Speaker Election: Interviewing the Top Traders
The republicans got a lot of attention at the election of the Speaker of the House. Here is what the most profitable traders did.
With a volume of M2,044,924 it was one of the most active markets on Manifold ever. People got error messages and bets took minutes to get through sometimes due to the load. (Though I heard the main performance problem was that it maxed out the 100 possible answers not the volume.)
Some people said the republicans are too chaotic to predict anything. Yet, some people can do it. Here are some insight into the top winners.
What was your strategy?
Just making predictions based on reading the news, e.g. I could see that there was a lot of opposition to Scalise, Jordan, Emmer. Looking at multiple sites (Manifold, Polymarket) and noticing that sometimes one was lagging the other. Listening to Domer and betting on his predictions. –Jack
Knowing whom to listen to is a skill on its own.
Just paying attention to what the Congresscritters say and how they say it. I've been doing that as a hobby for a while so it's nice to operationalize it into predictions and see if I'm any good. So for example, after Scalise won in conference, MTG came out and said she'll vote against because he has cancer. That was a super dirty tactic and told me that the hard right would absolutely not vote for him under any circumstances. –Semiotic
This is certainly more research than I did and “hobby for a while” means some experience. Probably a good lesson: Careful, there is always someone more experienced around. However, experience only got him to 4th place.
I bet yes on almost every potential candidate at some point. A big market like this just has so many potential outcomes, and most people aren’t going to scroll past the two or three guys currently at the top of the list. I did my best to keep track of everyone who was running, or rumored to run, or who said they aren’t running this round but might try if the current guy fails. –Joshua
Quite some commitment and hustling there. It paid off with 2nd place. What does Number One say?
My strategy is to follow the news, and try to anticipate what is going to happen next. In this case, it was trying to anticipate that, if the GOP fails to execute whatever the current plan is, what the backup plan will be. I also often try to bet against the conventional wisdom. –Domer
One thing he repeated: Thinking one step further. Joshua and Domer apparently bet on backup plans.
How did you adapt it over time?
My biggest adaptation was in predicting market movement. When somebody wins in conference, their odds are about to go up a ton, even though that win was entirely predictable. The conference rules eliminate candidates until they get a winner, so a winner in conference doesn't say much about their ability to win on the floor. If you get 90 votes on the first ballot, you're going to win in the end. So you could easily predict that someone's odds were about to double. Jordan, Scalise, and Emmer were all facing weak competition in conference and all had very high probabilities of winning, especially as the various ballots went on. So simply betting yes before a win in conference and then selling afterwards was extremely profitable. Emmer, Scalise, and Jordan could all be bought at 20% and sold at 50% with this strategy. –Semiotic
Knowing the rules apparently helps.
At first, my plan was roughly “buy the rumor, sell the news.” But as the market went on, I adapted that to “Buy the rumor, then buy more rumors”. When you sell your shares it’s somewhat like buying shares in every other option. But 90 of the 99 other options are terrible. So instead of selling the yes shares in someone I thought was too high, I would usually buy more in the 9 other guys. –Joshua
Once again, Joshua shows off the elbow grease.
I thought the GOP would solve this quicker than they ended up solving it. As it was becoming clear that the solution may be out of reach, I was buying a lot of McHenry and Hakeem, both of which were the "they can't solve it" answers. McHenry ended up spiking and that was profitable, but Hakeem never really did. –Domer
One lesson here: You can make mistakes and still get to first place.
What information did you use and what did you ignore?
I created a bunch of markets for the previous Speaker election and did a lot more for this one. Personally I was more interested in stuff like how long would it take, would there be a bipartisan solution, etc etc than which specific Republican won. –Jack
Side note: Not all traders have the same interest. Jack is not among the top traders of the main market. The leaderboard captures all related markets as well.
Congress is made up of factions. In this case, it can more or less be broken down into moderate vs conservative, although there are some weird delineations there. So when Mike Lawler, one of the most moderate members, and Scott Perry, the chairman of the Freedom Caucus, both vote for Johnson in conference, he has a >90% chance of winning. It was also fairly clear to me that the people who ousted McCarthy represented a larger conservative faction who wanted a new Speaker but just didn't want to put their name on it, which is why they sabotaged Scalise and Emmer when they were nominees. And moderates just couldn't tolerate Jordan There was clearly a ton of bad blood and the eventual Speaker had to be relatively disconnected from all sides. –Semiotic
There was an insightful article by Matt Glassman mentioned in the comments. These GOP inside politics are not a secret and here this knowledge was useful.
