Blog Archive for the ‘Long Bets’ Category

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Russian software industry fails to take global lead – Long Bet 5

Posted on Thursday, February 7th, 02013 by Austin Brown
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This was one of the our first Long Bets, made in 02002. Over ten years ago now, Esther Dyson predicted that,

Russian_Federation_(orthographic_projection).svg

“By 2012, the Wall Street Journal and the New York Times will have referred to Russia as “the world leader in software development” or words to that effect.”

She was challenged by Bill Campbell, who argued,

“As long a there is business opportunity… and I am confident that there will be… the US will provide world leadership in software development.”

He backed up his argument by putting in stakes of $5,000, which Dyson matched.

In reviewing the Bet, we found no such remarks in either publication. American software companies like Google and Facebook remain dominant in the American press. Many countries are contributing more and more to the global IT industry, but none as much as India, according to this graph generated from IMF data.

Winner: Bill Campbell, Challenger

The winnings of this Bet ($10,000 plus half the accrued interest) will go to the Computer History Museum.

Long Data: Predicting Solar Storms

Posted on Friday, February 1st, 02013 by Austin Brown
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As Samuel Arbesman’s recent article on Long Data might suggest, all the data in the world on the Sun’s activities today can’t tell us what it will do tomorrow. But careful observation over the last several centuries has allowed us to develop a predictive understanding of the patterns in solar storm activity.  This collection of long data and the insights it provides won’t guarantee you only see ads that are relevant to you, but it does keep our global electrical and telecommunications infrastructure running.

Long Now intern Sandy Curth writes:

Researchers at NASA’s Marshall Space Flight Center recently posted their solar cycle predictions for 02013. This coming fall is predicted to be the peak of the twenty-fourth 11- year sunspot cycle on record. Though that might sound scary, this peak is actually anticipated to be the lowest since 01906. While the expected solar activity and its impacts for this year aren’t likely to break many records, the source of these predictions is an exceptional example of long term thinking with data stretching back over 350 years.

Since the start of the 18th century, astronomers have been consistently noting the number of spots on the sun, with records of sunspot observation dating back to 364BCE in the star catalogue of Chinese astronomer Gan De. Belgium’s Solar Influences Data Analysis Center offer sunspot data yearly from 01700, monthly from 01750 and daily beginning in 01874. Modern solar predictions are created by analyzing trends in this data and measuring activity in the Earths magnetic field caused by the sun.

NASA solar physicist Dr. David Hathaway explains the details:

A number of techniques are used to predict the amplitude of a cycle during the time near and before sunspot minimum. Relationships have been found between the size of the next cycle maximum and the length of the previous cycle, the level of activity at sunspot minimum, and the size of the previous cycle.

Among the most reliable techniques are those that use the measurements of changes in the Earth’s magnetic field at, and before, sunspot minimum. These changes in the Earth’s magnetic field are known to be caused by solar storms but the precise connections between them and future solar activity levels is still uncertain.

Another indicator of the level of solar activity is the flux of radio emission from the Sun at a wavelength of 10.7 cm (2.8 GHz frequency). This flux has been measured daily since 1947. It is an important indicator of solar activity because it tends to follow the changes in the solar ultraviolet that influence the Earth’s upper atmosphere and ionosphere. Many models of the upper atmosphere use the 10.7 cm flux (F10.7) as input to determine atmospheric densities and satellite drag.

Predicting the behavior of a sunspot cycle is fairly reliable once the cycle is well underway (about 3 years after the minimum in sunspot number occurs [see Hathaway, Wilson, and Reichmann Solar Physics; 151, 177 (1994)]). Prior to that time the predictions are less reliable but nonetheless equally as important. Planning for satellite orbits and space missions often require knowledge of solar activity levels years in advance.

Even though many of the Sun’s systems are still a mystery, scientists are able to predict its activity well enough to keep our communication satellites on track and give us time to prepare for powerful geomagnetic storms that can black out whole cities.

The first solar storm recorded was in September of 01859 and reportedly caused major failures in the world’s developing telegraph system and auroras as far south as the Caribbean. More recently, a less severe storm in 01989 left six million Canadians without power for nine hours. Predicting the next major solar event is becoming as important to maintaining our infrastructure as predicting the next hurricane.

Taking the past seriously is a clear route to a good prediction, but having the presence of mind to collect seemingly useless data to make predictions easier for future thinkers is worth contemplating. Astronomers centuries ago did not have tangible applications for the data they recorded on the sun. Luckily, though, they took the time to carefully collect and compile what they could see so that today, as scientists realize the potentially devastating impact of a severe solar storm, their data becomes priceless.

