- Manifold Markets (disclosure: Diff advertiser!) is a good venue for betting on real-world events—but it’s the site’s markets-about-markets that will probably keep behavioral economics-focused grad students busy for a long time. Most markets on Manifold follow questions about technology, politics, economics, etc., but some of them are bets about the markets themselves. This writeup looks at one such market, which asked: "Will traders hold at least 10000x as many YES shares as there are traders holding NO shares?" This turned out to be a bet on whether "YES" traders were more willing to spend real-world money on virtual currency than "NO" traders were willing to spend real-world time on getting new users signed up. Meta-markets in general lead to counterintuitive behaviors (see dollar auctions—subject of a Manifold April Fool’s Day prank—for another example), but in a sense every market has a little meta to it, so looking at outliers is a valuable education.
- Ben Terris at the Washington Post profiles pollster and prolific political bettor Sean McElwee. When people try to predict outcomes and may also have a stake in those outcomes, there are basically three equilibria: one is to strictly separate the two, with the advantage that you get an unbiased view and the disadvantage that people who are motivated by money or who need to make a living will keep their opinions private; the second option is disclosure, which at least warns the reader to be on guard against treating someone's wishful thinking as definitive fact; and the third option is to just assume that everyone with an opinion has some kind of interest in it, which is the default that governs some interactions like informal discussions of what's going on in the market. McElwee was operating in a field that theoretically stuck with option one, where it was a norm violation to bet on campaigns while also running polls for them. But realistically, politics operates within the third option: the whole point of politics is to form coalitions in order to get things done, so the default assumption is that everyone is rooting for their side to win and will potentially benefit if that happens. McElwee's unpopularity stems, in part, from explicitly doing something that is usually implicit.
- Dwarkesh Patel has a wildly positive and very thoughtful review of The Years of Lyndon Johnson. The review is both a meditation on power (Caro's topic) and a meditation on the process of writing the book. Which is its own sort of power; a decent fraction of successful people spend time reading about previous successful people (perhaps not an ideal use of time when your career starts, but much better than doing homework). Per Patel: "If you asked me to identify a Straussian reading of the books, this would be it. That these volumes are not written to educate the public (who are portrayed as secondary characters anyways), but rather to train the next Lyndon Johnson. This is the modern liberal equivalent to Machiavelli’s The Prince - it is a guide for a person aligned with Caro’s politics on how to amass power in the American political system, and how to use that power to get things done the way Johnson was able to get them done." (I would note that The Discourses are probably a better guide to how Machiavelli thought, and are more applicable today.)
- Pradyumna Prasad has a piece on state capacity in India disguised as a review of the book In Service of the Republic. It's very easy for people in developed countries to enumerate the ways that developed institutions work better than those in poorer countries, and very hard to figure out a plausible path for those countries to catch up. Leapfrogging growth works reasonably well with physical technology; radio waves work the same in different parts of the world, so cell phones can be dropped in before landlines are widely distributed. But corporate and government behavior is the result of a long and context-dependent evolution; American companies and capital markets today would probably look quite different if railroads hadn't been so big, for example. The post closes with some good suggestions for how India's government can improve, most of which work around deficiencies in state capacity rather than assuming them away.
- Kim Zetter in Wired has a phenomenal story on the SolarWinds hack. As with any other crisis, we get more knowledge about its impact as time passes, but we also get more information about missed opportunities to have averted it in the first place. The SolarWinds attack was very well-executed, and the attackers were quite patient—they initially compromised SolarWinds in January 2019, didn't actually compromise products until February 2020, and didn't get caught until almost a year after that. Meanwhile, SolarWinds-related breaches had been identified and investigated months before the scope of the attack was widely-known. Often, when there's a story like this, the right question to ask is not "What will the next attack look like?" but "What's currently happening that's this bad or worse?"
- In this week's Capital Gains: Short-Sellers Rarely Conspire (And It’s Mostly Helpful When They Do) .
- Traffic: Genius, Rivalry, and Delusion in the Billion-Dollar Race to Go Viral: A history of the last fifteen or so years of click-chasing, focused on the Gawker network, Huffington Post, and BuzzFeed. One thing this book highlights is just how densely networked the media business was: Huffpo's founding team included Jonah Peretti (BuzzFeed's founder) and Andrew Breitbart (who would go on to found Breitbart.com, of course, but whose day job at the time was editing The Drudge Report, and whose ghostwriter for his memoir was Ben Shapiro). Even adjusting for the sources' circumstances—a large cohort of people who felt like they didn't earn as much as they should have, and who wrote viral snark for a living—it's a deeply negative book about the entire era. On the other hand, the rise of clickbait has hopefully improved people's memetic immune systems a bit; we're all familiar with curiosity gaps, artful quote-mining, and other virality tricks, and while we're not immune, we're at least a bit more aware than we otherwise would have been.
- Lost Illusions: If you don't care for viral listicles about cute animals but do want to read about writers moving to the big city, attempting to sell out, and finding themselves broke and friendless after all, Honoré de Balzac has you covered. This novel tells the story of a gifted poet who moves to Paris in the early 1820s, becomes a click-hungry media grifter (well, the contemporary equivalent), and suffers for it. Balzac likes his books to include references to real people he knew, either obliquely or by name, but the character who plays the biggest role in the story and directly inspired the book's creation is money. Lost Illusions is not really a Finance Novel, but it may be the greatest Working Capital Novel of all time, with many plot points driven by the urgent need for cash now and the exigencies of running an under-capitalized business and living an under-capitalized life. And parts of the book were written in great haste because Balzac's promises to his publisher, and his personal spending, temporarily outstripped his ability to produce novels on time. (People who read books for the exposition/info-dumps will not be disappointed; in one scene, a character proposes to his beloved, is thrilled when she accepts, and instantly launches into a multi-page summary of recent developments in the paper manufacturing business.)
- Drop in any links or comments of interest to Diff readers.
- Some time soon, The Diff is going to spend some time on the single-family landlord business (i.e. Blackstone/Invitation Homes' business). The key question we're interested in: why did it take so long for houses to become an institutional asset class, and what other assets will fit this model? Feel free to drop some comments with your insights/links, or just reply to this email if you'd like to discuss.
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