Nate Silver on the Risky Business of Sports Betting

Summary

Against the Rules with Michael Lewis: Episode Summary

Episode: Nate Silver on the Risky Business of Sports Betting
Release Date: October 29, 2024
Guest: Nate Silver, author of On the Edge and co-host of the Pushkin podcast Risky Business

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Introduction to the Conversation

In this insightful episode of Against the Rules, Michael Lewis engages in a compelling dialogue with Nate Silver, delving into the intricate world of sports betting. Nate Silver, renowned for his expertise in probabilities and election forecasts, brings a unique perspective to the discussion, highlighting the convergence of risk-taking behaviors and market dynamics in the burgeoning sports betting industry.

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River vs. Village: Understanding Risk-Takers and Risk-Averse Populations

[02:50] Michael Lewis: "I asked Nate about a key framework he uses in his book. It's called the river and the Village. The distinction you make between the river and the village. Is that right?"

[02:53] Nate Silver: "So the Village is kind of the East Coast establishment… collective oriented, risk-averse… expert class… The river, rather, is degenerate gamblers… Wall Street, Silicon Valley, Las Vegas… competitive… wanting to dominate."

Nate introduces the River and Village framework to categorize American society's differing approaches to risk. The Village represents the traditional, collective-oriented, and risk-averse establishments like government bodies, major universities, and mainstream media. In contrast, the River embodies the competitive, risk-taking individuals found in areas like Wall Street, Silicon Valley, and the gambling hubs of Las Vegas. This dichotomy underscores the varying attitudes towards risk and decision-making across different societal segments.

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Efficiency of Sports Betting Markets

[08:06] Nate Silver: "Not at the moment."

When discussing his personal involvement, Nate reveals his non-participation in sports betting, citing limited profitability and regulatory constraints. He emphasizes that despite the potential for calculated gains, the sports betting markets have evolved to become less favorable for knowledgeable bettors.

[12:07] Nate Silver: "As recently as 2020, there were lots of people willing to bet on Trump at 8 to 1… markets aren't that efficient for elections… less efficient than for almost anything else because you have a lot of dumb money in the pool."

Nate elaborates on the inefficiencies within political prediction markets, attributing them to the influx of uncalculated and emotional betting, which diminishes the potential for systematic edges even for experts like himself.

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Personal Experiences and Market Limitations

[08:22] Nate Silver: "I bet the MBA for a year… made a total of $2 million in bets… I made a profit of $5,000… similar to working a job at Taco Bell… most players lose money."

Nate shares his personal foray into sports betting, revealing that despite substantial wagers, the returns were negligible. This experience highlights the inherent risks and low return on investment (ROI) prevalent in the sports betting landscape, reinforcing the notion that the majority of bettors are likely to incur losses.

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Adverse Selection and Market Strategies

[31:30] Nate Silver: "People need to understand this is where having spent time on Wall Street… if someone's offering you this trade, why are they offering you this trade?"

Nate discusses the concept of adverse selection in sports betting, cautioning against offers that seem too good to be true. He explains that betting platforms design their systems to minimize the edge that skilled bettors might have, thereby protecting their own financial interests at the expense of the average gambler.

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Impact on Society and Youth

[43:10] Michael Lewis: "I need to educate my 17-year-old son… he's walking into a world that's going to ask him to make lots of calculations… if he can't make them, he's in trouble."

Michael Lewis expresses concern over the proliferation of sports betting, particularly its impact on younger demographics. He underscores the necessity of educating youth on probabilistic thinking and informed decision-making to navigate the increasingly gamified financial landscapes effectively.

[44:36] Nate Silver: "People who are … willing to bet $10,000 in your DraftKings account… in a physical casino… creates a little bit of a deterrent."

Nate points out that online sports betting lacks the physical friction present in traditional casinos, making it easier for individuals to engage in excessive and uninformed betting behaviors. This reduced friction exacerbates the potential for harmful gambling habits among susceptible populations.

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Strategies for Cultivating Riverian Mindsets

[15:17] Nate Silver: "Poker is the archetypal activity of the river… estimation… making decisions fast… learned through experience and not a pure academic curriculum."

Nate advocates for experiential learning through strategic games like poker to develop Riverian qualities—analytical thinking, competitiveness, and quick decision-making. He suggests that practical engagement with risk-laden activities fosters a deeper understanding of probabilistic outcomes and market behaviors than traditional academic approaches alone.

[17:20] Michael Lewis: "It's not putting them in the classroom… force them to be a sports better or a poker player with their own money on the line…"

Michael concurs, emphasizing the importance of real-world application in cultivating effective risk assessment and decision-making skills. He highlights the necessity of hands-on experience in environments where outcomes significantly impact personal finances, thereby ingraining more disciplined and informed approaches to risk.

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Concluding Insights and Societal Implications

[43:19] Michael Lewis: "It's explicitly targeting bad decision-making… once the fine point is put on it, it'll be interesting to see how people think about these companies…"

In concluding their conversation, Michael and Nate reflect on the broader societal implications of the sports betting industry's design. They critique the industry's focus on maximizing uninformed betting, which can lead to increased financial losses and perpetuate poor decision-making among bettors. This design choice not only undermines individual financial stability but also poses significant challenges for societal perceptions of gambling and risk-taking behaviors.

