Thursday, October 16, 2003

Nice

My buddy from school, TC, sent me "claim" on whether or not Krugman would win the Nobel Price for Economics by 2040. Bid/Ask is currently 52/55, so his odds are about 53%.

My take? Well, since the prize cannot be awarded posthumously, and Krugman's about 55ish now (I guess), I'd give him a 95% chance of being alive to recieve the prize before the claim expires. I also know he is a John Bates Clark medal winner, many of whom have gone on to win the Nobel prize as well. I don't know how many though, and I don't know how soon after, so let's assume that 50% of Clark medal winners go on to win a Nobel prize too.

So, I would put Krugman's chance at 95% (might die) * 50% (predictive power of Clark medal) = 48%, which implies the price (at 53%) is too high, but not by much. Someone more diligent could easily put together better numbers.

I also notice that there aren't any claims on any Clark medal winners who do not have an op-ed column in the NY Times, suggesting that whomever put this claim up is either a huge fan of Krugman's (for his political position) or hates him (for his political position). Given that NY Times readers and Democrats (who tend to like him) far outnumber economists (who seem to think very little of him) I would guess that the Krugman claim was submitted by a fanboy. (Note: By bias would also lead me in this direction, so I probably feel more sure about this than I should). This may explain the clearly outrageous 80%-90% peaks the price history shows, but it says something about the power of markets that this optimism has been tempered to the far more sober 53% it is now. Or maybe a bunch of economists just discovered decision markets.

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