Today’s great news is Paul Krugman‘s Nobel Prize. Although he received the award for his work on international trade and economic geography, it is hard to escape the idea that the Nobel committee may also have been influenced by Krugman’s prescient, relentless and ultimately successful battle against Bush’s plan to privatize Social Security, as well as his repeated warnings that U.S. growth these last few years was an illusion built on top of a soon-to-implode housing boom.
I had the pleasure of meeting this brilliant, generous man two years ago when he came over for dinner in my brother David’s home accompanied by his wonderful wife Robin Wells, also an economist at Princeton. Over a delicious anticancer menu, we discussed health care, politics and the economy. But when talk turned to prediction markets, he was… skeptical. So it’s gratifying to see that, nowadays, he seems to be keeping a rather careful eye on the political markets!
No prediction market, or any other betting pool (including this one from Harvard) nailed the Nobel committee’s choice. This failure is expected, since the decision is made in secret by a closed group, and typically for work done decades ago, out of the scope of current events which might give the rest of us some inkling about the outcome. Market predictions are known to be pretty useless in such situations, for there’s no information to aggregate: it’s garbage in, garbage out. The same doesn’t apply to, say, TIME’s Person of the Year, which, although decided also in secret by a closed group, very much takes into account recent observable history. Here’s, for instance, NewsFutures’ prediction for Barack Obama to be Person of the Year 2008: