Tuesday, March 18, 2003

Wired reports that online gamblers can wager on how long Saddam will remain in power. The article goes on to say:

Although the dollar sums wagered in electronic markets are minuscule in comparison to the volumes traded on traditional financial markets, Wolfers believes they are telling indicators of political events. Unlike political pundits, he says, traders put their money where their mouths are.

"In the financial markets, political posturing will put you at nothing but a loss," he said.

This is a fun and catchy idea, but the analysis is flawed. Posturing that costs real money is otherwise known as advertising, and it is not viewed as a "loss" but as an "expense." If the article's reasoning were correct, then political advertising ought to be especially trusted because people spend real money for it, unlike the worthless free opinions of your friends and neighbors (or even yourself!).

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