How to Win at Forecasting – an Edge conversation with Philip Tetlock

Posted on Monday, December 10th, 02012 by Austin Brown
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Former SALT speaker Philip Tetlock spoke with Edge recently about his research into forecasting. In 02005, he published Expert Political Judgement: How Good is it? How Can We Know?, for which he spent over a decade recording and assessing the predictions made by public policy experts. He found them to be not much better than coin-flipping, but was also able to specify that “Hedgehogs” (those holding a single grand theory and fitting events into its framework) did much worse than “Foxes” (skeptical, flexible thinkers).

In his conversation with Edge, he expands on what makes Foxes better predictors, using Nate Silver as a jumping off point, and offers an update on his work since Expert Political Judgement:

Perhaps the most important consequence of publishing the book is that it encouraged some people within the US intelligence community to start thinking seriously about the challenge of creating accuracy metrics and for monitoring how accurate analysts are–which has led to the major project that we’re involved in now, sponsored by the Intelligence Advanced Research Projects Activities (IARPA). It extends from 2011 to 2015, and involves thousands of forecasters making predictions on hundreds of questions over time and tracking in accuracy.

Exercises like this are really important for a democracy. The Nate Silver episode illustrates in a small way what I hope will happen over and over again over the next several decades, which is, there are ways of benchmarking the accuracy of pundits. If pundits feel that their accuracy is benchmarked they will be more careful about what they say, they’ll be more thoughtful about what they say, and it will elevate the quality of public debate.

By the way, the forecasting contest he mentions is accepting submissions.

Long Bets Bet – How Durable Are URLs?

Posted on Friday, March 23rd, 02012 by Austin Brown
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A major concern of the digital dark age is link rot – the eventual failure of URLs to point to the intended files. As website maintenance falters for any number of reasons the pages can cease to be accessible, even though their addresses may be listed on many other sites.

The notion that Long Bets will be around to assess wagers many years (in some cases, over a hundred) into the future struck web developer Jeremy Keith as a bit far-fetched. In the spirit of the site, therefore, he made a Prediction that the URL pointing to the Prediction he was making wouldn’t last 11 years.

He gave a talk at Webstock earlier this year called Of Time and the Network exploring our changing perception of time as a result of our changing level of interconnectedness. At 31:30 he discusses his thoughts on long-term challenges to the accessibility of URLs and dares someone to take him up on the Bet. You can read a transcription of the talk and a blog post he wrote about the Bet itself.

Another presenter at Webstock, Matt Haughey, was game. He gave a talk later in the conference about long-term thinking in the context of the web and, while consistent URLs weren’t the main focus, he touched on the problem and actually officially challenged Keith in his presentation – check it out in the video at 18:50. He was also kind enough to transcribe his talk for those who’d like to read it.

We’re very excited to have this Bet on record and it’s being closely watched by our systems administrator, designer and web developer Benjamin Keating.

Keith and Haughey have each offered stakes of $500, with the winnings going to either the Bletchly Park Trust or the Internet Archive. You can read and comment on their arguments and the detailed terms we’ll use to adjudicate the Bet at Long Bets.

Buffett gains ground in hedge fund bet

Posted on Thursday, March 22nd, 02012 by Austin Brown
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In 02008, Warren Buffet placed a Long Bet that will take until 02017 to resolve. He predicted that for those ten years, “the S & P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.

Below is a summary of how things went in the fourth year of this Bet, as published by Fortune Magazine:

Four years into a 10-year wager that the S&P 500 index will return more than a selection of hedge funds, Warren Buffett has almost caught up with his competition.
By Carol Loomis, senior editor-at-large

FORTUNE — Results are in for 2011, the fourth year of the 10-year wager that is sometimes called, rather loosely, The Million-Dollar Buffett Bet. In this competition about investment performance, Warren Buffett is contending that an S&P 500 index fund will outscore the average return of five hedge funds of funds picked by his betting opponent, New York asset management firm Protégé Partners.

The standings now — which we will reveal in a minute — inevitably bring to mind Buffett’s reaction after the bet’s first year, 2008.

Both sides were clobbered in that market year from hell. But Protégé’s fund-of-funds picks (whose names, by the terms of the bet, have never been publicly disclosed) were down, on the average, by “only” 23.9%. Vanguard’s Admiral shares, which are Buffett’s entry in the bet, lost a dismal 37%.
From this way-behind position, Buffett was quoted in Fortune as saying, “I just hope that Aesop was right when he envisioned the tortoise overtaking the hare.”

And that’s close to what has since happened. Buffett’s index-fund tortoise won the second and third years and — you are reading it here first — also prevailed in the fourth. Not that the 2011 winner was much of a star: Admiral shares were up only 2.08%. But the five funds of funds, on the average, were down 1.86%.

