Fifteen months and more than 600,000 Americans have passed since COVID-19 first gripped the country, upending all aspects of everyday life, sports, the economy, and the public’s consciousness. On March 11, 2020, after NBA officials ushered Oklahoma City Thunder and Utah Jazz players off the court at Chesapeake Energy Arena moments before tip-off, the subsequent sports hiatus presented a dilemma for professional gamblers making a living through sportsbook apps and poker rooms: take a sabbatical, or find other things to gamble on.
Some began betting on Korean baseball. Others won six figures shooting free throws and performing push-ups. But the most controversial prop bets during the pandemic had nothing to do with Jonathan Bales’ front-leaning rests.
Professional poker players Dan Smith, Dan O’Brien, and Doug Polk applied their objective, analytical minds, offering and accepting prop bets on the pandemic’s potential impact on the World Series of Poker. Or, as poker commentator Norman Chad put it, “wagering on whether a deadly pandemic becomes even more widespread and deadlier.”
Of all people, Chad should know: Bettors bet.
But if Smith’s and Polk’s gambling interests appalled Chad, we can only imagine his reaction to Chris Hunichen. The former #1 online poker player wanted action on how many people would die in the U.S. by Sept. 1, 2020, and he hung a number on a grim future that today seems optimistic. Hunichen set the line at 100,000 deaths, and he favored the over.
Want to take over 100k deaths from covid-19 in US by September 1st. Must know you or if I don’t you must post or escrow.
— Chris Hunichen – OTCtrade.com (@BigHuni) April 5, 2020
Gamblers will find a way to bet with or without sports. But when does gambling go too far? Does it cross the line when betting lines involve a body count, or do critics undervalue the utility of math-minded market-makers risking real money on real-life matters, including potential disasters. One simple truth: Money talks, and it could speak more loudly if regulations loosened on prediction markets, allowing betting and futures contracts on… pretty much anything.
Virtues of prediction markets
Speculative markets are the best-known institution and mechanism for aggregating and assessing massive amounts of information. They pull diverse pieces from every nook and cranny of the globe, and put it all together like a puzzle to accurately price things — things like odds to show which team is most likely to win a football game, stocks to show the value of a business, and currencies that determine exchange rates.
Like betting and stock markets, prediction markets are a type of speculative market.
“The promise of prediction markets isn’t that they’re perfect, it’s that everything else is worse,” Justin Wolfers, a professor of public policy and economics at the University of Michigan, told Sports Handle in a 2018 interview.
Prediction markets harness the wisdom of the crowd to produce more accurate forecasts than experts, who, according to renowned political scientist Philip Tetlock, are no better at making predictions than dart-throwing chimps. In his book, Expert Political Judgment: How Good is it? How Can We Know?, Tetlock conducted a wide range of surveys over the course of more than 15 years. The results produced an indictment of expert prognostications, showing that they were about as accurate as random chance. All in all, Tetlock found that these experts were typically overconfident and struggled to think probabilistically.
Boosting social welfare
To be sure, price/probability discovery isn’t the only goal of prediction markets. In 2008, 22 authors, including five recipients of the Nobel Memorial Prize in Economics, joined Wolfers and Tetlock to publish “The Promise of Prediction Markets” in Science Magazine in an effort to promote prediction markets as a means of boosting social welfare.
Prediction markets signal information that can help businesses and governments make better decisions, as well as manage economic and social risks “such as flu outbreaks and environmental disasters,” the group suggested, adding, “The range of applications is virtually limitless.”
The essay was a modest proposal in the truest sense, requesting only that the Commodity Futures Trading Commission (CFTC) give three types of entities safe-harbor treatment to operate prediction markets — first nonprofits and government agencies, then private businesses, which would be limited to internal prediction markets within their respective companies.
These markets would be low stakes by nature, but prediction markets with more liquidity and higher stakes would help parties transfer risk to each other, which is a positive-sum game in itself. For example, a sportsbook may want to allow more sharp action but minimize their liability by buying NFL contracts against a specific team. And perhaps restaurants would bet that some portion of the population won’t be vaccinated by a set date as a proxy for reopening during a pandemic, or poker players could bet over/under a line for catastrophe-related deaths as a way to hedge their expected lost income if the biggest event of the year is canceled — without Twitter and escrows.
“Unfortunately, however, current federal and state laws limiting gambling create significant barriers to the establishment of vibrant, liquid prediction markets in the United States,” wrote the Science authors.