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Notable Quotes with Attribution and Timestamps

• Nate Silver on River vs. Village:

  • "The Village is the East Coast establishment… risk-averse… The river is degenerate gamblers… competitive and wanting to dominate."
    [02:53]

• On Market Efficiency:

  • "Markets aren't that efficient for elections… less efficient than for almost anything else because you have a lot of dumb money in the pool."
    [12:07]

• Personal Betting Experience:

  • "I made a profit of $5,000… similar to working a job at Taco Bell… most players lose money."
    [08:22]

• Adverse Selection Warning:

  • "If someone's offering you this trade, why are they offering you this trade?"
    [31:30]

• Impact on Youth:

  • "I need to educate my 17-year-old son… if he can't make [probabilistic] calculations, he's in trouble."
    [43:10]

• Cultivating Riverian Mindsets:

  • "Poker is the archetypal activity of the river… learned through experience and not a pure academic curriculum."
    [15:17]

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Conclusion

This episode of Against the Rules offers a profound exploration of the sports betting industry's complexities through Nate Silver's analytical lens. By dissecting the foundational differences between risk-takers and the more conservative segments of society, the conversation reveals the systemic challenges and societal impacts of widespread sports gambling. Nate's candid reflections on personal experiences and market inefficiencies provide valuable insights into the precarious balance between calculated risk and exploitative market designs. Ultimately, the dialogue underscores the urgent need for informed decision-making and education to mitigate the adverse effects of an industry that thrives on suboptimal betting behaviors.

Transcript

[Michael Lewis]

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[Nate Silver]

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[Michael Lewis]

Hi, Michael Lewis here. And this is against the Rules. A big part of sports betting is understanding risk. And recently I spoke to an expert on that topic, Nate Silver. Nate's been on against the Rules before, talking about probabilities and election forecasts. He's now the author of a new book called on the Edge. And he's also the co host of a Pushkin podcast called Risky Business, along with writers, psychologists and professional poker player Maria Konnikova. She's been on our show, too. Each week, Maria and Nate get into how to think about risk and decision making. And this month, they're also talking about the US Elections. Nate and I had a fascinating conversation about why people bet on elections, why there's so many stupid sports gamblers in the United States, and how we each think about risk ourselves. To start, I asked Nate about a key framework he uses in his book. It's called the river and the Village. The distinction you make between the river and the village. Is that right? Have I got it right?

[Nate Silver]

Yeah.

[Michael Lewis]

Describe river and village.

[Nate Silver]

So the village is easier to describe the Village is kind of the east coast establishment, dc, New York, it's the New York Times, Harvard University, the government, when a Democrat's in charge. So it's very collective oriented. It tends to be risk averse. It got really into like Covid caution and cancellation and things like that. But it's also the expert class. It's generally pretty competent and so forth. The river, rather is degenerate. Well, I was going to say degenerate gamblers, but people who take calculated risks for a living and are really competitive about it. So canonically, Wall Street, Silicon Valley, Las Vegas, really both the house and the players, especially in the skill games like poker and sports betting. I think it's a pretty unusual personality type. There's something called enneagram or an A gram where it typologizes people in nine ways. Right. One personality type is being really analytical and one type is being really extremely competitive. Right? Wanting to dominate, conquer. These are actually the two least common personality types in the general population. But when you phase them together, they can become very powerful and very high variants, I think. And so that, I think, is the distinguishing feature. It's not just that they're like the actuaries or the accountants who are good in calculating. Right. It's that they really want to win and they have a chip on their shoulder.

[Michael Lewis]

So is the distinction between river and village also a distinction between. Is sort of the distinction that runs through the Moneyball story between scouts and people who are operating kind of from their gut and people who are actually able to do higher analysis and think statistically and probabilistically. I think one distinction that I make in the general population is between people who actually think in terms of expected value and who think probabilistically and people who don't. And then these two groups collide in lots of different places. And one of the newest places they collide is sports gambling, which is why we're doing a whole podcast about sports gambling. It interests me, this collision. But do you think of Village as one and river as the other?

[Nate Silver]

I think. I mean, the village certainly leans heavily toward the people who. They're the people who got mad at me about the election forecasts and said you were wrong. Said you were wrong. Right.

[Michael Lewis]

So I still. You and I have talked about this. It's bewildering to me that intelligent people could look at your election forecast and say, that was wrong. They were better forecast than what the market was saying.

[Nate Silver]

So that's a very Rivarian characteristic, though, Mike, is to say that my forecast said 13, the market said 15. Therefore my forecast was good. And you want the 30% to happen. That's a very. Or people who understand markets and have had skin in the game in markets understand that. And people in the village just don't. Because in the village it's all about looking good to your peers and not trying to beat the system and not trying to outsmart people. It's trying to fit in in some ways.

[Michael Lewis]

So here's a question I've been dying to ask you after I read the book. Do you think that like the different characters you dwell on who are inhabitants of the river, do you think how different are they from one another? And I'll put the question this way. So if I gave you a choice between a successful poker player and a successful sports gambler, who would you rather have manage your money?