All of which leaves tortoise and hare gasping alongside each other at the end of four years — and having absolutely nothing to cheer about. Protégé is still a bit ahead. But its funds of funds, on the average, are in the minus column for the period by 5.89%. Admiral shares are down 6.27%.

If we really mix metaphors and think about this contest as a baseball game, what we have here is a 0-to-0 tie after four innings, with each side doing nothing but striking out and alienating every fan watching.

The wager, however, has produced one sterling investment over the four years — and that was made, without brilliance aforethought, by Buffett and Protégé themselves. A little background: The idea was to set terms that would deliver $1 million to a charity chosen by the winner. If Buffett triumphs, the money goes to Girls Inc. of Omaha; if it’s Protégé on top, the beneficiary is Absolute Returns for Kids.

To ensure that $1 million would be there at the end of the bet, Buffett and Protégé each put up roughly $320,000 to buy a zero-coupon Treasury security. The total of about $640,000 was used to purchase a bond that will be worth $1 million at the bet’s conclusion. This collateral is being overseen by the Long Now Foundation of San Francisco, which administers “long bets” set up by any competitors wanting to memorialize a gamble.

In a period of declining interest rates, which we certainly have had, what happens to a zero-coupon bond is that its market price races toward the maturity value — $1 million in this case. Recently, the value of the Buffett-Protégé bond was about $930,000, which means that in just over four years it is up 45% from the purchase price. That doesn’t match the payoff from Apple (AAPL), but it’s a heck of a run during a time when the general stock market was a dog.

Both Buffett and Ted Seides, the Protégé partner who engineered the 10-year-bet, are well aware that the returns to be earned by the zero-coupon bond from its price today can be no better than meager for the nearly six years left in the bet. That’s because the ceiling is the bond’s maturity value of $1 million. The view is definitely unappealing, says Seides: “We’re looking at annual returns that won’t be much better than 1%.”

So the two sides began a few weeks ago to talk to the Long Now Foundation about its selling the zero-coupon bond and putting the proceeds into an investment that putatively could deliver the winning charity more than $1 million when the bet winds up. The first plan discussed was for half of the proceeds to be invested in Buffett’s company, Berkshire Hathaway (BRKA), and the other half to be invested in a fund of funds that Protégé runs (and that has always been assumed to be one of the five funds of funds that Protégé picked for the bet). But that plan died because it would have required Long Now to become a partner in the fund and, for complex reasons arising from the securities laws, it did not meet the definition of a “qualified purchaser.”
So a second plan was devised and is now going forward. It calls for the bond to be sold and the total proceeds to be invested in Berkshire Hathaway stock.

Naturally, some set of dire circumstances could make the roughly $930,000 put into Berkshire worth less than $1 million at the bet’s conclusion on December 31, 2017. So Buffett has guaranteed $1 million by giving Long Now the right at the bet’s conclusion to “put” the stock to him (or his estate) in exchange for that amount. In other words, $1 million becomes the floor for the winning charity, with the Berkshire investment establishing the prospect for more.
Meanwhile, the tortoise and the hare are dealing with the good market of 2012, which so far is suggesting that one or both might show — how radical! — a cumulative profit when the halfway mark in the bet is reached at the end of this year.

FORTUNE senior editor-at-large Carol Loomis, who wrote this article, is a longtime friend of Warren Buffett’s, a Berkshire Hathaway shareholder, and editor of his annual letter to shareholders.

*********************

The news coverage around the above update of this bet has also revealed how the very fast news cycle can not only make mistakes, but actually report the exact opposite of what has occurred.

Note that the article above clearly explains that for the duration of the Bet, Buffet has been losing. Over the last three years he has been closing the gap created in the first year, but remains behind at present. Compare that fact to the coverage seen online yesterday as the update got picked up by various news outlets. Six of the ten stories listed below incorrectly lead the story by saying that Buffett is winning the bet:

UPDATE 3/26: Felix Salmon at Reuters traced the erroneous headlines back to a Bloomberg reporter who’s take on the story included updated figures based on extrapolated data.

Simon vs. Ehrlich, Round 2

Posted on Thursday, October 13th, 02011 by Alex Mensing
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Roger Pielke Jr. made an observation on his blog recently regarding the past decade’s rapid increase in commodity prices and the classic debate between optimistic Cornucopians and pessimistic Malthusians. In 01990 ecologist Paul Ehrlich – who has spoken at The Long Now Foundation’s SALT series – lost a decade-long bet to economist Julian Simon. In 01980, Simon had predicted that prices (of just about everything) would continue to fall as the human population increased. They tracked the price of five metals over the course of the next ten years, and they all became less expensive.