Initial response to pandemic
“In hindsight, I probably should’ve,” Brian Hastings responded when I asked if he had made any pandemic-related prop bets.
Hastings, the winner of four World Series of Poker bracelets, isn’t one to shy away from a wager.
“I don’t think anything is morally wrong with it. You aren’t influencing the outcome of what happens,” Hastings said in defense of Hunichen’s bet and others like it. “Smart people willing to bet on things can actually make people take things more seriously.”
Hoping that an intelligent person like Chris showing that he’s willing to bet on this will help others take Covid-19 more seriously and result in fewer deaths as a result of that. https://t.co/o5JC6pvSik
— Brian Hastings (@brianchastings) April 5, 2020
Hastings’ optimism is hardly far-fetched. Just ask Dan Smith, who at 10:35 p.m. on Feb. 26, 2020, laid down $20K to win $1K with Polk that the 2020 WSOP wouldn’t be canceled.
By 10:40, Smith realized he was probably underestimating the severity of the once-in-a-century virus. What had changed in a mere five minutes? Haralabos Voulgaris, a high-stakes gambler turned Head of Quantitative Research & Development of the Dallas Mavericks, wanted action.
“How much can I get down?” Voulgaris asked in a now-deleted tweet.
“F–k” Smith responded.
Smith didn’t like sitting opposite a sharp like Voulgaris. And that’s not to suggest that Smith isn’t sharp himself. You don’t win $37 million in live poker tournaments without keen, clear-eyed senses.
By the next morning, the betting odds shortened. Mike McDonald, a poker pro who also goes by the name Timex, said he’d take 16-1, giving the WSOP a 5.9% implied probability of cancellation. “2.5K vs 40K min,” meaning anyone who would take his bet had to be ready to lose at least $40K.
I'll take 16:1 (2.5k vs 40k min)https://t.co/8DGWp7UnkJ
— Mike McDonald (@MikeMcDonald89) February 27, 2020
Crystal ball blunders
As a few professional gamblers were sounding the alarm in a small corner of #GamblingTwitter, much of the American populace, including its policymakers, public health officials, and media on both sides of the political spectrum sat idly and grew “concerned” while the virus penetrated thousands (eventually many millions) of unsuspecting bodies.
A brief rewind:
February 6, 2020 – The Daily Beast determined that the common flu was a bigger threat than coronavirus.
Not to single out the Daily Beast. The media fumbled coverage of the virus writ large — although in many cases media members were only following the prompts of experts.
Feb. 27, 2020 – The CDC told people NOT to wear masks, a precaution later determined to be one of the most effective mechanisms for protection against transmission and curbing the spread of the virus.
CDC does not currently recommend the use of facemasks to help prevent novel #coronavirus. Take everyday preventive actions, like staying home when you are sick and washing hands with soap and water, to help slow the spread of respiratory illness. #COVID19 https://t.co/uArGZTJhXj pic.twitter.com/yzWTSgt2IV
— CDC (@CDCgov) February 27, 2020
May 15, 2020 – Despite a shortage of COVID-19 tests as a result of the government’s inability to ramp up production and distribution, the FDA halted an innovative, at-home testing program promoted by Bill Gates.
“The U.S. actually made it harder for the commercial testing companies to get their tests approved, the CDC had this very low volume test that didn’t work at first, and they weren’t letting people test,” a frustrated Gates told Wired last summer. “I’m surprised at the US situation because the smartest people on epidemiology in the world, by a lot, are at the CDC. I would have expected them to do better.”
The limits of expertise
A year later, in spite of a changing of the federal government’s guard, policymakers are still, as New York Times columnist Ezra Klein suggested, acting “much too timid in the way they’re fighting COVID-19.”
Klein opined “that politicians have too often hidden behind regulators,” including President Biden, who “doesn’t want to get ahead of the science,” and that “unfortunately, science can’t tell you what it does not yet know, and the virus spreads faster than our knowledge. It’s the job of politicians to weigh the information we have, and the possible benefits of experimentation, against society’s broader goals.”
