Stephen Grugett is the co-founder of Manifold Markets, the world's largest prediction market platform where people bet on politics, tech, sports, and more.
Steve and Stephen discuss:
0:00 Introduction
0:52 Stephen Grugett’s background
5:20 The genesis and mission of Manifold Markets
11:25 The play money advantage: Legalities and user engagement
20:47 Manifold’s user base and the power of calibration
23:35 Simplifying prediction markets for broader engagement
27:31 Revenue streams and future business directions
30:46 Legal challenges in prediction markets
31:47 Dating markets
32:53 The Art of PR
38:32 Global reach and community engagement
39:27 The future of Manifold Markets and user predictions
43:38 Life in the Bay Area; Tech, culture, and crazy stuff
Steve and Corey talk to Warren Hatch, President and CEO of Good Judgment Inc. Warren explains what makes someone a good forecaster and how the ability to integrate and assess information allows cognitively diverse teams to outperform prediction markets. The hosts express skepticism about whether the incentives at work in large organizations would encourage the adoption of approaches that might lead to better forecasts. Warren describes the increasing depth of human-computer collaboration in forecasting. Steve poses the long-standing problem of assessing alpha in finance and Warren suggests that the emerging alpha-brier metric, linking process and outcome, might shed light on the issue. The episode ends with Warren describing Good Judgment’s open invitation to self-identified experts to join a new COVID forecasting platform.
In mathematics, a manifold is a topological space that locally resembles Euclidean space near each point.
Steve Hsu and Corey Washington have been friends for almost 30 years, and between them hold PhDs in Neuroscience, Philosophy, and Theoretical Physics. Join them for wide ranging and unfiltered conversations with leading writers, scientists, technologists, academics, entrepreneurs, investors, and more.
Steve Hsu is VP for Research and Professor of Theoretical Physics at Michigan State University. He is also a researcher in computational genomics and founder of several Silicon Valley startups, ranging from information security to biotech. Educated at Caltech and Berkeley, he was a Harvard Junior Fellow and held faculty positions at Yale and the University of Oregon before joining MSU.
Corey Washington is Director of Analytics in the Office of Research and Innovation at Michigan State University. He was educated at Amherst College and MIT before receiving a PhD in Philosophy from Stanford and a PhD in a Neuroscience from Columbia. He held faculty positions at the University Washington and the University of Maryland. Prior to MSU, Corey worked as a biotech consultant and is founder of a medical diagnostics startup.
First some basic assumptions, for which I think the evidence is strong (reference):
1. R0 ~ (2-3) or higher in a permissive environment -- no strong efforts at social distancing, quarantine, etc.
2. Fatality rate: roughly 1 percent of cases, heavily concentrated in older individuals and/or those with pre-existing conditions. Note this assumes a well-functioning health system and resources for the 5% or so of cases that need intensive care. See below.
3. In situations like #1 above, doubling time could be as short as a few days. Number of infections in Italy grew by ~1000x over the month of February -- i.e., 2^10 or 2+ doublings per week!
USA has perhaps ~1M total hospital beds, over half already occupied, and perhaps 50k ICU spaces. For those infected, the distribution of severity is roughly (again, concentration in vulnerable sub-populations):
So roughly 1M infected at a given time would overwhelm US health capabilities. We probably have at least ~1000 infected in the country at the moment, so in the absence of serious measures like social distancing (cancellation of sporting events, large meetings, moving to K12 and college distance learning, etc.), we would reach the health system breaking point in about a month. Many other countries, in Europe and elsewhere, are facing a similar situation.
Whether we impose draconian social measures (which would have a strongly negative effect on cafes, restaurants, hotels, airlines, theaters, etc.) or let COVID-19 infect millions of people, we are in for at least a one quarter downturn (recession?) with the possibility of more significant nonlinear events (complete market collapse, systemic failures). Traders already understand this, which is why equities are in huge decline despite a 50 bp Fed rate cut last week. I went largely to cash already...
We have technology that could help us fight the epidemic. The article below, in the Journal of the American Medical Association, describes how Taiwan successfully handled the epidemic -- less than 50 cases! -- despite close proximity and extensive travel to China. (Note, Taiwan in Jan-Feb is a bit warmer than Milan, but I don't think climate is the entire reason for their good performance...) Google and Apple have these technical (geolocation, tracking) capabilities, but they don't like to emphasize it to the public.
JAMA. Published online March 3, 2020. doi:10.1001/jama.2020.3151
Taiwan is 81 miles off the coast of mainland China and was expected to have the second highest number of cases of coronavirus disease 2019 (COVID-19) due to its proximity to and number of flights between China.1 The country has 23 million citizens of which 850 000 reside in and 404 000 work in China.2,3 In 2019, 2.71 million visitors from the mainland traveled to Taiwan.4 As such, Taiwan has been on constant alert and ready to act on epidemics arising from China ever since the severe acute respiratory syndrome (SARS) epidemic in 2003. Given the continual spread of COVID-19 around the world, understanding the action items that were implemented quickly in Taiwan and assessing the effectiveness of these actions in preventing a large-scale epidemic may be instructive for other countries.