Since the beginning of the millennium, however, prices have risen fairly steadily. In August of 02011, The Economist noted that current prices of the five metals chosen for the Ehrlich – Simon bet exceeded 01980 prices. Had the bet lasted for three decades, rather than one, Ehrlich would have won.

What Pielke points out, however, is that if we zoom out even further and look at The Economist’s records since 1845, the last decade’s spike in prices could be interpreted as one more blip in a long-term trend of Cornucopian price decreases. Or is the global economy showing the first signs of a long-in-coming collapse, as predicted by Malthusians?

Long-term bets such as the $1,000 wager between Simon and Ehrlich can place people’s predictions about the future out in the open for public scrutiny and comment – encouraging those who would speak to think carefully before they do so. One project of The Long Now Foundation, Long Bets, provides a forum for long-term bets and discussion. On the site, you can view current bets, place your own, or challenge someone else’s prediction.

China’s Unthinkable Population Problem

Posted on Wednesday, June 22nd, 02011 by Austin Brown
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In his post earlier today, Bryan Campen mentioned Kevin Kelly’s 02019 Unthinkables – a set of predictions he made in 1999 that were specifically meant to be outlandish or – eponymously – unthinkable.

With 12 years of perspective on the predictions, Kelly concludes his post by saying that he doesn’t think any of them will come true.

As it turns out, however, one of them isn’t too far off the mark:

The fertility rate in China drops below the replacement level, and nothing the government can do can get Chinese couples to have more than 1.5 kids each. For the first time China encourages immigration to keep its huge economy going.

The first part of this prediction has happened. On China’s latest census, The Economist reports:

The data imply that the total fertility rate, which is the number of children a woman of child-bearing age can expect to have, on average, during her lifetime, may now be just 1.4, far below the “replacement rate” of 2.1, which eventually leads to the population stabilising.

The Chinese government, despite calls by many academic demographers, continues to stand firm on the one-child policy enacted in 1980.

Impact Lab points out that this demographic trend will lead to China’s workforce – the country’s primary economic advantage – beginning to shrink within 5 years. In order to mitigate potential economic problems from this change, the government is trying, “to develop technology- and innovation-driven industries that need fewer workers.”

If those industries don’t develop quickly enough, the government may have to look to immigration to supply the labor China’s economy needs and the second part of Kelly’s prediction won’t seem so unthinkable, either.

The Warren Buffett-hedge fund bet tightens

Posted on Wednesday, April 27th, 02011 by Austin Brown
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Warren Buffett and (l to r) Protégé Partners Scott Bessent, Jeffrey Tarrant, and Ted Seides.

Warren Buffett and (l to r) Protégé Partners' Scott Bessent, Jeffrey Tarrant, and Ted Seides.

In 02008, Warren Buffet placed a Long Bet that will take until 02017 to resolve. He predicted that for those ten years, “the S & P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.

Below is a summary of how things went in the third year of this Bet, as published by Fortune Magazine:

April 26, 2011 5:00 am

Berkshire Hathaway’s chairman won the 2010 race for investment returns, but Protégé Partners retains the long-term lead.

By Carol Loomis, senior editor-at-large

FORTUNE — We’re three years into Warren Buffett’s 10-year bet with the hedge fund community, and the race has narrowed. For the second year in a row, Buffett’s horse in the contest — an S&P 500 index fund — did better than the average return booked by five funds of hedge funds picked by Protégé Partners LLC, a New York money-management firm.

The Protégé pack, though, built up a big lead in the first year of the bet, the financially torturous 2008, and is still ahead.

This contest, to look back briefly, began when Berkshire Hathaway (BRKA) chairman Buffett, no fan of the transaction and management fees that cut the returns of hedge fund investors, said publicly in 2006 that in a long-term bet he’d back an S&P index fund against hedge funds. Ted Seides, a Protégé partner, picked up the idea, and a bet was negotiated.

The Protégé camp may be out front, but that is not to say either side has done well: Neither is in the black for three years. In a sense, the only winners in this bet so far are the managers of the funds of funds, who’ve been paid fees even if their investors have lost money.

In the wicked start-off year, 2008, Vanguard’s Admiral shares — the index fund carrying Buffett’s colors — fell by a dismal 37%, and Protégé’s picks had an average loss of “only” 24%.

In the next year, 2009, the S&P index gained 26.6% to the funds’ 16%. And last year’s results — being announced here for the first time — showed the S&P rising by 15% vs. the funds gaining, on average, 8.5%.

