Profiting from irrationality

My friend Charlie Sprague wrote an article about “The Birther Madness,” about how a select group of Republicans refuses to believe that Barack Obama was born in Hawaii. A few birthers found the article and have let everyone know how they feel about the issue.

Finance theory says that whenever a large group of people has a significantly wrong valuation of something, in this case, a nonzero estimate of the probability that Barack Obama was born in Kenya, there’s an opportunity for arbitrage. If the birthers truly believe that Obama was born elsewhere, surely they’d be willing to put money on the line, and surely I would be able to rake in the dough. I would also be doing a public service, by making people more likely to hold beliefs that are true.

The problem is that we’re not betting on an event that will occur, but an event that already occurred, the truth of which has already been settled. For anyone to be willing to enter into a bet with me, we would have to be betting on some event that’s going to occur in the future, not some event which already happened and on the specifics of which we disagree. I would have to pick some future event that birthers would be willing to bet on (Barack Obama becomes President of Kenya? Reveals himself as the Antichrist before December 31, 2014?) It’s not enough to say, “Obama will be judged not a citizen, and removed from office,” because if you’re predisposed to believe Obama’s in Kenya, you probably also believe there’s a shadowy cabal behind Obama that’s preventing the truth from getting out.

People have far too little incentive to hold truthful political beliefs. If I can induce (and fleece) a few irrational voters I stand to gain a lot. If I challenge people to bet with me and they refuse, then that says a lot about their beliefs, too.

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2 thoughts on “Profiting from irrationality

  1. ...

    This was one of the most incoherent things I’ve ever read. Forcing political belief through the lens of homo ecnomicus is like trying to teach a pig to fly.

    Reply

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