But caution has ruled the day, to the dismay of Alex Tabarrok, an economist at George Mason University and harsh critic of the U.S. response to the pandemic. From Klein’s April 1, 2021, story:
No one, on either side of this debate, really knows what will and won’t destroy public trust. Britain, which has been one of the most flexible in its approach to vaccines, has less vaccine hesitancy than Germany or the United States. But is that because of regulatory decisions, policy decisions, population characteristics, history, political leadership or some other factor? Scientists and politicians are jointly managing public psychology, and they’re just guessing. If a faster, looser F.D.A. would lose public trust, that’s a good reason not to have a faster, looser F.D.A. But that’s a possibility, not a fact.
“My view is this was all psychology which no one really understood, so I just said, ‘Go with the expected value,” Tabarrok said. “Do the thing that’ll save the most lives and stick with it. That’s a better rule than trying to figure out ‘If I do this, what will someone else do?’”
Yet on April 13, the government suspended the Johnson & Johnson vaccine following the detection of six rare blood clots — all in women between the age of 18 and 48 — out of 6.8 million administered doses, a move that FiveThirtyEight’s Nate Silver was quick to criticize.
Silver isn’t a doctor, epidemiologist, or virologist. As editor-in-chief of the popular analytics website, he’s best known as a political pollster and statistical wizard. But before that, Silver was a professional poker player and built prominent baseball forecasting models.
Silver’s own critics argue that he veers too far out of his lane, often providing strong commentary and policy prescriptions on subjects not exactly in his domain(s) of expertise.
Hi, my name is Nate Silver. I’ve been fucking up with my usual game of political polling, so I’ve decided to assert my great flawless mind into the world of infectious disease, because the pandemic needs another loud voice contradicting experts and condemning each move they make.
— Ethan Embry (@EmbryEthan) April 14, 2021
With all due respect to @NateSilver538, he is not an expert on the psychology of vaccine confidence. He is a poll aggregator and political pundit. He is not an infectious disease specialist, epidemiologist, vaccinologist, virologist, immunologist, or behavioral scientist. pic.twitter.com/HBrI6zj9aa
— Céline Gounder, MD, ScM, FIDSA 🇺🇦 (@celinegounder) April 14, 2021
And then, 10 days later, an advisory committee at the CDC voted to resume the J&J vaccine. As short of a pause as it may have been, the initial decision appears to have been a bad bet that threw gasoline on vaccine hesitancy.
Given the not-so-flattering track record of experts and pundits during the pandemic, it’s worth asking if our expectations would be more accurately framed if “non-experts” — sharps like Voulgaris and Silver — were allowed to bet on catastrophes with the same ease as gambling on poker, sports, cryptocurrency, and stocks.
A way to hold people accountable
“One thing that poker players, and professional gamblers more generally, do have is an understanding of tail risks and low-probability events,” Hastings said.
In finance, a tail risk is the risk to a portfolio posed by extremely rare events. Dan O’Brien, another poker player who was bearish on the WSOP taking place and willing to put his money where his mouth was, knows the term well. He worked as a trader before leaving Wall Street for a career on the felt.
I’ll also take 16-1. Looking to bet all live WSOP Vegas events get canceled this summer. 8k-500 min. Must know you very well or post, yada yada https://t.co/s1sxcTEH6g
— Dan O'Brien (@DanOBrienPoker) February 27, 2020
He was eventually negotiated down to 12-1 and most of his wagers were made over the internet with gamblers who weren’t yet as alarmed about the coronavirus as he was. O’Brien said he thought these people had fallen victim to normalcy bias — a cognitive bias that causes people to underestimate the possibility of disasters and their potential adverse effects.
“I made the bets to make money, first and foremost,” O’Brien said. “People talk s–t on Twitter, but betting is a way to hold yourself, and others, accountable.”
Similarly, Tabarrok has referred to betting as a “tax on bulls–t.”
‘Generic smart people’ thinking like gamblers
O’Brien thought the poker community was more or less ahead of the COVID threat, in part because successful poker players are less susceptible to cognitive biases, or at least better at thinking about and identifying rather than acting on them.
In their analyses of why professional gamblers were better at preparing for the pandemic, O’Brien and Hastings both get at something that Scott Siskind, author of the popular science, philosophy, and futurism blog Slate Star Codex (now Astral Codex Ten), argues in his post, “A Failure, But Not Of Prediction,” which he wrote under his then-pseudonym Scott Alexander.
Highlighting a handful of “generic smart people” who got things right in their early COVID assessments, Siskind points out that most were not domain experts in virology. Examples include Bill Gates, Balaji Srinivasan, Eliezer Yudkowsky, and the journalists Zeynep Tufekci and Kelsey Piper.
