A Day At the Races

Flickr - Pablo Camera

During Father’s Day this year, my father, brothers, and I went to the horse races at the Belmont Race Track. With an interest in economics, this was going to be a fun opportunity to observe and play in a prediction market (legally). You have several different places for information on the odds of each horse winning. But these fall in to two categories: There are those predictions of the experts, which can be found in any newspaper. And then there are those predictions of the masses, plebians, or “the free market” if you will. These are the odds the track uses to determine your winnings. Not because the track is run by radical free market types, but because its the only way to ensure that the house doesn’t lose any money.

So I tried a little Keynesian experiment:

Hypothesis: An intelligencia could work better than a bunch of rationalist, self-interested bastards.

Equipment: Horse track, odds predicted by experts, horses, odds offered by the teller/free market/proletariat masses, beer.

Method: Whenever the odds offered by the teller are mispriced favorably according to the experts, place a bet on that horse.

Possible sources of error: luck, organized crime.

The result: After 9 races, a few of them won big. In the end, a cool $25 turned into a hot 43 dollars!

Conclusion: We proved that central planners always beat the free market.

Anyway, you might like to independently verify these results.

1 Comment  »

  1. olimay says:

    In the conclusion I think you are in danger of conflating the ideas of “market” (as in prediction market) and “market economy” when you say “central planner” and “free market”.

    I’m not clear which comparison you’re actually trying to make.

    That’s the minor objection– the major objection I’d express by crying “Ludic fallacy!” But please address the minor objection first, if you would.

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