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SilasBarta comments on Open Thread: July 2009 - Less Wrong
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So, I'm looking for some advice.
I seem to have finally reached at that stage in my life where I find myself in need of an income. I'm not interested in a particularly large income; at the moment, I only want just enough to feed a Magic: the Gathering and video game habit, and maybe pay for medical insurance. Something like $8,000 a year, after taxes, would be more than enough, as long as I can continue to live in my parents' house rent-free.
The usual method of getting an income is to get a full-time job. However, I don't find that appealing, not one bit. I want to have lots of free time in which to use the things I buy with the money I would earn. I'd much rather just continue to spend down my savings than work more than two days a week at a normal job.
This suggests that instead, I should try to get a part-time job. Chances are, that would mean working in a local restaurant or store of some kind. Unfortunately, I tried one of these once before, and it didn't work out very well. I was hired to be a cashier at a local supermarket. To my great surprise, I didn't particularly mind the work, but on my third day after being hired, I was fired for insubordination. (I had a paperback novel with me, and I wouldn't stop reading it during periods when there were no customers.) I've also tried working for a temp agency. That didn't work out too well either. After completing my first assignment, I was told that the company I was contracted out to complained about my behavior (it's a long story), and so I would not be considered for any other assignments. In effect, I was fired from there, too.
As far as I'm concerned, the ideal source of income would be something with no set hours, that I could leave and come back to as I please. In other words, if I decide that I'd rather play video games for a month instead of earning money, it won't prevent me from earning money the month after that. Unfortunately, the only things I know of offhand that work like that are writing (which is extremely hard to make a living at, and requires a lot of time and effort anyway) and online poker (which I suck at). I'm lazy and undisciplined, and I'm not particularly interested in changing that, so I'm hoping to find a way to make money that works even if I don't try very hard at it.
In terms of skills and education, I have a B.S. from Rutgers University in computer engineering. I can program, but when I've tried programming as a job (as a summer intern), it turned into a Dilbert cartoon very, very quickly. Basically, I was given vague instructions, left on my own to do whatever, and instead of working, I mostly sat and surfed the Web while feeling guilty about not working. I don't think I want to do programming professionally. I ever have to sit in another cubicle again, there's a good chance I'm quitting on the spot.
So, um... I need some suggestions on what to do. Bring on the other-optimizing?
Well, you really, really need to change your entire outlook and work on the laziness.
But if you're not going to do that: Have you tried betting in prediction markets like Intrade? If you're good at noticing things that are "obviously" going to happen but aren't correctly priced, or have enough money to afford to be right on average, that could work. It does require an initial investment though.
I've been on it since August and have played conservatively so I've only made about a 5% return. (Made small amounts on the Chrysler and GM bankruptcies.)
Intrade is an interesting suggestion, but I don't think he could make enough on it. He wants 8000 USD a year, and even if we assume he can get 10%, he'll still need 80k invested.
I don't think he has 80k to spare, and I have to wonder - is 10% feasible in the long run? I could see getting it in an election year easily, because the markets are so volatile and heavily traded, but what about off-years?
Agreed. We should always be skeptical of an individual's ability to beat the market.
Well, I should clarify that I think a smart bias-educated person can beat the prediction markets fairly easily - I doubled my (small) investment in the IEM just by exploiting some obvious biases in the last presidential election, and I know I'm not the smartest bear around. My doubt is whether he can beat the market enough: any sum of money CronoDAS has is likely small enough he would need really absurd returns.
Are there differences between prediction and markets that make it easier for a "smart bias-educated person" to win fairly easily?
If you think its fairly easy, then I'd be curious to know whether you're putting your money where your mouth is... how much have you invested?
Besides what Nick said, people seem to treat prediction markets more as entertainment than seriously. For example, Ron Paul or Al Gore should never have broken 1%, and Hillary shares were high long after it became obvious she wasn't going to make the nomination. These were all pretty clear to anyone suspicious of fanciful wouldn't-it-be-fun? scenarios and being biased towards what one would like to happen.
I started in the IEM with ~$20, and even after taking some heavy losses in 2004 and whatever fee the IEM charged ($5?), I still cashed out $38 in 2008. If you're interested in more details, see my http://www.gwern.net/Prediction%20markets
I appreciate your careful documentation. And I thought these words of yours were wise: "I often use them [prediction markets] to sanity-check myself by asking 'If I disagree, what special knowledge do I have?' Often I have none."
Words are vague, lets use numbers. Say you were forced to invest $1000 in the prediction markets over the next year. What probability would you assign various outcomes: e.g. [-100%,-50%], [-50%,-25%] [-25%,-10%], [-10%,0] [0,10%], [10%,25%] [25%, 50%], [50%,100%], [100%, 200%], and [200%, 1000000%]
One must be wary of faux precision. But I think I would put the odds of >100% or <-40% at under 30%; I'd assign another 10 or 20% to a gain between 30% and 100%, and leave the rest to the range of small losses/gains.
The ten categories I suggested may be a bit excessive, but it would be much easier to judge if you were a little more precise. You acknowledge a non-trivial chance of losing a non-trivial amount of money. The confusion is that I thought your previous statement that a "smart bias-educated person can beat the prediction markets fairly easily" would preclude this.
Yes. Prediction markets are far smaller, and have far less intelligence devoted to exploiting away their irrationalities.
my question was about how much more efficient the stock market is, and why.
My answer to whether there are differences between prediction [markets] and markets was no, except in as much as prediction markets that are currently active are far larger (noise cancellation), more heavily traded (more information from more experts is represented already), and have had longer for biasses to be exploited and so corrected for.
Efficiency.