[Nate Silver]

The poker player? The sports bettors tend to be higher on the degeneracy spectrum. I don't know why exactly, but these.

[Michael Lewis]

Are, I'm talking about the successful ones. The ones who are who you know, who have a long and successful track record so that you would never. They're operating with positive expected value and, and so not the degenerates.

[Nate Silver]

The poker. I mean the sports bettors need a bit more street smarts because there's this whole second side to sports betting of how do you actually, how do you get your money bad or money down good if people think that you're a winning better? So as a result they are kind of wise guys or sharps a little bit more. And, and, and, and I associate that Persona. I mean, you know, Billy Walters in his day before he sobered up was like a crazy partier out party. Doyle Brunson and all these people. It's just my anecdotal experience is like you definitely have that type among poker players too. But there are people who can be a little bit more rules following and play poker. I think 90% of them are kind of less rule following than the population as a whole. But you have some kids who study computer solvers all day, just get a lot of reps in, have very good personal habits and e. Catalytic playing poker. Whereas sports bettors, your edge could go away at any time, right? If you are cut off or, or the market adjusts at any time, you could go from winning to losing. And that mentality I think is, is rarer and harder in some ways.

[Michael Lewis]

How do you feel about the sports gambling markets? Just generally you. Are you, are you a sports gambler?

[Nate Silver]

Not at the moment.

[Michael Lewis]

This is so Funny to me, because how you start is with baseball, right? I mean that if you had had the markets that are now available, available to you in, in the year 2000, you could have been a killing.

[Nate Silver]

I think at that point the markets were, were, yeah, not very efficient. You know, Spanky Kyrlos, one of the people I talked to was like, I used to use Pakoda and that's when we had like actual real 5 or 6% edges. So I bet the MBA for a year, in the course of writing the book, made a total of 20, or, excuse me, $2 million in bets, roughly. So you're betting basically $10,000 a day, probably five $2,000 bets a day every day of the NBA season for 200 days. And of that 2 million, I made a profit of 5,000, right? So like 0.03% or whatever ROI, if you break it down, it's like the same as like working a job at Taco Bell or something in those hours now most players lose money, so you're already in the like 97th percentile or something. But like, but yeah, so, but I'm aware that like, to win at sports betting, you need to really be devoted to it. And also I got like limited by, by all but three sites in New York State. I went from like nine places I could place bets to like two and a half, basically.

[Michael Lewis]

Do you remember how, do you remember how that happened? Like, who was quickest to find out that you didn't belong on their site?

[Nate Silver]

It was MGM where. And I was out at a bar with a friend watching the NBA playoffs and there's like a message on the bottom line screen at EB ESPN that Chris Middleton, the Bucks second best player, is out for the next round against Boston. Right? Um, and so, so they were smart enough to like take the line off for the upcoming series, but they weren't smart enough to think about the derivative bets. Right now all of a sudden the Celtics are much more likely to win the Eastern Conference finals because they have this much easier path and their odds hadn't changed. And I, and I went to place a bet, right? And it was like for 2,000 bucks or something, it's like you're limited to 1,099, some weird number or something like that. And then I'm like, this must be a mistake, right? And I tried doing it again and doing it again. And so, yeah, every time it's like a little bit, it's a little bit heartbreaking because they never like reverse it, right? You can never appeal to them and say oh, please let me go. But if you're not trying to recover your tracks, then MGM and DraftKings in particular seem to have a pretty heavy hand. I can still bet at Caesar, so congrats to them. Fanduel. I have some limitations, but commit reasonable amounts. But Yeah, I mean, DraftKings explicitly is like, we do not want winning betters. And that's their operating model.

[Michael Lewis]

Have you ever bet politics?

[Nate Silver]

The short version is not really. By the way, I am a paid advisor to polymarket, so I'm not placing bets directly. We'll talk about the election and they may place bets on, on partly based on the information that I make, but I haven't, I don't have any problem with it in principle. I mean, you get into like weird things where, you know, whether our numbers can move the markets or, or think.

[Michael Lewis]

You can, you can move, you could probably. There was certainly times when you could move the line.

[Nate Silver]

Yeah, I, I, yeah, I feel slightly uncomfortable, but then again, like I am consulting and so I don't know. I, I don't think I have any problem with it. But the, the, but in a narrow sense, I have not been on politics. But also because this election doesn't apply because it's 50 50, so my reputational risks probably get blamed by half the country either way. But they're hedged at least.

[Michael Lewis]

Do you have a sense of how efficient the political prediction markets are, do you think. You certainly would have had an edge 10 years ago, but do you think you could actually have have systematic edge in those markets?

