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>The converse to the statement above is also true: if prices form a set of probabilities, then they are consistent. Since Silver’s forecasts begin with probabil
by ikeboy 8y ago
>The converse to the statement above is also true: if prices form a set of probabilities, then they are consistent. Since Silver’s forecasts begin with probability models, it’s safe to assume they obey all the rules, including Bayes’, and would be arbitrage-free.
I don't believe this is correct. You can lose money to arbitrage even with a calibrated model if you ignore data someone else has, or include random noise someone else isn't including, which is what Taleb's argument is.
- abecedarius 8y agoSomeone betting Taleb-style would have an edge over someone directly betting on Silver's forecast numbers, but technically that's not arbitrage -- arbitrage in the sense of the article means a strategy with guaranteed return, not just very probable. Is that right? So my impression is that this is an argument about words, where traders mean 'arbitrage' more broadly.