“They didn’t beat the experts in epidemiology,” Siskind writes. “Whatever probability of pandemic the experts and prediction markets gave for coronavirus getting really bad, these people didn’t necessarily give a higher probability. They were just better at probabilistic reasoning, so they had different reactions to the same number. There’s no generic reason why smart people shouldn’t be better at probabilistic reasoning than epidemiologists.”
In essence, these people were thinking like gamblers — the successful ones.
‘Vote on values, bet on beliefs’
Among the 24 co-authors of “The Promise of Prediction Markets,” Economics Professor Robin Hanson of George Mason University may be their fiercest advocate. Hanson is an eccentric, contrarian thinker who argues we can cure the fake news endemic by issuing news accuracy bonds and who deposits money every month so that a cryonics company will freeze his head after he dies because he believes there’s a 5% chance that they’ll eventually be able to return him to life — about the same odds (20-1) Aaron Rodgers had to win NFL MVP at this time last year.
But Hanson’s most interesting proposal is an idea for a new form of governance in which policies are determined by prediction markets. “Vote on values, bet on beliefs,” is the slogan used to describe this theoretical government, known as Futarchy.
Under Futarchy, democracy wouldn’t necessarily be replaced with prediction markets. Rather, citizens would use democratic measures to say what they want, and prediction/betting markets would determine which policies and laws would best accomplish these goals.
“When a betting market clearly estimates that a proposed policy would increase expected national welfare, that proposal becomes law,” Hanson writes in a short manifesto.
Among other benefits, Hanson thinks Futarchy would minimize externalities created by the heightened partisanship of our times by incentivizing people to bet (and thus vote) on their beliefs — or, in other words, put their money where their mouths are.
“Those who know they are not relevant experts shut up, and those who do not know this eventually lose their money, and then shut up,” he writes.
Taking a liking to Futarchy
Futarchy was identified as a buzzword by The New York Times in 2008, but Hanson has had trouble convincing firms and startups to give it a try, much less an entire government.
His ideas have been taken seriously by some, however, if only momentarily.
In the early 2000s, shortly after 9/11, the Defense Department briefly funded a proposal from the Defense Advanced Research Projects Agency (DARPA) that would use prediction markets to gather intelligence and predict global political developments.
More recently, the crypto community has taken a liking to Futarchy, meshing the concept into the context of blockchains and decentralized autonomous organizations (DAOs).
Vitalik Buterin, co-founder and programmer of the decentralized, open-source blockchain Ethereum, published an Introduction to Futarchy, which summarizes key arguments for and against the idea. Other crypto pioneers, like Jeremy Gardner of Auguar, have used Ethereum to launch prediction market platforms, turning to Hanson as an advisor. But despite marketing itself as “the world’s most accessible, no-limit betting platform,” Augur and other peer-to-peer markets like it have failed to pick up steam.
Is betting on death creepy?
The ambitious intelligence project at the Defense Department, officially known as the Policy Analysis Market (PAM), was quickly beset by outcries from senators Bryon Dorgan and Ron Wyden.
“The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it’s grotesque,” Wyden said during a 2003 press conference, while the pair called the plan a “fairytale” and “useless.”
Hanson contested that PAM was not designed to be a “terrorism futures market,” as the senators alleged.
“Among the many things we do for intelligence, this is one of the least reprehensible,” Hanson told Wired. “Paying people to tell us about bad things — that’s intrinsic to the intelligence process.”
But within days of Dorgan and Wyden’s press conference, funding was scrapped, PAM was canceled, and Admiral John Poindexter was forced to resign as director of the Office of Information Awareness at DARPA.
While Wyden and Dorgan’s characterization of PAM may have been inaccurate, it does bring up a common criticism, whether fair or not, that paints robust, mostly unhindered prediction markets as grotesque and immoral institutions which violate societal norms.
Death bets and mortgage securities
Understandably, betting on death leaves people squeamish. That’s the feeling Norman Chad expressed when he decried poker players for their wanton wagering on COVID props last March. Dr. Michael Sandel, a Harvard philosophy professor best known for his Justice course, feels similarly, fearing that such markets are turning market economies into “market societies, where almost everything is up for sale.”