COVID-19 occurred just before the Lunar New Year during which time millions of Chinese and Taiwanese were expected to travel for the holidays. Taiwan quickly mobilized and instituted specific approaches for case identification, containment, and resource allocation to protect the public health. Taiwan leveraged its national health insurance database and integrated it with its immigration and customs database to begin the creation of big data for analytics; it generated real-time alerts during a clinical visit based on travel history and clinical symptoms to aid case identification. It also used new technology, including QR code scanning and online reporting of travel history and health symptoms to classify travelers’ infectious risks based on flight origin and travel history in the past 14 days. Persons with low risk (no travel to level 3 alert areas) were sent a health declaration border pass via SMS (short message service) messaging to their phones for faster immigration clearance; those with higher risk (recent travel to level 3 alert areas) were quarantined at home and tracked through their mobile phone to ensure that they remained at home during the incubation period.
Google + Apple + cell carriers have the data to detect near collisions (proximity) between COVID-19 spreaders (once diagnosed) and other individuals. This can be done anonymously: i.e., public health services get a warning that a spreader visited nursing home X on timestamp T without naming the spreader. Another alternative (see WSJ video below) is to have an OPT-IN app that checks location history and warns if you were in close proximity to a spreader. The PRC government version of this app has been used by 200M+ Chinese already -- note it's OPT-IN. The companies above have the data to do this but don't like it to be known that they can.
Note Added: Latest results from the beginnings of broader testing in Seattle suggest that the virus is widespread in the community already. The number of cases detected is primarily limited by number of tests:
Nature: “We are past the point of containment,” says Helen Chu, an infectious-disease specialist at the University of Washington School of Medicine (UW Medicine) in Seattle. “So now we need to keep the people who are vulnerable from getting sick.”
I checked the weather records for Seattle in February 2020: daily highs in the mid-40s to mid-50s. There is very little chance that wintry areas of the US will be warmer than this over the next 30 days, even with an early spring. So I don't see that US spread in those regions can be mitigated by anything less than social distancing and other strong measures. Weather will probably not save us.
Front line tweets from Italian doctors describe medical resources pushed to the breaking point. I hope we do not experience this in the US, but I don't see how we will avoid it: [1] [2]
Some interesting information about transmission (surfaces, air in confined spaces) at the beginning; Italian overload at 17m; S. Korean data at 19m.
Speaking of high frequency trading, here's Zero Hedge on the Renaissance vs. Volfbeyn and Belpolsky matter. Related posts here and here.
130. While employed by Renaissance, Dr. Volfbeyn's superiors repeatedly asked him to assist Renaissance in conducting securities transaction that Dr. Volfbeyn believed to be illegal.
The illegality of these activites touched upon three main topical areas:
ITG-POSIT (The Dark Pool angle)
131. In particular, Dr. Volfbeyn was instructed to devise a strategy to defraud investors trading through the Portfolio System for Institutional Trading ("POSIT"). POSIT is an electronic trading system operating by Investment Technology Group ("ITG" ). POSIT collects buy and sell orders from large traders and attempts to match them.
132. On information and belief, POSIT is completely confidential. It does not reveal information about orders to anyone. For its customers, this confidentiality is an essential aspect of the system.
133. Renaissance asked Dr. Volfbeyn to create a computer algorithm to reveal information that POSIT intended to keep confidential [REDACTED]
134. Renaissance intended to, and did, use this trading strategy [the POSIT strategy] to profit [REDACTED]
135. Dr. Volfbeyn believed that [REDACTED] [the POSIT strategy] violated securities laws. He expressed his opinion to his superiors at Renaissance and refused to build the computer algorithm as they requested.
Limit Order Strategy [Stealing Liquidity]
139. Renaissance asked Dr. Volfbeyn to develop a computer algorithm [REDACTED] [the "limit order strategy"]
140. A limit order is an instruction to trade at the best price available, but only if the price is no worse that a "limit price" specified by the trader. Standing limit orders are placed in a file, called a limit-order book. Limit-order books on the New York Stock Exchange and NASDAQ are available to be viewed by anyone.
141. By [REDACTED], Renaissance intended to profit illegally.
142. Dr. Volfbeyn refused to participate in such activities. He explained that his refusal was based on his belief that the proposed transactions violated securities laws [2nd time RenTec allegedly used an illegel strategy]
143. Senior Renaissance personnel, including Executive Vice President Peter Brown and Vice President Mark Silber, attempted to persuade Dr. Volfbeyn to engage in the [REDACTED] limit order strategy, despite his objections. Mark Silber is the compliance officer for Renaissance, responsible for implementing systems to ensure that Renaissance does not violate the securities laws, and for protecting employees who complain about potentially illegal conduct.
144. On information and belief, Renaissance did not implement the [REDACTED] limit order strategy prior to Dr. Volfbeyn's termination. [What about after?]
Swap Transactions [The Naked Short Scam]
145. At all times relevant to this action, Rule 3350 of the NASD, prohibited NASD members, with certain exceptions from effecting short sales in any Nasdaq security at or below the current national best (inside) bid when the current national best (inside) bid is below the preceding national best (inside) bid in the security.