[Nate Silver]

I do, but less than before. So I'll give you a slightly long winded answer. So as recently as 2020, there were lots of people willing to bet on Trump at 8 to 1 or 10 to 1 after Trump had already lost, based on extremely implausible theories about the Supreme Court with no real basis, like overturning the results before January 20th. So Bill Perkins, who I don't know if you know Bill Perkins, is a consummate Riverian. He runs a hedge fund, he plays huge poker games, involved in everything, wrote a book called Die with Zero and he consulted a Supreme Court expert. He's like, what's the chance that the Supreme Court would actually take up this case? And the guy was like, zero. Or if you want to be very cautious, 1 in 500, 1 in 5,000 and it's selling for 1 in 10. Right. And so, yeah, and so the markets aren't that efficient for elections. In fact, I think like for elections they're less efficient than for almost anything Else because you have a lot of dumb money in the pool. You have a lot of rich guys and or degenerate whales that have strong convictions about politics and are willing to bet lots of money about a deal that they don't necessarily know all that well. Building an election model is a fairly hard problem because of the way that all these results are correlated and so forth to avoid the long term capital management problems. Now I do think that like Polymarket has much more liquidity and the other ones too. You know, Kalshi is now legal in the US So you're seeing much more attention and much more interest and you're developing maybe more of a professional class of bettors. You're also, I know firsthand having more interest from Wall street in trying to calculate political risk because everything is politics nowadays. What happens with the politics of the US election will affect interest rates and will affect policy toward China and will affect lots of sectors of the economy. So some of these firms are betting directly in markets, some are betting through proxies, whether through cryptocurrency or just trying to say, okay, we think that healthcare stocks would do well if Harris wins, so we'll create a bundle of those. So I think the market's getting quite a bit sharper. But there's a lot of people with strong opinions in politics.

[Michael Lewis]

I want to ask you a couple questions that are relevant to how you teach people to think more like Rivarians. I mean, some people do it kind of naturally. They think probabilistically, they move through the world probabilistically, but a lot of people just don't. And it's a problem for them. And it's a bigger problem the more opportunities they have to squander their money on what are in probabilistic circumstances like sports betting. So if you were going to design a course, a short course to teach people to be reverian, at what age would you give it and what would be in it?

[Nate Silver]

I mean, it would be. I mean poker is the like archetypal activity of the river in particular and like the Riverian mindset. And so there'd be a lot of poker, although there are other games. Like a lot of poker, players started playing out Magic the Gathering, which is a game that involves elements of strategy and randomness. The deck changes from game to game a lot. Yeah, look, you have to have, I know it's a cliche and I'm stealing another author's term, but you have to have skin in the game at some point because a lot of times one of the critiques of the village is they don't actually have incentives to be accurate so much as having incentives to please people. An academic paper, its rigorousness or its truthfulness is only kind of loosely correlated with its chance of being published versus like, is it in a hot area of the literature? Does it come to a conclusion that's seen as the right political conclusion in certain fields. And there are people in journalism who are like just really like fixated on I want to have the right answer. I care a lot about the truth. There are also people who aren't but like. But in poker and sports betting and trading, then you're punished for your sense of bullshit. And you learn that in a very fine tuned way. What's the long run really look like? A big part of this is actually estimation. Where can you come to a pretty good approximation quickly before the market catches up. That's the other thing too about the room. It's a fast moving place. Even sports betting, I didn't realize. Have to make decisions fast, right?

[Michael Lewis]

Yep.

[Nate Silver]

You see some line that looks wrong and you're like, well, is that because you know, fanduel was slow to update or is because do they need something? I don't. Is Patrick Mahomes out for this game or something all of a sudden? And like, and they know that and I don't. And so you have to make this decision very fast in trading. You have to make these decisions fast. And I think that can only be learned through experience and not a pure academic curriculum.

[Michael Lewis]

So it isn't you put them in the classroom when they're 14 years old and teach them statistics. It's you force them to be a sports better or a poker player with their own money on the line. And they learn and they start to associate their bullshit with the price and the market tells them when they're wrong.

[Nate Silver]

Yeah. One of the sports players I talked to is named Kelly Stewart and her, her parents were kind of partiers, I guess a little bit. And so they let her play in their poker game one time. They're like, we're not going easy on you at all. You know what I mean? We're going to teach you at this early age. I don't know if she was 11 or whatever what it's like to play poker against people who are better than you. And there's real risk involved here. Do you play poker, Michael? Do you do any of this gambling stuff?

[Michael Lewis]

So in high school I had a poker game and it was almost weekly and it was with this. The same guys kind of six or seven guys, each of whom had a very particular personality, one of whom ended up being an Iron Randian and a gazillionaire hedge fund manager who was actually short subprime mortgages going into the, into the financial crisis, who. So I w. I got to watch different personalities express their risk preferences and thought processes at a poker table. And I was as interested, maybe more interested, in watching how the other people behaved as I was in my own poker hand. But I really like playing, and I tended to win. I adjust like the Iron Randian won all the time or won most of the time. And there was someone on the other end of the spectrum who just was full of all the cognitive vices that Kahneman Tversky cataloged, plus overconfidence, plus a lot of other stuff, and he would lose all the time. Um, so you. I, I, I played enough to see to kind of. So, yes, I have. But I haven't played as a grown up. No, I, I haven't played. And I'm not that attracted to gambling. It just doesn't do it for me. I don't know why I, and I can't, I can't. It just doesn't. Whatever, whatever trigger it, it triggers in your brain, it doesn't in mine. Whatever pleasure you're getting from it, it doesn't. I don't really get the same pleasure. Partly. I think part of it is when I won in poker, I always felt a little badly for the person whose money I took, so I didn't get the full pleasure of victory. When I was walking out of the house with everybody else's money, I always felt like I had to give some of it back.

