Thursday, April 18, 2013

Nerd Sweepstakes: We Have a Winner!

There's an episode of Cheers where the entertainment at the accountant's party is the guy who can recite all the telephone area codes.  I think he loses the nerd sweepstakes to this guy at the Berkeley economics and annual skit party, with charity auction add-on:
Professor Gorodnichenko (who also swept the awards ceremony tonight, winning the Best Professor and Best Adviser awards) donated another auction item-- a check with the amount drawn from a beta distribution with parameters alpha=3 and beta=2, multiplied by $100. The beta distribution is only nonzero on the unit interval, so the check will have value between $0 and $100. The mean of the beta distribution is alpha/(alpha+beta), so the expected value should be $100 (3/5)=$60. The item went for $50 -- so everyone in the audience must have been risk averse, loss averse, financially illiterate, or liquidity constrained (or some combination, like me.)
 Link. That would be Yuriy Gorodnichenko, and he is apparently all in at this game: he also offered to stump up $500 "if Christina Romer or Janet Yellen becomes Fed chair at any time in the future."  Any time?

1 comment:

Ken Houghton said...

"he also offered to stump up $500 "if Christina Romer or Janet Yellen becomes Fed chair at any time in the future." Any time?"

Presumably the deal is only valid during the lifetimes of both bettors and has a value of zero if both CRomer and Yellen pre-decease them.

That one went for $220. I would certainly sell CRomer at 2:1, and the window for Yellen is probably severely constrained even if you think she should be something like 7:5 for next year. (I don't think the Biden Administration has the brains to understand how much they need her if BenB declines a third term.)

So that's probably about fair value, or even a little rich for my blood.