146. At all times relevant to this action, Rule 10a-1 under the Securities Exchange Act of 1934 provided that, subject to certain exceptions, an exchange-listed security could only be sold short at a price above the immediately preceding reported price or at the last sale price if it is higher than the last different reported price.
147. During the period when Dr. Volfbeyn and Dr. Belopolsky were employed at Renaissance, plaintiff engaged in a massive scam [REDACTED] [the "swap transaction strategy"]
148. [REDACTED]
149. [REDACTED]
150. Renaissance conducted [REDACTED] in violation of Rule 3350 and Rule 10a-1. Renaissance also intentionally [REDACTED] in violation of SEC and NASD rules. [REDACTED] Renaissance profited from the strategy [REDACTED].
151. Researchers at Renaissance expressed their concern to Executive Vice President Peter Brown and other officials of Renaissance about the legality of these swap transactions, including concerns that the transactions violated the tax laws and securities laws. Renaissance failed to halt the transactions. On information and belief, the swap transactions are continuing and generate substantial profits for Renaissance.
Here is a NYTimes graphic illustrating the decrease in market capitalization of financial firms. In 2007 they were 20% of the total stock market capitalization of $20 trillion dollars. By today they comprise about 17% of a $15 trillion market. (In other words, financials as a group are down about 15% relative to the market as a whole.) If you mouse over a particular company (on the Times flash version, not here) you can see how much its shares have lost over the last year.
This brings to mind a conversation I had a couple of years ago with hedge fund manager David Kane on whether "financial games" necessarily lead to more efficient allocation of economic assets in our society. I think everybody agrees now that we had (and still have -- 20% to go!) a massive housing bubble in which assets were overallocated to investment in homes. The use of leverage to make these investments is what has led to the destruction of so many major financial firms. Interestingly, many people predicted a few years ago that hedge funds would be a source of systemic risk, but so far in this crisis they haven't played a big role. Perhaps that is yet to come.
David, if you are still reading this blog, I would love to hear your thoughts on current market events! [David's comments are here -- well worth reading.]
Deep thinker John McCain was very quick to throw Wall St. and the financiers under the bus in his remarks yesterday.
Gee, is there a market failure? If life sciences are so important to society, why doesn't the market reward researchers the way it does hedge fund managers? Does government really need to interfere? Obviously I agree with Summers, but I don't think strong believers in markets as resource allocators for society can do so without questioning some of their beliefs.
Note, though, it's a bit more complicated than Summers makes it out to be. Biologists who start companies can become rich, but it's a longer and riskier road than heading directly into business or finance.
[Very nice discussion over at DeLong's blog, including explanation of market failure vs externalities, why the science track is for masochists, comparative advantage, etc.]
FT.com / Columnists / Lawrence Summers - America must not surrender its lead in life sciences: If the 20th century was defined by developments in the physical sciences, the 21st century will be defined by developments in the life sciences. Lifespans will rise sharply as cures are found for chronic diseases and healthcare will come to be a larger share of the economy than manufacturing. Life science approaches will lead to everything from further agricultural revolutions to profound changes in energy technology and the development of new materials....
It is natural to ask whether the US will lead in the life sciences in this century as it did in the physical sciences in the last. It is a profoundly important economic question, but one whose implications go far beyond to embrace issues of national security and moral leadership. At present, if one looks at levels of investment or at research output or at the prestige of leading institutions, the US is clearly leading in the life sciences. But past performance is no guarantee of future success. In the first third of the 20th century, Europe and Europeans were the dominant source of discoveries in physics....
If America is to maintain its leadership in life sciences in the 21st century, important steps must be taken. Most abstract but most important, there needs to be respect for the scientific method and its results. In sharp distinction to the situation in other industrial countries, there is an increasing move away from respecting the scientific method in US schools....
Second, funding.... During the past three years, when there has been more possible in the life sciences than there has ever been, when we are on the cusp of achieving important breakthroughs in everything from stem cells to the treatment of cancer, government funding for science research has been cut in real terms. This has been particularly hard on young researchers starting out in their careers....
In today's economy an outstanding graduate of a leading business school earns a substantially higher salary than a potential Nobel prize winner graduating with a PhD in biology. Several years after graduation the differences are even more pronounced. It should not be a surprise that in light of this economic reality more of our talented young people are not headed towards careers in basic research in the life sciences.
Third, we need to control the role of politics in allocating science dollars, which are currently tossed around like so many political footballs.... [I]t is not a step towards a healthier 21st century to allow the views of a vocal minority in effect to cut off funding for embryonic stem cell research -- which is likely to lead to revolutions in the treatment of Parkinson's disease, diabetes and cancer within the next generation.
Finally, we need to support clusters of extraordinary performance. If competition is individualistic, the US is going to have a very difficult time because salary levels adjusted for talent are going to be much lower in other parts of the world. Rather than focus on each individual as an island unto him or herself, the US needs to focus on fostering clusters of innovation such as Silicon Valley in information technology, Boston in the life sciences, New York in finance -- where each talented individual derives his or her strength from all that is around. Competing with that on price is much more difficult...
