What a Bet Shows By Bryan Caplan

Whenever I win a bet, critics rush to say, “This doesn’t prove you know better than me.” They’re right: Bets “prove” nothing. But that’s a silly standard. For empirical questions, definitive proof is unavailable, so we have to settle for degrees of probability.

By this reasonable measure, how probative are bets? Taken individually, most bets are only marginally so. Even if one side offers 1000:1 odds and loses, this might only show that the loser was a fool to offer such great odds, not that his position on the underlying issue is flat wrong.

When we move from solitary bets to betting records, however, bets are telling indeed. A guy who wins one bet could easily have gotten lucky. But someone who wins 10 out of 10 bets – or, in my case, 14 out of 14 bets – almost certainly has superior knowledge and judgment. This is especially true if someone lives the Bettors’ Oath by credibly promising to bet on (or retract) any public statement. A bet is a lot like a tennis match: one victory slightly raises the probability that the winner is the superior player, but it’s entirely possible that he just got lucky. A betting record, in contrast, is a lot like a tennis ranking; people who win consistently against any challenger do so by skill, not luck.

After losing our unemployment bet, Tyler Cowen objected that betting:

…produces a celebratory mindset in the victor. That lowers the

quality of dialogue and also introspection, just as political campaigns

lower the quality of various ideas — too much emphasis on the candidates

and the competition.

Tyler’s gets very close to the truth, but misses the most important lesson. Namely: In a busy world, ranking people by accuracy is not only helpful in the search for truth, but vital. No one has time to listen to more than a fraction of the armies of talking heads, or the memory to recall more than a fraction of their arguments. If we want to know the future as well as we’re able, we need to identify people with good judgment – and ignore people with bad judgment. The first step, of course, is to unfollow pundits who refuse to put their money their mouths are. We should take them as seriously as self-proclaimed tennis “champions” who’ve never publicly played a match.