Exploring the Eclipse of Equality

Posts Tagged ‘Economic Stories’

Singing (off tune) in the Rain: Selling depression in a downturn

In Uncategorized on February 17, 2010 at 9:15 am

So consider this screen shot from the website for Intrade.

Price for Will the US economy suffer a depression before the end of 2009? (Please Read Contract Rules) at intrade.com

Now I am a bit of an old fogey when it comes to predicting social phenomena, and I like to use surveys and well crafted questions that somehow get respondents to fairly query their own subjective states and report them to the researcher in a way that can be aggregated and generalized to the appropriate population. With that being said, I have been convinced that the use of the “money where your mouth is” technique that the prediction site, intrade, uses is pretty reliable stuff.  So as we consider this graph, and I read it correctly, we see that back in February or March (I am having trouble seeing which), there was a market estimate of around 50% that we would have a decline in GDP of 10% or less (that is a depression) in 2009.  I assume that the spike here is right around the point where the ARRA was passed. The estimates of the real decline from the Bureau of Economic Analysis is 2.4%. So, barring some wild adjustment to the numbers, we can say that it didn’t happen. But we should note that around the time of the new TARP bill and the stimulus, the markets were just about even on the odds of a depression. That is pretty wild.

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