Sandel is worried that monetizing certain areas in life corrupts, debases and corrodes our moral values. “Wagers on death…give investors a rooting interest in the prompt passing of the people whose policies they buy,” Sandel writes, referring to secondary markets in life insurance policies in his book What Money Can’t Buy: The Moral Limits of Markets. Wall Street firms are securitizing secondary insurance markets, doing for death bets what they did for mortgage securities, and it is “corrosive of human sympathy and decency,” argues Sandel.
As a result, “we are not really engaging in our public life with big moral questions that matter,” Sandel said in a 2012 interview with PBS NewsHour. “And if we don’t, we will never be able to contend as a democracy with the growing reach of markets into every sphere in life — we will not be able to decide where markets serve the public good and where they don’t belong.”
Spheres of life and death
Counter to Sandel and Chad, most of the gamblers I spoke to have no problem separating their rooting interests from their bets.
“That argument never made much sense to me,” O’Brien said. “The outcomes are the outcomes.”
Similarly, Bales said he saw no problem with a bet on death as long as the participants cannot reasonably affect the outcome.
Two other high-stakes DFS players, Jon Horst, who’s better known by the screenname ARaven52, and Assani Fisher, were more conflicted on the matter.
Horst joined a group called the “Corona Poker Club” as a way to pass time and find action while sports were off the grid, but avoided making any bets related to COVID itself. “I wasn’t comfortable betting on deaths,” Horst said. “Didn’t feel right to me.”
Fisher, who played poker professionally in addition to DFS, was planning his annual trip to the World Series of Poker before seeing McDonald (Timex) and another high stakes guy betting on it being canceled. “That was my first sign, or the first time I realized that like holy s–t, COVID is a real thing that is going to affect us severely.”
Fisher said he thinks there needs to be some sense of decorum when it comes to respecting people who are dying.
“I can’t explain why, but I guess something about my moral compass goes off a bit when you start betting over-under on actual deaths,” Fisher said. “Rooting for someone to die is a pretty sh–ty thing to do.”
But betting the over on 100,000 deaths didn’t compel Hunichen to root for as many COVID fatalities as possible.
“U guys seriously don’t get it?” Hunichen responded to critics on Twitter. “I am not rooting for deaths and have already said I hope I lose. But unfortunately too many f–king idiots refuse to take this serious and refuse to stay home or practice social distancing.”
Death lines vs. airline stocks
I suppose now is as good a time as any to confess I made a modest $100 wager on over 200K COVID-deaths with my dad in May 2020. I find Dr. Sandel’s view of humans far too pessimistic. Most people don’t take betting on death lightly, and if they’re willing to place a wager, there’s likely good reason for it.
Fortunately, we have yet to see a correlation between shorting life insurance securities (which make insurance cheaper) and murder. There are already implicit pandemic-related prediction markets, like airline stocks, that might appease the appetite of someone like Fisher. There are also options on the NYSE:SCI which provide funeral-related goods and services (looks like they’re up during the pandemic), and other “vice” stocks. But if it’s come-to-Jesus moments we’re looking for — like the kind that made Fisher take COVID-19 more seriously — I’ll bet death lines are more effective at delivering them than the price of an airline stock.
Moreover, engaging in big moral questions that matter is precisely what Hanson and Hunichen have done. Prediction markets and death bets may shake up skeptics, inform policymakers on real risks, and actually help save lives.
Though there’s still a long way to go, prediction markets are one step closer to delivering on their promise. The CFTC appears to have read that 2008 paper, clearing some regulatory barriers and recently approving a San Francisco-based startup, Kalshi Inc., as a Designated Contract Market (DCM) that will allow users to bet “yes” or “no” on questions about future events.
The announcement came in November 2020, and established Kalshi, which is also the Arabic word for “everything,” as the first regulated financial exchange dedicated to trading event contracts.
“This designation opens a new chapter in U.S. financial history, one where investors can hedge and mitigate everyday risks,” co-founder and CEO Tarek Mansour said, adding that the announcement marked a paradigm shift for financial markets.
Bettors won’t be able to bet on everything, to be sure. War, terrorism, assassinations, and gaming are still a no-go — restrictions on those are probably for the best. And right now, visitors to Kalshi’s homepage can’t yet bet on anything. Instead, they’re simply given the opportunity to reserve their spot on a waitlist.
So Mansour’s bold call that Kalshi will mobilize a paradigm shift is still to be determined. Hypothetically speaking, though, what’s your bet: yes or no?