Election predictions are arbitrage-free: response to Taleb |
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Authors: | Aubrey Clayton |
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Institution: | 1. Harvard University Division of Continuing Education, Cambridge, MA, USAaubreyiclayton@gmail.com |
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Abstract: | Taleb Election predictions as martingales: An arbitrage approach. Quant. Finance, 2018, 18, 1–5] claimed a novel approach to evaluating the quality of probabilistic election forecasts via no-arbitrage pricing techniques and argued that popular forecasts of the 2016 U.S. Presidential election had violated arbitrage boundaries. We show that under mild assumptions all such political forecasts are arbitrage-free and that the heuristic that Taleb's argument was based on is false. |
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Keywords: | Bayesian analysis Arbitrage pricing Forecasting applications Probability theory Martingales |
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