Nothing exotic, just twitter and cable news. A lot of the information from both is terrible, but that doesn’t mean it should be ignored. Bad information can still lead other people to make bad trades that I can bet against! –Joshua
Well it's tough to answer this, because so much of what I'm doing is internalized and is reflexive from a lot of experience betting politics. Generally speaking, pay attention to the reporters who have been around a while, and ignore the optimism/pessimism from lawmakers. Solutions to hard problems are rarely as close as they sometimes seem, and rarely as far away as they sometimes seem. –Domer
Two answers which are not that helpful. Some information is useful and some is not and distinguishing them comes from experience. How to learn this effectively? I recommend to read some posts by Cedric Chen, who dug through the science and literature. There seems to be no quick and easy way though.
Why do you think do people bet (and lose) against you?
Instead of considering how to do it right, we can also ponder the corresponding question what the others did wrong.
I think a lot of people just bet on whoever is the favorite, and then a bunch of people bet based on the news they see. So if they see Scalise is the nominee they bet on him, even though the hard right was clearly going to tank him based on the quotes. Scalise, Jordan, and Emmer all had ~20 hard holdouts. I thought that Jordan probably would flip his holdouts and I lost a few thousand on that, but it was obvious that the conservative holdouts were willing to hold out until they got their way. But once Johnson was the nominee and you could hear the quotes coming out from all factions of the party, it was blood over the entire situation so the eventual nominee had to be relatively aloof from all factions to satisfy everyone pretty obvious that he was going to win. I think the dumb money on this way outweighed the smart money. LK-99 was good because Manifold is biased towards tech nerds and there was tons of smart NO-money, but tech nerds don't typically follow US politics close enough to bet on it. So most whales didn't really touch the Speaker markets and there was a ton of free Mana lying around from pretty inexperienced users. Outside the main market, there were tons of side markets like e.g. "will any Democrat vote for Speaker of the House" which I'd price at like 3% but could be had at a truly crazy 30% for weeks. I think in general, Manifold's prices in this topic were pretty inaccurate compared to most other topics. though I would still tell someone to just watch the Manifold market instead of paying attention to the truly awful mainstream media coverage of the topic. –Semiotic
Maybe one lesson is to focus on your expertise. If that isn’t congress politics then don’t bet (much) on prediction markets like this one.
They probably didn’t bet on enough options! Unless you’re Domer, you likely weren’t able to pull Mike Johnson out of the 100 options and bet big on him early. And if you bet big on any one other guy, your bets didn’t pay off. So my advice to those who lost Mana would be to try to spread your bets out more. –Joshua
The funny thing is that Domer actually told everybody quite early. He was already ahead and still many bet against him.
Well I managed to get a bit lucky and pluck out the eventual winner with a big bet at very low odds. I say "a bit" lucky because I also put a lot of thought into him, from reading about him, he seemed like the Goldilocks candidate in the sense that he would be tolerable to the HFC wing of the party, but he "plays ball" with everyone given the fact that he is the leadership ladder. Overall, the big mistake that a lot of people made in this market was at the very end, when it was becoming clearer by the minute that Mike Johnson would win, and probably win with all of the votes, and yet he stuck around in the mid to high 60% range, when in reality his odds were probably closer to 80% and very quickly rising to near 100%. People mistakenly were betting on the pattern of a candidate rising and then falling. But there were no signs anywhere that he was going to fall. –Domer
It sounds so obvious and clear in hindsight. However, “lot of thought” and “reading about him” means doing your homework. With such fundamentals it was apparently clear that Johnson was different the three previous candidates. Without that knowledge it was just another turn like the previous ones.
Conclusions
What was their advantage in summary?
Jack was playing a different game but profited from the wider view.
Semiotic has a deeper understanding how the congress and GOP works.
Joshua seems to be the hustler here and that also pays off.
Domer did his homework and predicted the winner very early.
There might still be a lot of luck involved. Survivorship bias is a thing. If you used the same strategy but it didn’t work for you, leave a comment for contrast, please!
One thing to note across all the interviews: Nobody was an insider. Insider trading is legal here and presumably someone more deeply involved could have had an edge. They all relied on just public information. This is another hint that prediction markets will become more accurate with increasing popularity.
Either over a long time scale, a prediction market will always be at least as good as the best expert, authoritative organization, or other information source. Or you can get rich quick. –Prediction Market FAQ
Clearly, this was a case of “get rich quick”. In a future, when there will be a hundred times as many traders, it will be harder. The upside ist that it will also be clear more quickly how promising a candidate like Johnson is compared to the other three.
It surely takes audacity to bet big on a candidate who trades below 3%. With some effort it can be done though. It is possible to make such investments with confidence. For now, there are plenty of opportunities, so next time it could be you. Don’t gamble it away!
By the way, what Apple will reveal on Monday?
Probably until next week, soon-to-be-rich readers! 😊