Podcasts on Markets
A few notes from a long drive
I recently had a long drive and once it got dark I had to stop listening to East of Eden. The prose is wonderful, but I’ve been randomly getting the creeps while reading it, which is a shame because I read my fiction before bed and I guess I’m a wimp.
So I switched to a backlog of podcasts. Here are some memorable moments about the nature of markets, edited slightly.
On Cheeky Pint, prediction markets do their job of Hayekian knowledge aggregation:
Tarek Mansour: The super forecasters, those are... extremely dispersed. You cannot find a clearly defined demographic who they are… But it took a while to kind of get them incentivized and come in and spend the time and resources to take it from a hobby or a part-time job. Now it’s a full-time job because the pie is so big.
Luana Lopes Lara: A metric that we can share is… the biggest percentage on a platform of a traditional market maker is less than 5% of the maker orders in that market, of the liquidity… Over 95% are just like peer-to-peer or funds that have like two people that just got set up.
John Collison: Who is a market maker on Kalshi? There’s all these Jane Street conspiracy theory memes. Is it like some guy in his garage, you know, drinking Red Bull at 3 AM, market-making by himself?
Tarek Mansour: The guys in the garage are the most crucial. They’re extremely crucial to the ecosystem because they price fast. They’re monitoring the situation all the time. They’re the original situation monitors.
And so one example I’ll give. The best inflation forecaster on Kalshi over the last few years is not— none of the institutions or the big-name hedge funds. It’s this guy who lives in Kansas, never traded financial markets before, just likes to read the news and just knows how to predict inflation. He can feel it. And you have so many of these people. Now you have a few thousand that are formally committed. But there’s tens of thousands of these people that know a bunch about a bunch of different topics. And they’re sort of actively pricing these things. And they do it as a full-time job. And they get rewarded for that.
They also talk about a random guy who read all the tax documents and correctly predicted DOGE was going to fall short of its goal. And an Ariana Grande superfan who’s super good at predicting hit songs.
On Dwarkesh, Dwarkesh explains the Alchian-Allen effect, but then (in my opinion) takes it too far by saying it means leading labs get away with charging and making more on the best models.
Then an hour later without mentioning it by name, Dylan uses Alchian-Allen perfectly to evaluate consumer products when memory gets relatively more scarce:
Dylan Patel: I believe an iPhone has 12 gigabytes of memory. Each gig used to cost roughly $3-4, so that’s $50. But now the price of memory has tripled. Let’s say it’s $12 per gig for DDR. Now you’re talking about $150 versus $50.
Yes, it’s only a $150 BOM increase on a $1,000 iPhone where Apple has some larger margin. But for smaller phones, the percentage of the BOM that goes to memory and storage is much larger.
Why this is a big deal is that if smartphone volumes halve, that drop will happen in the low and mid-range, not the high end. So it’s not like the bits released are halving. Currently, consumer devices account for more than half of memory demand. Even if you halve smartphone volumes, because of the shape of the halving, the low end gets cut by more than half, while the high end gets cut by less than half, because you and I will still buy the high-end phones that cost north of a thousand dollars. We’ll buy them even if they get a little bit more expensive.
I think the point of the episode actually is to just let a lot of numbers wash over you and to get excited. Not that many podcasts are about the exciting micro econ of AI.
A lot of good stuff from Ada Palmer, also on Dwarkesh. I agree with others that this one is much better on audio—she’s got a great cadence in her speech.
Ada Palmer: Papyrus is a very inexpensive writing surface, and this is what enables Rome to have a bureaucracy and to have libraries in any mid-sized city. People can send letters back and forth. There can be enormous tax records. Sometimes when Egypt and Rome are at war, Egypt will be like, “No, we are angry. We’ll stop exporting papyrus.” No papyrus to Rome, and then Rome’s infrastructure will fall apart overnight because you can’t do anything if you can’t write stuff down.
Papyrus is a warm weather plant. It is killed by frost. You cannot grow it north of the frost line. So France, Spain, even most of Italy, you can only grow papyrus down in the very tip down in Sicily.
Without papyrus, what you’re writing on is a dead sheep. If you think of the price of a head of lettuce and the price of a leather jacket, you’re understanding the difference between a sheet of papyrus and writing on a dead sheep. Every page of a medieval book is as expensive as that much of a leather jacket. A handwritten medieval book handwritten on parchment costs as much as a house, so that a small pocket copy of a book costs as much as a studio condo. A big illuminated fancy Bible, you’re spending on that what you would spend on a villa in the countryside.
This is an enormous expense. To have a library is to be not just rich, but mega-rich. Only the wealthiest cities contain anybody who has a library. The great library of the University of Paris—the library from Europe’s perspective—has six hundred books. There’s definitely more than six hundred books in this room. Every kiosk at an airport selling Dan Brown novels has more than six hundred books. This is nothing.
Finally, I finished Mike Munger’s series on The Wealth of Nations, a wonderful series throughout.
Dan Klein (a recorded clip): I think that The Wealth of Nations is probably the most important ever moral authorization for the honest pursuit of profit for commercial behavior. You shouldn't speak ill and be antagonistic towards your neighbors and fellows who pursue honest profit. And it's also a moral authorization to address to the statesman, the sovereign. Let people pursue honest profits in this commercial way. It actually works out well. The Wealth of Nations is a moral authorization of those different types, which I think is very important to understand the whole project. I also believe, I happen to fancy the idea that his moral authorization, I mean, his specifically, was actually very significant in the extent to which the Industrial Revolution arose so rapidly and so successfully, the sort of explosion that really follows just about his death. Because I think that the moral authorization matters, culture matters.
I think people who do “progress studies” or talk about transformative AI are going to have to dig deeper on the moral side to convince the public: Klein points out that Smith first took decades to became a leading moral philosopher before he had any influence on economic policy. Perhaps Amanda Askell is the one taking that seriously?