The stock market reacted to today’s defeat of the bank bailout bill with an unusually big decline. Yet the news wasn’t much of a surprise to people watching Intrade, whose contract BAILOUT.APPROVE.SEP08 was trading around 20% all morning. Why did the stock market act as if it was a big surprise?
Did Intrade traders make a lucky guess not based on adequate evidence? Did they have evidence that the stock market ignored? Could the stock market have priced in an 80% chance of the bill being defeated (if so, that would seem to imply that passage would have caused the biggest one-day rise in history)? Could the stock market have been reacting to other news which just happened to coincide with the House vote? (It looks like the market had a short-lived jump coinciding with news that House leaders hoped to twist enough arms to reverse the vote, but I wasn’t able to watch the timing carefully because I was at the dentist).
It seems like one of these must be true, but each once seems improbable.
Arnold Kling, whose comments on the bailout have been better than most, was surprised that the bill failed.
I covered a few of my S&P 500 futures short positions at near the end of trading, but I’m still positioned quite cautiously (I made a small profit today).
Book review: Global Catastrophic Risks by Nick Bostrom, and Milan Cirkovic.
This is a relatively comprehensive collection of thoughtful essays about the risks of a major catastrophe (mainly those that would kill a billion or more people).
Probably the most important chapter is the one on risks associated with AI, since few people attempting to create an AI seem to understand the possibilities it describes. It makes some implausible claims about the speed with which an AI could take over the world, but the argument they are used to support only requires that a first-mover advantage be important, and that is only weakly dependent on assumptions about that speed with which AI will improve.
The risks of a large fraction of humanity being killed by a super-volcano is apparently higher than the risk from asteroids, but volcanoes have more of a limit on their maximum size, so they appear to pose less risk of human extinction.
The risks of asteroids and comets can’t be handled as well as I thought by early detection, because some dark comets can’t be detected with current technology until it’s way too late. It seems we ought to start thinking about better detection systems, which would probably require large improvements in the cost-effectiveness of space-based telescopes or other sensors.
Many of the volcano and asteroid deaths would be due to crop failures from cold weather. Since mid-ocean temperatures are more stable that land temperatures, ocean based aquaculture would help mitigate this risk.
The climate change chapter seems much more objective and credible than what I’ve previously read on the subject, but is technical enough that it won’t be widely read, and it won’t satisfy anyone who is looking for arguments to justify their favorite policy. The best part is a list of possible instabilities which appear unlikely but which aren’t understood well enough to evaluate with any confidence.
The chapter on plagues mentions one surprising risk – better sanitation made polio more dangerous by altering the age at which it infected people. If I’d written the chapter, I’d have mentioned Ewald’s analysis of how human behavior influences the evolution of strains which are more or less virulent.
There’s good news about nuclear proliferation which has been under-reported – a fair number of countries have abandoned nuclear weapons programs, and a few have given up nuclear weapons. So if there’s any trend, it’s toward fewer countries trying to build them, and a stable number of countries possessing them. The bad news is we don’t know whether nanotechnology will change that by drastically reducing the effort needed to build them.
The chapter on totalitarianism discusses some uncomfortable tradeoffs between the benefits of some sort of world government and the harm that such government might cause. One interesting claim:
totalitarian regimes are less likely to foresee disasters, but are in some ways better-equipped to deal with disasters that they take seriously.
Charlie Munger in the August 31, 2008 issue of Outstanding Investor Digest:
Let’s say you’re insuring against the outcome that people will lose money on a $100 million bond issue, and the credit default swaps, instead of amounting to $100 million, amount to $3 billion. Now you’ve got people with $3 billion worth of contracts that really have a big incentive in having somebody fail. And they may manipulate in some fraudulent or extreme way to cause a default in order to make the big collection.
There doesn’t seem to be enough transparency in financial systems to figure out whether this concern is relevant to this week’s panic.
Most experts were surprised at the news that human DNA seems to contain less than 25000 genes.
Since then signs have emerged that the rest of the DNA (often called junk DNA is quite active, with about 80% of the DNA being transcribed into RNA even though only 1-2% constitutes protein-coding genes.
There’s a lot of mystery about what, if anything, most of that RNA does, but it’s not all junk. One such RNA molecule, HOTAIR, appears to control expression of some genes. RNA has an ability to fold into shapes that may rival proteins in their diversity, so there’s no good reason to think that creating proteins comes close to describing the set of functions that RNA performs.
To deter any suspicion that the comparisons I plan to make between Intrade’s predictions and polls are comparisons I selected to make Intrade look good, I’m announcing now that I intend to use FiveThirtyEight.com as the primary poll aggregator. I intend to pay attention to predictions that are more long-term than I focused in 2004, so the comparison I’ll attach the most importance to will be based on the first snapshot I took of FiveThirtyEight.com’s state by state projections, which was on July 24.
Also, as of last week, one of the Presidential Decision Markets that I’m subsidizing, DEM.PRES-OIL.FUTURES, has attracted enough trading (I suspect from one large trader) to make me reasonably confident that it’s showing the effects of trader opinion rather than the effects of my automated market maker (saying that oil futures will drop if the Democratic candidate wins, and rise if he loses).