"Take a simple idea and take it seriously" -Charlie Munger Grab your coffee or boba. It's time to talk Augur and prediction markets. If you're more interested in trading, feel free to skip to the last section where I share trading updates and predictions headed into tonight's debate + South Carolina 🔥



Coronavirus & Predicting Pandemics: An Augur Use Case? To keep tabs on Coronavirus, I’ve been tracking Twitter…and gold. Twitter, since it lets me survey the opinions of folks who know way more about virology than I ever will. And the price of gold, because it’s a “safe haven asset” where capital likes to flock to in times of elevated risk and uncertainty. If gold shoots up, that’s a warning sign. But these are limited signals. Twitter because it’s heavy on social bias and light on skin in the game. Anyone can spew out opinions on anything with minimal downside, and its algos reward greater visibility to tweets that are catchy, persuasive and will light up our brains' reward centers, not necessarily ones that will take us closer to truth. Plus, since I’m not an expert in epidemiology, I don’t know enough to be able to tell who is an expert or what biases or groupthink “experts” may have. Gold is limited because many catalysts outside of pandemic risk can move its price and in extreme risk-off scenarios, gold can plummet too. Plus, it’s a vague signal. If the price of gold jumps up, I may assume the perceived risk of Coronavirus is on the rise, but by how much?

Prediction markets could provide a far more reliable, efficient, and precise way to gauge pandemic risk and forecast its spread. This may be a natural use case for prediction markets, since...



1) People care a lot about pandemics, which equals lots of traders and liquidity, two things you need lots of to get accurate predictions that update quickly. 2) You have disparate data and information spread among many people and places around the globe. Prediction markets excel at aggregating disparate information. 3) You may have “insiders” with private information e.g., members of authoritarian regimes who aren't supposed to tell the public what they know. Prediction markets can incentivize them to make this knowledge public by pricing it into the market, and let them do so in an anonymous fashion that doesn't put them at risk. A prediction market can serve as an information magnet, absorbing the insight of the collective and creating a clean probability signal. Such a market can also let people hedge risk more efficiently. Just as gold is an insufficient mechanism for signaling risk, it may be an insufficient one for hedging risk. In particular, Augur scalar markets (markets that predict a numerical outcome like how many points a team will score, rather than a binary or multiple-choice outcome e.g., which team will win) could help forecast the the number of infections or fatalities in specified regions within specified time frames, for future pandemics. I’m not the first to note the potential of prediction markets here. A 2008 paper penned by several Nobel Laureates, argued that prediction markets “could assist private firms and public institutions in managing economic risks, such as declines in consumer demand, and social risks, such as flu outbreaks and environmental disasters, more efficiently.” Another study zoomed in on the potential of prediction markets to forceast the spread of infectious disease, running a pilot study where a test market aggregated expert opinions on the spread of seasonal flu in Iowa. It showed promising results. Keep in mind, that forecasting pandemic risk is a use case for "mature” prediction markets. An immature prediction market like PredictIt or Augur in 2020 has too many barriers to usage and too few traders with too many biases based on skewed demographics to produce strong forecasts, at least in this realm. But 2030 Augur could be a different story...



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Trading Update: The Battle of the Three "Bs"... Bernie vs. Bloomy vs. Biden Note the following trades are on PredictIt, as there are no long-term markets on Augur pre-v2 This time last year, we had perhaps the most diverse field of candidates in U.S. history. A year later, we have three septuagenarian white guys leading the pack. Granted, we have a little diversity with a septuagenarian white woman (Hillary, not Liz) tied at number four in the DemNom market with a tricenerian white guy (Mayor Pete).



Image courtesy of PoliticalAlertEngine



I’ve parted ways for now with the last of my Bernie long shares in the past week. He’s in a strong position and *could* run away with the nomination in the coming month, but 1) overpriced is overpriced and 2) I don't think that the prospect of a Biden SC victory and subsequent surge is sufficiently priced in yet to many Super Tuesday markets. I also sold most of my Bloomy longs headed into the debate last week, but I didn’t sell enough…and I didn’t sell fast enough. By the time the debate rolled around, the markets had already started to price in the prospects of a tough debate for Bloomy. And though I expected a rough time for him, I didn’t expect it would be that rough. That said, I think the markets overreacted and oversold Bloomy in a number of states. So I’ve been picking up Bloomy shares in the past week in a handful of Super Tuesday states + DemNom *and* buying Biden longs. Each of these trades in isolation may be unwise, but I think they make sense together. If Biden carries South Carolina, I think his DemNom and Super Tuesday odds will surge, and more so than expected. Meanwhile, if Sanders ekes out a victory there, Bloomy will bounce on Biden's weakness. I’m making assumptions here of course, including that no other candidate aside from Bloomy or Biden takes control of the moderate lane. Though I did pick up some Steyer SC shares cause, you know, YOLO. Let's see what happens...



Friendly reminder: this is just a look at what I'm up to, not trading advice. I probably have no idea what I'm talking about here.



Say Hi Thanks for reading, guys. Feel free to say hi with any thoughts or questions, and I hope you have a wonderful rest of the week. Happy predicting,

Ben