[Nate Silver]

I think there are slightly separate things here. I mean, are you like a thrill seeker in general? Like, does the idea of, like, sky, like, the idea. I don't think I'd skydive because I would calculate that, like, the risks outweigh the reward, right?

[Michael Lewis]

So I did that. I did that once. I jumped out of an airplane just because I thought I had. I went through a phase of life in college and just after where I thought I'm going to have every possible experience, but I thought I might write about it one day. And I thought, I just want to be able. I want to have all these experiences that I know I won't have later. So I, you know, scuba diving and skydiving and it just, like, I had a long list of shit like that I did. I didn't. Jumping out of a plane was one of the most terrifying things I've ever done. It's the first I, I suppose it gets comfortable. It's not a natural thing to do it it's really an unnatural act. But so am I a thrill seeker? A bit that I, I, I, it's, but it's more social thrill seeking now I like getting up on stage.

[Nate Silver]

Okay. That seems correlated in some way. I mean so if you look at the big five personality traits, the two things that are kind of and there's no like risk taking personality trait per se, but high openness to experience and low neuroticism.

[Michael Lewis]

So I got, I think those two I basically have. I mean here's a form of thrill seeking. I loved publishing a book about Sam Bankman Fried that I knew was going to create a war.

[Nate Silver]

Okay.

[Michael Lewis]

I love sort of like this feeling of this confederacy of dunces feeling where I love it's harder to do it now in journalism because you get yourself in just way too much trouble. But I used to love in the New Republic taking a hugely unpopular line and pushing it as far as you could, knowing it's unpopular but because you thought it was right. But that kind of I get a, I get a charge out of that feeling. Not gratuitously. It's not just do it to show you can do it. But when I find some material that I think means one thing and I know the world thinks it means another thing, I love pushing up against the world.

[Nate Silver]

That's very Riverian. That contrarian, not quite confrontational streak but indifference toward indifference toward mild amusement with creating a stir is very Riverian.

[Michael Lewis]

We'll be right back after a quick break.

[Malcolm Gladwell]

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[Nate Silver]

Whoa.

[Malcolm Gladwell]

So here we are. We're driving down a lovely winding country road in the Hudson Valley. I am here with my daughter, Speedy, and we are sampling one of the latest and greatest of BMW's creations. Makes 335 horsepower, range of over 300 miles. Riding in the BMW i4E40. You know how your toys have batteries? This car has a battery. How do you like the car so far?

[Nate Silver]

Does it go fast?

[Malcolm Gladwell]

Oh, it goes so fast.

[Nate Silver]

Let's go.

[Malcolm Gladwell]

Are you ready? Yeah. Are you sure?

[Nate Silver]

Yeah. Wow.

[Malcolm Gladwell]

Spatie was that fast again. Oh, yeah. Okay. In a world full of ordinary, there's a brand that dares to be different. Feel the rush of precision engineering as power meets sophistication with every turn. It's not just a drive, it's an experience. So buckle up and embrace the extraordinary, because when the road calls, only one answer will do. BMW, the ultimate driving machine. Shall we see what happens if we push the accelerator all the way to the floor? Are you ready?

[Nate Silver]

Yeah.

[Malcolm Gladwell]

Are you sure? Yeah. One, two, three.

[Nate Silver]

Whoa. Elevator.

[Michael Lewis]

That isn't the elevator.

[Malcolm Gladwell]

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[Nate Silver]

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[Michael Lewis]

I'm back with Risky Business co host Nate Silver. So this is a strange question, but if you were to send me off to get myself into the worst expected value, the most negative expected value situation available in gambling markets, where would you send me?

[Nate Silver]

I mean, the state lottery is the lowest player payout percentage in West Virginia. It's something like the government keeps 80% of the money. And of course it's a very poor.

[Michael Lewis]

So play the lottery would be first lottery. What comes then? What comes after that?

[Nate Silver]

Horse racing is generally.

[Michael Lewis]

Horse race. Is horse racing worse than betting parlays? And with DraftKings.

[Nate Silver]

So the parlays aren't. I mean, the parlays are weird because like the way they do the accounting gets slightly strange. But yeah, horse racing, they take like, was it like 15 or 20% depending on the state and then. And by the way, we're going in inverse order of like the average net income of the people who do these types of gambling. Right. So then you get to slot machines, which is 10 or 11%. You know, roulette is 5%, baccarat craps, blackjack is 1 ish percent depending on the rules. Video poker is, if you're playing right, is very low, like 0.5%. But video poker strategy is not always very intuitive.

[Michael Lewis]

Right.

[Nate Silver]

And then sports betting and poker, Poker, where you can actually make money if you're skilled better.

[Michael Lewis]

Right. If you're an unskilled better.

[Nate Silver]

I mean the shorthand version of it.

[Michael Lewis]

If you're a skilled better, you're not allowed to bet at DraftKings.

[Nate Silver]

Yeah. One of the things the sports betting houses I talked to would tell you is that actually most bettors are worse than average. Right. If you just threw darts and a dartboard at NFL point spreads or something, you'd lose 4 1/2 percent. But most players lose like 5% instead. Right. Shohei Ohtani's degenerate gambling interpreter friend, like have these horribly large losses, partly because. Partly because he had these parlays in the way they're accounted for, but also because, like, why so, so why do.

