wedrifid comments on New Year's Prediction Thread (2012) - Less Wrong

20 Post author: gwern 01 January 2012 09:35AM

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Comment author: wedrifid 31 December 2011 06:06:25PM 8 points [-]

Bitcoin/USD prices: “best case, 10 bucks. Worst case, 5 bucks.” (30%)

Of all the things to have a prediction market on the future value of something traded on a market seems among the least useful. If my prediction regarding the above was positive then I would bet by buying a lot of bitcoins (which are currently priced below the lower bound).

Comment author: gwern 31 December 2011 06:25:08PM 3 points [-]

Indeed. In kiba's case, he's holding onto around 1000 or so bitcoins and doesn't have any cash to spare for buying more. (Personally, I think he's dangerously undiversified and should - at the very least - have sell orders in at 5 or 10 bucks.)

Comment author: MixedNuts 02 January 2012 07:13:19PM 0 points [-]

Of all the things to have a prediction market on the future value of something traded on a market seems among the least useful.

Er, you know what options are, right?

Comment author: wedrifid 02 January 2012 08:57:39PM *  1 point [-]

Er, you know what options are, right?

Roughly speaking... part of the point.

Comment author: MixedNuts 05 January 2012 03:40:19PM 2 points [-]

That's a much stronger (in both senses) point! I asked the resident Person Who Knows Economics and got the following answers:

  • "Leave me alone, I gotta poop."
  • Options give much greater leverage. The mysteries of option pricing are not spoken of to the uninitiated, but a 5% change in a stock's price is very roughly a 100% change in the prices of options to buy or sell 5% away from the initial price.

I make no claim about the competence of the Person Who Knows Economics except that's it's greater than mine.

Comment author: wedrifid 05 January 2012 07:42:47PM *  0 points [-]

Options give much greater leverage. The mysteries of option pricing are not spoken of to the uninitiated, but a 5% change in a stock's price is very roughly a 100% change in the prices of options to buy or sell 5% away from the initial price.

Yes, they save you getting a loan. More important in this case is short selling. Options are still only useful if the price goes up. That gives the predictor something to do when their predictions are that the price will fall. If the actual market is sufficiently developed as to allow that kind of trade the prediction market becomes rather redundant.

Comment author: MixedNuts 05 January 2012 08:15:10PM 0 points [-]

Options are still only useful if the price goes up.

I fail to see what breaks the symmetry between put and call options.

Comment author: Luke_A_Somers 07 January 2012 10:21:53PM 1 point [-]

s/up/in the direction of the option/

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