Wednesday, February 09, 2005

Pr[Rice '08] = 0, An Arbitrage Opportunity?

by Tom Bozzo

A few posts ago, I offered the following wager to my blog pals: if Condoleezza Rice is the 2008 Republican nominee for president, then I'll take the blogger dinner group to Charlie Trotter's. I invited responses from anyone willing to take the other side.

The TradeSports politics market put the Rice '08 contract at 6.9 when I checked this morning. This means that the TradeSports participants assign Rice almost, not quite, but close enough for this blog post, a 6.9 percent probability of winning the Republican nomination.

Since full dinner with wine at Trotter's runs, what, $200-$250 a head, dinner for six would, by advanced math, be in the ballpark of $1200-$1500. Now you might think that someone might have taken Rice and offered something worth $100 or so — say a couple rounds of blogger cocktails — if that someone believed the TradeSports market to be basically efficient.

But no! I have yet to be offered so much as one Bratfest brat ($1, for non-locals) from a would-be Rice booster, or even from another Rice non-fan who thinks it would be funny for me to pay up on a bet related to the Republican presidential nomination.

I'm shorting that Rice contract if nobody steps up.
Okay, you're on. Charlie Trotter's is a big gap in my culinary experiences. I will buy a round (ONE round) of drinks if she is NOT on the ticket.
The TradeSports market is only sometimes efficient. I'd go against Rice at 6.8. Problem is, it's hard to make money 'shorting' something trading so low with a contract expiry so far in the future. So contracts like that tend to hang around at inflated prices.

In other words, I've suspected you can beat this market if you've got the capital and patience by consistently betting against low priced, distally expiring contracts. Problem is, you'd be beating it to the tune of like 3% a year.
Putting my own money where my mouth, if not stomach, is, I just bet against Jeb Bush, Mitt Romney, and Rice together at a combined price of p[JB|MR|CR] = .24. We'll see what happens.
That's not a bad combination. There's a reasonable chance that Romney won't even get re-elected in MA. Bush takes more guts. My kremlinology skills aren't sufficient to tell me whether Mr. Burns, Sideshow Bob, and Count Dracula will conclude that the country is suffering Bush fatigue in '08.

My high-probability combination would be Giuliani, Frist, and Rice at 0.391, but I generally prefer bets (like the one above) where I win either way.
Looking at the fine print (as one should when wagering with a lawyer?), I see that Nina has said "on the ticket." Does that mean that if Rice is the VP nominee, then no drinks?

My offer, to clarify, is that dinner is on me if Rice is at the top of the ticket. I figure that part of the bet could be resolved before 2008 if Rice does not take appropriate steps to join the race, etc.

(Now, while I said "dinner for six," I haven't actually mentioned which six now, have I?)

And, I should say with respect to that previous comment, I'd bet against the Frist-Giuliani-Rice combination.
No no no! Cannot change the terms of the wager! Indeed, you caught the fine print, but TOO LATE! Come on, witnesses, stick up for me! YOU may be the ones benefiting from the drinks (more likely than dinner, even with the clever, I thought, VP possibility).
Now Nina, I clearly wrote, "if Condoleezza Rice is the 2008 Republican nominee for president" [emphasis added].

Now, if you want to unilaterally change the terms of my end of the wager, you should put a shrink-wrap license on Ocean to the effect that by visiting, I agree to anything you happen to write there. I understand the courts tend to view such things as enforceable ;-).

I was simply clarifying the drinks terms, since it's important for me to know who will be buying me drinks three years hence.

(I do also see that I wrote "the blogger dinner group," which is rendered somewhat ambiguous by virtue that we've now had three blogger dinners with various attendees. Of course, one place was to be occupied by Suzanne, who would be justified in killing me if I lost the bet without bringing her along, and also getting her something nice from Tiffany's for the occasion. But wouldn't I be still meeting the letter of the original terms if places 5 and 6 were occupied by your non-blogged-about husband, if he can deal with your crazy blog friends, and a future Mrs. Freese, assuming we succeed in locating one?)
I did respond to YOUR terms with a clause that was (purpusefully) ambiguously worded. I did so on your blog and on my blog. You appeared to accept the terms by then posting that the challenge was on. Deal was struck.

HOWEVER, in the general interest of creating good will toward my profession, I will permit you to rewrite the terms to those originally intended. Or at least, to scale down the dinner should it be that she gets a VP slot and not a P nomination.

As for who should go -- you decide as to dinner, I decide as to drinks. Suzanne is always always welcome. As for others -- depends on how many ways they have managed to offend me on a blog or elsewhere before the event.
In the interest of peaceful dispute resolution among friends, and since you are the party with a near unit probability of paying up even under the revised terms, I accept the wager as modified thusly: if Rice gets VP, dinner is in Madison somewhere (good), location TBD.

Also, since 3-1/2 years can be geological time for restaurants, I reserve the right to choose a suitable alternate location should Trotter's for some reason close between now and then and Rice tops the ticket.

HOWEVER, let me just note that your acceptance in the comments, at 9:21 P.M. on 2/9., did not modify my end of the deal in any way, and I accepted your end at 9:48 P.M. by the Blogger time stamp on my acceptance post. Your Ocean post modifying my language was time stamped at 5:50 A.M. 2/10, eight hours and two minutes after my acceptance based on your comment.

Between that and the plain language of my original dinner offer, my acceptance of revised terms should not be construed as accepting that you successfully established a disputed fact regarding my end of the deal.
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