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End of Worlders: Classic Game Theory Error

Posted By Barry Ritholtz On May 20, 2011 @ 10:12 am In Really, really bad calls,UnScience | Comments Disabled

There is an Evangelist named Harold Camping, who claims the world will end tomorrow [1].

He has violated the first rule of forecasting: You can give a price target ($0) or a date (tomorrow) but never both at once.

Besides, the end of world forecast carries additional risks. People have been making Armageddon forecasts for, like, forever. So far, not one has paid off. Oh-fer-∞.  (Perhaps the long  shot odds are attractive to risk takers).

But its a stupid bet for the simple reason that there is no upside:

a) If you are right, your counter-parties will be dead and unable to pay off the wager.

b) If you are wrong, you look a fool AND have to pay out your obligations (Hey Moose, Rocco, help the judge find his wallet )

The Mayan predictions of the end of the world holds no sting for them — their world ended a long time ago.

Harvard historian Niall Ferguson knows this lesson well — in Colossus: The Rise and Fall of the American Empire [2], he describes the inevitable decline of the United States, but neglects to give a “Sell By” date


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2011/05/end-of-worlders-classic-game-theory-error/

URLs in this post:

[1] claims the world will end tomorrow: http://clayton.patch.com/articles/bay-area-evangelist-claims-end-of-world-is-saturday

[2] Colossus: The Rise and Fall of the American Empire: http://www.amazon.com/exec/obidos/ASIN/0143034790/thebigpictu09-20

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