Wednesday, May 26, 2004

ann versus the market: a money making opportunity?

I have never watched a single episode of American Idol. However, I have stayed surprisingly on top of developments in each of the three seasons. Last season, it was all the grad students in my methods class talked about before class began. This season, it has been the crackerjack weekly reporting on various weblogs. Before, these weblogs have only offered entertainment in providing post-episode analyses, but now, a chance for real cash has arisen.

Ann has predicted that Diana is more likely to win than Fantasia. I have absolutely no idea whether Ann is right or not, since--again--I've never seen the show, but her previous analyses of episodes have seemed astute. So, say you take Ann's comment as meaning that she gives Diana a 60% chance of winning, to Fantasia's 40%. Presently on TradeSports, you can wager/speculate (depending on whether you see it as gambling or as futures trading) on the outcome of the AI voting, and the market-estimated probability is presently that Fantasia has an 80% probability of winning, compared to Diana's 20%. See this table taken from the TradeSports site:

Here's what this means: You can log onto TradeSports right now and for $2.10 (and multiples thereof) buy a "share" betting on Diana to win. If Diana does win, you get $10 for that win, minus like a dime in transactions costs to the TradeSports site. If Ann's assessment is correct, a share of Diana is actually worth $6 (since $6/$10 = 60%). For $210, you can place a bet that, if Ann's assessment is right, is really worth $600. So you are $390 ahead, just like that. (Actually, after the voting, you will either be $790 ahead or $210 behind, but given that Ann's assessment is that it is more likely you will be $790 ahead than $210 behind, a normative economist would say you'd have to be irrationally risk averse not to jump on this).

All this time, you've been feeling guilty about the "wasted" time you spend reading weblogs. Here, you are offered an opportunity that is tantamount to me showing you how to print fully legal tender out of your laser printer. As Alec Baldwin says in Glengarry Glen Ross, the money is there: "Will you take it? Are you man enough to take it?"*

* JFW is not responsible for any fortunes lost following finance-related or other recommendations offered on JFW. Indeed, while JFW does reserve the right to take credit if such action turns out positively, JFW also reserves the right to taunt if it doesn't.

1 comment:

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