterms, and 2024. See you all then.

The Final Stretch

Hello, it’s October 17 which means there are 17 days until voting ends and Joe Biden very likely wins the election.

The weeks ahead

But enough for now about who is going to win (it’s Biden). Let’s talk about the next two weeks and election day. How are prices going to move between now and Biden 99c? When looking at the returns in Florida on election day, how quickly will you be able to determine that Biden wins by 6 or just 2?

Substantial price movement unlikely until Thursday’s final debate

For all the drama we’ve had since the first debate (remember when Trump might have literally died from COVID?), the overall picture has remained stable, with Biden consolidating gains from Trump’s poor first debate.

More striking than Joe’s consistent (and wide!) national lead is that it comes as fewer voters are undecided or opting for third parties relative to last cycle:

The models, as a result, have Biden at 90%. The markets, by contrast, plod ahead obliviously:

Why? Stupidity. An un-ending stream of MAGA lemmings chasing the high of the 2016 comeback, unaware of or unwilling to comprehend the change in dynamics in this cycle, and lumbering excitedly toward the cliff’s edge as a result. (Volume in the USPREZ market spiked on the first debate on PredictIt from 200k a day to 400k a day and has stayed high until yesterday when the trader limit was reached – now they’re having to venture out to other markets).

And why should this abate? There’s enough stuff floating around (“FiveThirtyEight had Clinton at 87% at this time in 2016 too”, “Hunter’s emails!”,”Biden will get the virus!”,”TargetSmart says Trump is winning the MI early vote!”) to keep MAGA hope alive. The only major scheduled event left is the second and final debate. I expect Trump’s price to remain absurd (and perhaps increase) in anticipation of a “good” debate performance or perhaps simply a “not disastrous” one. Should he deliver, the market reaction could take him near 50c. Should he lose (more likely), I expect rationality will finally start to overtop the levees and Biden’s price will head towards the mid-70s and keep rising until election day.

Election day

The scene: It’s Tuesday, November 3rd. Possibly more than 100 million votes (at minimum 60% of the final nationwide turnout) will have been cast already, and Biden will be leading among these substantially. Knowing the partisan make-up and with some educated guesswork on past vote history and county demographics, we’ll be able to model his lead in many states (see Dave Trotter’s work in FL for one simple such model).

The only thing left is the Final MAGA Hope: big Trump election day turnout. And he’s probably going to get it! I am expecting that if there’s one last dead cat bounce left in Trump’s price, it will be from folks excitedly citing anecdata from Trump county election day turnout.

Morning to 5pm: FL Turnout Watch

This will be particularly true in the one state that matters most of all for early election night: Florida. Unlike many states, Florida provides every-10-minutes updates to its turnout on a county-by-county basis (with a couple exceptions). This is a treasure trove of data (quite useful if you’re playing the ballot market there) for election day.

By the time the 5pm exits roll around, we’ll have a great idea of exactly what turnout in FL is looking like, whether Trump counties are coming in big or just so-so, and (most importantly) what kind of range of margins Trump needs to hit in those counties (among election-day voters) in order to win.

5pm Exits

We won’t know the toplines (well, maybe someone will know someone who knows, but I won’t). But which of the questions they choose to cover in the news and their general tenor (surprised or not surprised?) will be semi-useful tea leaves. After all the whole point of the early exits is to shape news coverage and prime the audience for what’s to come. If they’re talking a lot about how the top priority identified by voters was COVID and so on, it’s good for Biden.

6pm eastern KY and IN

We’ll already have results in Dixville Notch (Biden will win Dixville Notch) from way earlier, but this is when the first real results start to arrive. I’m curious if exits will be released at 6pm (if there are exits in these states) or whether the networks wait until 7pm (parts of both states are in the central time zone). Nonetheless, we’ll get a trickle of results from 6 to 7 from the eastern portions of both, some of which may be interesting. (Note that KY has much more VBM this year and thus initial results may be more D-biased than you’re used to seeing from KY.) I would warn against extrapolating too wildly from anything in appalachia, but if you see some Jefferson/Fayette/Kenton/Boone/Campbell in KY before 7pm they’re probably worth raising an eyebrow at.