The three-year record, therefore, puts the Protégé funds of funds in the lead with a loss of 4.2%, against the S&P’s even greater loss of 8.18%.

The year-by-year results display unsurprising patterns: Given the ability of hedge funds to sell short and invest in financial instruments other than stocks, they are the odds-on favorite in a bad year for the market — a 2008, for example — than the long-only S&P. Conversely, in a good year for the market, when many funds may continue to hedge with part of their assets, the S&P has the advantage.

Followers of this bet will remember that the names of the five funds of funds have never been disclosed — though Protégé itself runs funds of funds and the biggest of these, called Protégé Partners LP, may be assumed to be among the five.

Another reminder: The stake is $1 million — so to speak, because there’s a present-value factor built into the bet. At its start, each side put up $320,000, with the total going to buy a zero-coupon bond that will be worth $1 million when the 10-year competition is over. That money is to go to the charity that each side designated at the outset. (Buffett’s charity is Girls Inc. of Omaha; Protégé’s is Absolute Return for Kids).

The party holding the zero-coupon bond is the Long Now Foundation of San Francisco, whose wish to promote long-term thinking led it to set up a mechanism called Long Bets. On its site, www.longbets.org, you can read the predictions that various prognosticators have made about who will win the Buffett-Protégé contest.

There are no recent posts because Long Bets ran into a spam problem and for a time wouldn’t accept comments. It will take them now, though — so you’re invited to weigh in.

The writer of this article is a longtime friend of Warren Buffett’s and the editor of his chairman’s letter in the Berkshire annual report.

Long Bet on Peak Travel

Posted on Monday, January 10th, 02011 by Austin Brown
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One of the miracles of the modern world is our capacity for getting around – hop on a plane, nap a few hours, and you’re on the other side of a continent!  Technologically enabled, we’ve embraced this ability with gusto and are currently more mobile a species than ever before.  But, according to a pair of Stanford researchers, the industrialized world is mellowing on this trend a bit. They claim that travel in several countries may have peaked earlier this decade:

A study of eight industrialized countries, including the United States, shows that seemingly inexorable trends — ever more people, more cars and more driving — came to a halt in the early years of the 21st century, well before the recent escalation in fuel prices. It could be a sign, researchers said, that the demand for travel and the demand for car ownership in those countries has reached a saturation point.

-Miller-McCune

A Long Bet placed in 02005 hinted at this potential, though it imagined a more dire mechanism: peak oil. While the necessary statistics to certify Long Bet 197 won’t be published for some time yet, they’ll come from the U.S. Bureau of Transportation Statistics and tell us whether highway vehicle miles traveled in the U.S. for 02010 exceeded those of 02005.  The Bet is that they’ll actually be lower – essentially that Americans collectively drove less in 02010 than in 02005.

The scenario imagined by predictor Daniel Simon in 02005 was that an energy crisis brought on by peak oil production would push up the cost of personal motor vehicle travel enough to halt or reverse its growth.  Glen Raphael was doubtful enough to put up the money for a Bet and explained he expected growth to continue.  Read their full arguments Long Bets.

According to the BTS table they provided as a reference for adjudication, total vehicle miles travelled in 02005 were 2,989,430.  The most recent year published on that table is 02008 and it checks in at 2,973,509 – almost 20,000 miles fewer.  So, we can’t finalize the Bet as of yet, but the data we’ve got is in line with the Stanford study as well as Simon’s prediction, despite a seemingly more mundane overall picture.

Check back in a year or two for the exciting conclusion!  (Also, if you or someone you know works at BTS, let us know if we’ve missed more recent numbers.)

Is Kurzweil’s future arriving?

Posted on Tuesday, November 30th, 02010 by Alexander Rose - Twitter: @zander
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longbets

John Rennie over at IEEE Spectrum has an excellent article on Ray Kurzweil’s 108 predictions for 02009 from his book Age of Spiritual Machines.  Ray Kurzweil is an avid and fearless predictor who also logged the first of our Long Bets with Mitch Kapor.  I think it is great that people are taking the time to do an analysis of the predictions, and finding out how sticky it can sometimes be to adjudicate such things.

Kurzweil also stands by his claim that computer displays built into eyeglasses would project images into users’ eyes because some such systems do exist, and says, “The prediction did not say that all displays would be this way or that it would be the majority, or even common.” Similarly, he defends his claim that translation software would be “commonly used” to allow people speaking different languages to communicate by phone by pointing to smartphone apps that emerged at the end of 2009. He allows that one could quibble about how “common” their use is. [read the complete article]

Wherever you fall on these issues, I think Kurzweil deserves praise for making public predictions, along with those like Rennie and Annisimov who take any predictor to task.