Betting on Global Warming

While I still have a possible bet in the pipeline, Brian Schmidt now has a real bet lined up for a total of $6-$9k. Personally I think that 0.15 oC/decade is more likely than not, but that less is a realistic possiblity given natural variablity. So while its good from an expected return view it could potentially be bad from a PR view. I wonder how important the latter is... probably not very, in 10 years time.

Brian has a spread of bets across 10, 15 and 20 years which is an interesting way of doing things. I'm still looking forward to making big money (a-la James :-) when a real market for these things developes and reselling good-odds bets for a sure fire profit becomes possible.

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The Dutch book argument of Bruno de Finetti is an argument which is supposed to justify subjective probabilities. What one does in this argument is gives probabilities an operational definition in terms of the amount one is willing to bet on some event.
The betting on climate change thing seems to have gone rather quiet.
Or perhaps part 3. I've lost track.
So, the financial questions keep coming. I'm avoiding a lot of them, because (A) they bore me, and (B) I'm really not the right person to ask. I try to stay

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Legitimate point on the PR risk. Hopefully I'd only lose on the even-odds bet but win on the 2:1, so the PR effect would be limited. And I only lose on even-odds if the increase is less than 0.13C, as opposed to voiding, so the risk is lower.

Adjusted for inflation, I hope.

The first comment from "copyworld" is some kind of spam link.

By Benjamin Franz (not verified) on 25 Apr 2007 #permalink

I too am looking forward to making big bucks out of the alarmists.

If +0.15 is 1:1 and +0.1 is 2:1, then assuming the second derivative of odds is reasonably small, a 0.0 rise in 10 years should be worth 8:1 and -0.05 16:1.

I'll take the 0.05 fall in 10 years at 16:1. US$10,000.

Mugwump - you're showing the danger of extrapolating. The 1:1 and 2:1 bets were rough guesses of what both my opponent and myself perceived as a relatively good bets - trying to draw mathematical equations from that extending to the outer edges of a graph line is ridiculous.

But, if you think the 16:1 fall is a good bet for your side, then by your logic (not mine) you should also think the 2:1 bet I negotiated is good. Contact me if you're truly interested.

Brian, I did say "assuming the second derivative of odds is reasonably small" (more accurate would have been "assuming the second derivative of log-odds is reasonably small").

Your bet is interesting because it gives us two points on your log-odds curve, from which we can get a first-order estimate of your log-odds function, which is all I am doing (fitting a straight line to the log-odds).

Assuming your log-odds function is twice-differentiable (definitely not an unreasonable assumption), a straight-line fit is locally accurate. So the question comes down to what is "local". Local here is measured in terms of the independent variable, temperature. I would have thought -0.05C/decade wasn't so far from +0.15C/decade and +0.1C/decade as to make my estimate "ridiculous" (as you put it). Eg, if you do a Taylor-series expansion about +0.1C/decade the second-order term at -0.05C/decade is 0.0225 (= 0.15 squared). At 0.0C/decade it's 0.01 (=0.1 squared). So the second derivative has to be pretty big to make the second-order terms significant.

I might take you up on your 2:1 bet after I model my own subjective probability function in more detail. I know enough already to definitely take you up on the implicit 16:1, 8:1 and perhaps even 4:1 bets.