7pm KY/IN/VT called, FL/GA/SC/VA close

The action begins. If PredictIt is still operational, we’re in business. KY, IN, and VT are all called. If there’s any hesitation on calling IN, Trump is in big shit and it’s time to eject on your MO/KS Dem NO bets if you want to be cautious. I don’t expect calls in SC or VA, though anything immediate in either is good for Trump (SC) or Biden (VA).

There will however be exits in at least FL/GA* and presumably some of the others, so expect some initial reaction in the markets to those (particularly in the margin markets since that’s where the sharps will have more of their powder kept dry). The exits will be off, of course, but any big signal in them (like if they have Joe winning GA by 4 points or something) will cause tremors everywhere.

*one edit here: we actually might not have FL exits because of the panhandle; those presumably wait until they don’t matter at 8pm.

7-7:15pm initial FL results

The first few counties in FL will report their early vote + VBM, and I expect Trump to be leading off the bat (likely the first few counties will be smaller Trump counties). I don’t expect a tremendous market reaction though it is possible. These are nonetheless important results: probably at least half the votes in these counties (likely higher and perhaps substantially higher) and we should have a good idea of what the vote split there should be based on partisanship and past vote history of those counties. If the numbers are outside my expectations, I’ll certainly be adjusting my positions accordingly.

7:15-7:30pm first big blue FL counties

This is when we start seeing how truly big the early numbers are from places like Hillsborough/Duval/Palm Beach/Dade. Some might not make it in by 7:30 (many may not come until 7:45), but this is about when Biden should take the lead overall in FL. The market may start to call it. (I have no idea where we’ll be in GA by the way, I presume just rurals based on my past GA election experience of waiting until like 9pm to see anything substantial out of Fulton/DeKalb/Cobb/Gwinnett).

7:30-8pm FL/GA and more

OH/NC close (exits to follow) and WV called for Trump.

We’ll have plenty from all over at this point, including most of FL’s early vote (with the always-important exception of the panhandle). Biden could easily be up by 10-15 points or more in FL at this stage which will be a really big gulp for MAGA money. We’ll also have just started to see the first few election-day precincts start to come in, which I’ll be closely watching and which may be definitive (Sumter, for instance, reported 95% of its vote in 2018 in one fell swoop at 7:45pm, at least as recorded by the NYT). GA should also be in full swing, and KY by this point could be nearly half reported with some counties nearing completion which means shifts in counties there will start to become meaningful analytically.

In 2016, Clinton hit 95c shortly after 8pm on her lead in FL and lead in early OH votes. The markets will of course remember that (to some extent) and that over-exuberance occurred in an environment in which she was expected to win (sentiment is more mixed now), but I still struggle to see the markets containing themselves when they’re staring at blue in three and possibly four key swing states (FL, OH, NC, GA). Whether I’m selling this peak, holding through it, or buying the dip back the other way depends on the numbers and whether it seems like PredictIt is about to crash or not.

8pm onwards

I’ll leave the rest of the night and the days and weeks to come as an exercise for the reader.

What if I’m just wrong and Trump wins

I really hope there are some readers of this blog that are rooting for Trump with the giddy anticipation of not just seeing their guy win, but also seeing know-it-all betting types like myself get served another stinging dose of comeuppance. What would it take? A fairly big polling miss (or for The Tightening to finally show up and stick). Huge election-day turnout. Softer than expected early vote margins. Maybe Joe gets the virus in the next couple weeks (anything can happen). It’s conceivable but it’s just not all that likely folks.

Good luck out there, and I hope to see you all enter my final contest when it launches in a week 🙂

To bounce or not to bounce

Whether ’tis nobler to hold and suffer
the ups and downs of September’s surprises,
or dump one’s shares to try again later,
and while awaiting miss out? To buy? To sell?