[Michael Lewis]

You think it's interesting about sports betting? You're making a point that's. That to me is interesting is that here you've got this activity where you could have an edge, like blackjack, but unlike blackjack, you have people who are especially. It tends to attract a lot of especially dumb bets. So what is it about sports that does this?

[Nate Silver]

I think it's partly because sports betting, like a lot of Fields in the river. But it's partly about men and men's egos, especially men's egos around sports and the adrenaline and the. And the buddy stuff that causes a little bit. So One problem with DraftKings not allowing Sharp players as part of the allure of sports betting should be that, hey, look, hey buddy, you're pretty smart about sports. Why don't you try to outsmart the system? And now they're very careful about not quite implying that they say, well, we all have hunches sometimes it's fun to better hunches. I heard nad recently on some podcasts I was listening to. But it's not the same as the daily fantasy days where they're like, hey man, you're sitting in your office cubicle, but you really know sports really well. So why don't you boot up some graftkings lineups and then you'll be hanging out with like bikini models or like literally what the ads were were saying. It wasn't even subtext, it was like text. And now they've lost that because they're afraid of like, for every person who can beat the system, there have to be 10 egotistical guys who think they can beat it and can't.

[Michael Lewis]

Right. And when they sift the population and have the ability to sift the population so that and are able to kick out anybody who can beat the system and just keep in the system the people who were the 10 guys, what I think is bound to happen is this activity is going to be stigmatized as stupid. If you're there, you're dumb. And I was thinking like on a list of questions that I would ask anybody who was holding himself out as a financial advisor, like wanted to manage my money, one would be, do you have an account at DraftKings and do they let you bet as much as you want or are you a VIP and that if you are, you have no business doing this.

[Nate Silver]

Well, it's like, what? So like credit rating agencies will look for people whose phone batteries go out a lot because this is seen as a sign of poor planning. Right. That you're not a long term planner if you routinely more than once or twice a month. Right. Can't make it through the day with your cell phone on the whole day. Yeah, absolutely. I mean, people need to understand this is where having spent time on Wall street, you probably understand adverse selection a little bit more. If someone's offering you a trade, why are they offering you this trade? And if you know that if they think you're Sharp, you won't get this trade then that should be a big red flag. However, you do I guess kind of get this reverse adverse selection problem where you know, why is someone betting with you if they know that you know, they think you're dumb? And so what happens is that you have proxies or beards, they're called, where you befriend a degenerate gambler in your Pokemon game with very high limits on draftkings. You say I'm going to give you sharp picks, no strings attached. Right. And you give me half your action.

[Michael Lewis]

Right.

[Nate Silver]

Like it's very hard to prevent that. It's against their terms of service, of course, but like it's probably not illegal. Although the courts are unsympathetic toward gamblers and gambling related stuff. But like, but I, it's, it's not a, it's not a very robust industry. They have good product and good marketing and good customer acquisition and they do certain fundamental things pretty right. But the old school approach to bookmaking is that look, we let a few sharp people bet because most people aren't sharp. And the sharp bettors help us set better lines and create a sense of fairness and kind of old school Vegas camaraderie is, well, I don't know. There's also a lot of cheating back in old school Vegas. So I think one should be careful about calling it the good old days too much. But, but it is, but it, but.

[Michael Lewis]

It is about letting information into a market and using the information rather than just trying to keep the information out.

[Nate Silver]

Yeah. And they take their four and a half percent tax and get like a lot of dumb betters and I don't know, maybe they should have a higher vig but say we'll take everybody's bet but have a higher vig instead. What happens is like, you know, some of these sites like Circa actually let everyone bet and have better odds instead. And there have been these sites that are very committed to a, a fair experience for the gambler where they set like rational limits for every player. The limits are the same for every player. But they're smart about things. Right. They don't let you bet on some of the derivative bets that like are easy to beat. They don't offer the in game betting in the middle of the game where if you're, I mean, you know, there's issues like if you are at a tennis tournament and you're watching US open match, then sometimes you can make bets called court siding before, before the lines change. They've gotten Pretty fast. But like, but there's all types of edges like that that people can have that say you have to be this fair and square. We're going to set good, informed lines, a limited selection of good lines, but we're not going to eliminate anybody from betting. And people have moved away from that model, unfortunately.

[Michael Lewis]

Hold that thought. We'll be right back. Foreign.

[Malcolm Gladwell]

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[Nate Silver]

Whoa.

[Malcolm Gladwell]

So here we are. We're driving down a lovely winding country road in the Hudson Valley. I am here with my daughter, Speedy, and we are sampling one of the latest and greatest of BMW's creations. Makes 335 horsepower, range of over 300 miles. Riding in the BMW i4 e40. You know how your toys have batteries? This car has a battery. How do you like this car so far?

[Nate Silver]

Does it go fast?

[Malcolm Gladwell]

Oh, it goes so fast.

[Nate Silver]

Let's go.

[Malcolm Gladwell]

Are you ready? Yeah. Are you sure?

[Nate Silver]

Yeah. Whoa.

