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January 16, 2005

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Robert Schwartz

Its the old horse race bettor’s problem. The odds on favorite to win is most likley to win and least likely to make you money. The way to make money is to bet against the crowd, but only when you are actually smarter than they are.

The same is true in the stock market.

The politicians (now there is a group of outside-the-box-thinkers) blamed the CIA for overestimating Saddam Hussein and for underestimating Osama. The CIA is like the crowd at the track. They pick the favorites. AND NO CONCEIVABLE GOVERNMENTAL BUREAUCRACY WILL EVER BE ANY DIFFERENT.

Prediction Markets cannot solve the CIA problem, They can broaden the consensus, but it will still be a consensus. Case in point. The CIA consistently overestimated the economic and military strength of the Soviet Union. The only experts who saw a chink in the Soviet armor were demographers Murray Feshbach and Nicholas Eberstadt.

Cassandra was always right and no one ever believed her. If Cassandra had access to the NYSE, she could have retired rich, but she will not alter the consensus, which she will always oppose. But, the CIA or any similar bureaucracy will always spit her out (“not a team player”).

There you have it, a problem, not a solution. A contradiction in terms, a logical impossibility.

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