…that is the question facing Biden longs as we near the conclusion of the RNC and the beginning of the Fall campaign season. (My apologies to the Bard).

First things first

Enter my contest, nerds. It’s free, there’s a $500 prize pool for this one (bigger than last time! prizes for second and third now!) and you can always copy your favorite sharp’s notes by looking at the predictions from the August 1 contest. As of this writing, only about 16 people have entered so far (entries close September 1 at 11:59pm Eastern), so your odds are good! Of course, perhaps many of you are waiting to see what that first round of post-RNC polling shows and whether we finally see The Tightening.

So is this race going to move?

One of the hallmarks of the 2020 cycle so far is that the polling margin between Biden and Trump doesn’t move that much. Of course it does drift! And has drifted towards Joe, especially in the wake of George Floyd and the south/southwest coronavirus wave. But there are no swings like the 2016 roller coaster:

Part of the reason it hasn’t moved? More people have made up their minds; fewer are undecided or considering third parties:

(y-axis is two-party share of the polling average)

Of recent cycles, 2004 and 2012 stand out for relatively similar patterns. Both high in two-party share early on. Both with relatively little turmoil in summer polling. Both occurred in the more polarized modern era, and both featured incumbent presidents on whom the election (at least in part) was a referendum.

And both cycles, as you can see above, featured late August / early September conventions that produced a sizeable polling bump for the incumbent. (Later, this bump eroded after Obama and Bush both lost their first debates, yet of course both would win in the end! One notable difference is that both had higher approvals than Trump going into the campaign season, which might explain why the races hovered around a margin of zero rather than the margin Joe has).

So here we are in August 2020, similar polling dynamics, similar incumbent convention timing, and therefore a similar bounce incoming?

Well, I don’t know. (Sorry). But I do feel like the race moving five points towards Trump in September is far more likely than it moving five points further away from him. It’s just that both tails of the outcome distribution seem far less likely than it moving say just one to three points towards Trump.

To bounce

Why might we see a small shift towards Trump? Well there’s the convention, though I honestly don’t see it doing *too* much in that regard, though partisan nonresponse might kick in for some of the live caller polls. There’s also just the time of year (perhaps the “tuning it out til now” crowd are Trumpier to begin with). Maybe coronavirus is fading and there’s a segment of the undecided electorate that have goldfish memories and/or have never really been that bothered by the deaths and have been more upset at way-of-life changes. Maybe there’s a big chunk of undecideds who really don’t care about BLM except superficially and hate protesters and unrest in general more (especially with sports gone). Maybe Joe gaffes, or maybe the media starts harping on him for getting out-hustled on the campaign trail by Trump (which does seem likely, for safety reasons if anything) in the absence of anything else to complain about.

Not to bounce

And why might the race hold steady? Because an object at rest tends to stay at rest. Because if Biden didn’t get much of a bump (except in his favorability, slightly), why would Trump, especially with a less-watched convention? Because unrest rooted in racial injustice might serve to reinforce the suburban disgust with Trump (you would be amazed, driving around lily white wealthy Boston exurbs how many have BLM yard signs – yes this is a yard sign pump). Because, yes, the low turnout non-college-educated white men do exist but if they’re not already showing up in the polls as likely to vote that isn’t going to change in September (late October, though?). Because the race is, has been, and always will be about Trump and Trump (have you noticed?) is rather unpopular.

Betting on it

So what’s the play? Well I’ve decided I actually I favor a small Trump bounce over no Trump bounce.

I’m going into September owning Trump in the bigger markets though I still hold Biden in many others (some underwater) and I still think Biden is a strong favorite to win in the end. But my playstyle is too impatient to do nothing between now and election day and if I think there’s value in a Trump shift I’m going to try collecting it. I am expecting the margin to be Biden +7 within two weeks or something, and I’ll boldly say that I would not be surprised if Trump surpassed 50c at some point in September.

And if I’m wrong? Then I’ll sell and go the other way of course 🙂