[Malcolm Gladwell]

Spadey was that fast again. Oh, yeah. Okay. In a world full of ordinary, there's a brand that dares to be different. Feel the rush of precision engineering as power meets sophistication with every turn. It's not just a drive, it's an experience. So buckle up and embrace the extraordinary. Because when the road calls, only one answer will do. BMW, the ultimate driving machine. Shall we see what happens if we push the accelerator all the way to the floor? Are you ready?

[Nate Silver]

Yeah.

[Malcolm Gladwell]

Are you sure?

[Nate Silver]

Yeah.

[Malcolm Gladwell]

One, two, three.

[Nate Silver]

Whoa. Elevator. That isn't the elevator.

[Malcolm Gladwell]

Going up, up a hill in this BMW is just like an elevator. That's exactly right. You know what this car is this is your first BMW. Learn [e-mail].

[Nate Silver]

Even if you think it's a bit overhyped, AI is suddenly everywhere from self driving cars to molecular medicine to business efficiency. If it's not in your industry yet, it is coming fast. But AI needs a lot of speed and computing power. So how do you compete without cost spiraling out of control? Time to upgrade to the next generation of the cloud. Oracle Cloud Infrastructure, or oci. OCI is a blazing, fast and secure platform for your infrastructure, database and application development, plus all your AI and machine learning workloads. OCI costs 50% less for compute and 80% less for networking, so you're saving a pile of money. Thousands of businesses have already upgraded to oci, including MGM Resorts, Specialized Bikes and Fireworks AI. Right now, Oracle is offering to cut.

[Michael Lewis]

Your current cloud bill in half if you move to OCI for new US.

[Nate Silver]

Customers with minimum financial commitment. Offer ends 12-31-2024. See if your company qualifies for this special [e-mail] strategic that's oracle.com strategic.

[Michael Lewis]

Nate Silver and I are back to discuss all things risky. I have a couple other questions for you. One is I'm going to Vegas this weekend, give a talk. If I wanted to see Nate Silver's Vegas, where would I go? Where are your, where are your, what are the places that make your socks go up and down?

[Nate Silver]

I mean the Wynn and the Aria are probably my favorite properties in Las Vegas.

[Michael Lewis]

And you walk it, you walk it. You walk in and you go right to the poker tables.

[Nate Silver]

In Vegas I basically play poker and eat nice food. Yeah. And that's really what I do.

[Michael Lewis]

Right?

[Nate Silver]

I mean maybe I'll, maybe I'll hit, hopefully you hit the gym in the morning some of the time. Maybe you hit the pool once. You know, once a year I'll get dragged out to the club. It's about the, it's about the tolerance I have for that experience. Once a year it's fun. More than that, it gets old. On top of that, I will almost never be able to completely put away my real life work. Right. So I'll like get up at 8, take a call with some consulting client, write a newsletter, post @10, and then play poker for 12 hours. And they're like very, and they're very long days. You come home just exhausted. Some of the time when, when you.

[Michael Lewis]

Go into these tournaments, are you nervous?

[Nate Silver]

It comes and goes. I mean one of the things where it's interesting, it's also true with like doing like live public Appearances where you're in front of a bunch of people like you were talking about earlier, you know, trying to figure out kind of where those butterflies come from and why sometimes you have them and why sometimes you don't. I'm trying to. You know, you gradually learn a few things, like doing things on an empty stomach is probably a bad idea because your heart rate is going up and if you're having low blood sugar and so forth. Basically, no, I actually kind of almost had the opposite problem where you're really excited. Like, I haven't played in a poker tournament in three months and I flew to the wind and I checked in and finally I'm playing my first tournament of the series and I have this whole week to play poker. And then you play and there's no interesting hands for, for three hours. And it becomes like a little bit of a letdown because the big moments in poker come unexpectedly. They come toward the end of tournaments, not toward the beginning. And so it can be kind of, kind of quite a grind now. A big high stakes cash game, then immediately you're feeling the adrenaline. But I, I try to like enjoy that feeling.

[Michael Lewis]

What's the most you've ever won and.

[Nate Silver]

Lost in a cash game? The most I've won is probably 70, 75k and the most I've lost is probably 45k or something. In a tournament. The top prize I've had is like 150 or 170 or something K. So yeah, I, Yeah, yeah, that feels fun, man. The feeling where, where you have a big winning cash session. Because I like, I'm starting to like cash poker better than tournaments where you have like, where you have a fixed player pool. Because that's what you were talking about before in your game in high school or college. What it was to play against the same people repeatedly is what I think poker is, is really about more than the computer solvers, more than the game theory. It's about like the cat and mouse games of who's going to one up one another today. Like that I find to be like really fun to have this same player pool. People you become friends with and people that might be very rational on some walks of their life and are just like utterly terrible poker players or vice versa, sometimes is enjoyable.

[Michael Lewis]

It's a really useful window into character. Watching someone gamble, that was the fun to me was seeing the. It was just like they become characters in a novel when they're sitting around a poker table. There's something very distinctive about the way people. It's like a fingerprint the way they approach risk.

[Nate Silver]

Yeah, I know you're still in the process of writing this, but how has your approach to risk changed in making the new season and learning more about the sports betting world?

