Timeline for Can someone explain rigorously Taleb's criticism of Nate Silver's election forecasting?
Current License: CC BY-SA 4.0
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| Jan 14, 2021 at 22:40 | comment | added | Kartik Chugh | @roz The key point is that the prices should reflect proper updating, which Taleb defines as martingale valuation-based revision. Otherwise, the pricing is systematically wrong and theoretically can be exploited by Dutch booking. e.g. one casual commentator suggests that when the 538 forecast for a candidate goes up one day, it is more likely to go up the next day as well. Clearly the "underlying volatility of the asset" (as Taleb would say) is not being properly priced in at any stage. | |
| Aug 12, 2019 at 13:38 | comment | added | roz | Buying the binary when its price is very low and selling it when its price is very high based on the assumption that vol is very high is not an arbitrage; you are just trading vol. So if this is the process that Taleb is referring to when he says arbitrage, I think he is not correct. | |
| Aug 12, 2019 at 13:34 | comment | added | roz | I understand that as volatility increases the price of the binary approaches 0.5. I also understand the mapping between binary bets, choice prices, and probabilities. What I do not understand is what exactly the arbitrage process is. Taleb makes a claim that Silver can be arbitraged via a Dutch book sort of procedure. But I do not see how. I have read the papers you linked and either they do not explain it or I am just not understanding it. Do you know how? | |
| Aug 12, 2019 at 10:16 | history | edited | alexbougias | CC BY-SA 4.0 |
added 153 characters in body
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| Aug 12, 2019 at 10:03 | history | answered | alexbougias | CC BY-SA 4.0 |