[Michael Lewis]

So I'm not sure my own approach to risk is changing at all. However, one of the shocking things to me as I dive into the world of sports betting is how these companies have sprung up and become multibillion dollar companies on the back of just dumb sports betting. Like we have a machine in place that's out there to maximize the number of stupid sports bets that Americans will make. And Americans are just shockingly good at making dumb sports bets. And so it's made me and especially young male Americans and the light bulb that went off in my head is I need to educate my 17 year old son that he's walking into a world, it's not just sports betting, but he's walking into a world that's going to ask him to make lots of calculations. Whether he's aware of it or not, he's taking advantage of his ability to make certain calculations and if he can't make them, he's in trouble. And so it got me thinking not so much about my own risk profile, but about, about, about sort of like the population's risk taking behavior which, which is just, you know, I didn't expect the average American to be a really smart sports gambler. I was just surprised by how bad that.

[Nate Silver]

No, just the notion that like they are explicitly saying that you can't have winning players and that we're expecting you to lose money. I mean even the casino industry offers some pretense of oh, we're an entertainment product and you'll come and, and get a nice steak dinner and see a show and hang out with your buddies. Right. Whereas is, this is just more cynical.

[Michael Lewis]

It's an explicitly dumb transaction without a whole lot of side benefits. There are some, I get it, it makes you, it's more exciting to watch the games if you have money on it, et cetera, et cetera. But it is really just targeting bad decision making. And the fine point has not been put on that. And it's, it's. And once the fine point is put on it, it'll be interesting to see how people think about these, these companies that, that are the sort of the new sports bookies. It's like is it a bad, is it, is it saying something bad about you that they want you there?

[Nate Silver]

I see some perceptual shifts. I mean you see kind of in the political circles I follow you see people who are growing more concerned as there are more studies that come out about the effect on, on young man. Look, it's a lot of like the guy who goes and bets $50 in the Yankees at the Yankees game and is giving away if he's making just like a Moneyline bet, expected value of two and a half bucks. Like, I'm not worried about him. He probably gets his two and a half bucks worth in entertainment. But the 5% of people or whatever else who are, who fall into the trap here and the lack of friction where it's just like you want $10,000 in your draft account, their Def Kings account, like it's, that's not that hard. That's not that hard to do. If you're in a physical casino and you didn't bring money or tips with you, then actually there's friction there. I've had at poker series at the World Series Poker, drive out to the Chase bank on Tropicana Avenue or whatever. Be like, I would like to make a bank withdrawal because I ran out of money. And that at least creates a little bit of a deterrent.

[Michael Lewis]

Yeah. One of the things that runs through our whole season is how people's behavior changes and the decision making changes. When you remove the friction, it's not a trivial thing. It's not that you make it a little bit harder for people to do things that are self destructive and they're a lot less likely to do them. All right, Nate, thanks for doing this.

[Nate Silver]

Absolutely. I'll talk to you soon, Michael.

[Michael Lewis]

All right, bye. Bye. Nate Silver is the author of the book on the Edge and co host of the Pushkin Podcast, Risky Business. Against the Rules is written and hosted by me, Michael Lewis and produced by Lydia Jean Cott, Katharine Girardeau and Ariella Markowitz. Our editor is Julia Barton. Our engineer is Sarah Bruguer. Against the Rules is a production of Pushkin Industries. To find more Pushkin podcasts, listen on the iHeartRadio app, Apple Podcasts or wherever you listen to podcasts. And if you'd like to listen, ad free and learn about other exclusive offerings, don't forget to sign up for a Pushkin plus subscription at Pushkin FM plus or on our Apple show page. The holiday season is back, which means it's a time for giving. Subaru and its retailers believe in giving back to those who need it most. For the past 17 years, Subaru has made the act of buying a Subaru during the holiday season an act of love. When you purchase or lease a new Subaru. During the Subaru Share the Love event, Subaru and its retailers donate a minimum of $300 to charity. By the end of this year's event, Subaru and its retailers will have donated nearly $320 million to national and hometown charities. To learn More, go to subaru.com/subaru More than a car company the holidays are.

[Nate Silver]

Here, and so is the Ikea Winter Sale.

[Michael Lewis]

Now's your chance to make the holidays.

[Nate Silver]

A little more magical and less expensive. Save up to 50% off on select items in store and online now through January 7th. Plus IKEA loyalty members get an extra 10% off on sale items offer.

[Michael Lewis]

Valid in the US through 17.

[Nate Silver]

Mall supplies.

[Michael Lewis]

Last selection may vary by store and online.

[Nate Silver]

See store in ikea-usa.com wintersale for complete terms. Restrictions apply. Welcome to TGL, presented by SoFi, golf's newest league. It's sharp and it's electric.

[Michael Lewis]

How is it sharp? How is it electric?

[Nate Silver]

Good questions.

[Michael Lewis]

Try this on for size. Two hours of hammer dropping over overtime.

[Nate Silver]

Forcing playoffs on the line.

[Michael Lewis]

Golf with 24 of the best players from the PGA Tour split into six teams Atlanta, Boston, Jupiter, L.A. new York and the Bay this isn't your average Sunday pickup game. Catch the inaugural TGL match January 7th, only on ESPN. Keep up.

[Nate Silver]

It's gone.