Marginal Revolution

Prediction Markets Are Accurate

Alex Tabarrok — Fri, 23 Oct 2026 11:18:43 +0000

No surprise to me but a new paper looks at the forecast accuracy of over one million prediction questions from Polymarket, Kalshi, Manifold and the forecasting platform Metaculus. A virtue of the new analysis is that it covers many different areas from business to elections to geo-politics. An event predicted to happen p% of the time happens about p% of the time. Can’t beat that.

Using approximately one million resolved contracts and questions across four collective forecasting platforms, twelve domains, and time horizons ranging from hours to years, we evaluate the calibration and accuracy of collective forecasts in real-world settings. We found that forecast probabilities were overall highly calibrated: events assigned a probability of p% occurred approximately p% of the time. This broad pattern was evident across platforms and many domains, although fine-grained analyses revealed systematic tendencies toward over- or underestimation in highly consequential areas. While this does not mean that forecasting platforms provide certainty about individual events, our findings suggest that large-scale aggregation of judgments contains meaningful information about real-world uncertainty; when examined in aggregate, the predictions generated by the platforms provided informative estimates of event likelihood.

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Protecting Americans from Medicine

Alex Tabarrok — Fri, 23 Oct 2026 11:14:10 +0000

Max Doppelt: In January 2025 my mom’s lung cancer spread to her brain. The drug with the best chance of helping her was approved in China but not here.

A doctor told me, almost as an aside, that if she were Chinese she could buy it at a pharmacy.

So I flew to Shanghai and came home with 26 boxes in my luggage. That was 19 months ago. My mom is still here, still working, and in her words has had an amazing three years.

The drug was approved in China in 2023. The FDA approved it in July 2025. It still is not for sale here. I know of at least 30 Americans who have made the same trip.

I have been scared to tell this story because I worried it could cost my mom access to the medicine keeping her alive. But the problem matters more than my silence. These drugs need to be developed and available here, and that means FDA reform.

A piece at KFF Health cover’s Max’s story and adds this insanity:

Rep. John Moolenaar (R-Mich.), who chairs the House Select Committee on the Chinese Communist Party, in June co-sponsored legislation with Rep. Debbie Dingell (D-Mich.) requiring all U.S. pharmaceutical deals with Chinese companies to be cleared by the Treasury Department.

Got that? A son flew to Shanghai to buy pharmaceuticals to extend his mother’s life and the House Select Committee on the Chinese Communist Party wants a Treasury lawyer monitoring the baggage claim. Yes, I am angry.

Addendum: See also my earlier post on Operation TrialBlazer and Montana’s SB535. My 2009 TED Talk is the ur-source for my argument that a rich China and India will create many benefits for the United States, including many more cancer drugs.

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Podcast with Rabbi David Wolpe

Tyler Cowen — Fri, 23 Oct 2026 07:38:28 +0000

Here is their episode summary:

Economist Tyler Cowen joins David Wolpe for a conversation about AI, religion, and what makes us human. Tyler makes the case that AI’s biggest impact may be on status: who gains it, who loses it, and what happens to experts like rabbis when anyone can ask ChatGPT all their questions. He also suggests that losing our monopoly on intelligence may make us feel more unique as humans, rather than less.

You can listen here.

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In reply to patrick. Q: How can a structural engineer, ... by RAD
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” AI’s biggest impact may be on status: who gains it, who ... by Mactoul
ChatGPT is only replacing experts if you lack discernment. When ... by patrick

Will bystander economies be able to finance their governments?

Tyler Cowen — Fri, 23 Oct 2026 04:51:50 +0000

From Jesús Fernández-Villaverde:

Will AI poison the public finances of many modern states? There is a real risk that it will.

Yesterday, I circulated a new paper, “Saving for the Machines,” which makes a simple point. Building the AI transformation will require enormous investment. The only way to induce agents to save for that investment is through a large increase in the real interest rate. For instance, in my benchmark scenario, the ten-year real yield jumps from 5.1% to 13.6% on impact.

But that means government borrowing will become much more expensive. Here is a back-of-the-envelope calculation. Take a government that owes 100% of GDP in 2025 (a typical case in Western Europe) and runs a balanced primary budget from then on (not so typical but never mind; I want to build an optimistic scenario). That means the debt ratio changes only with the gap between the real interest rate and growth.

I input the interest rate and the growth rate for my benchmark transition to full automation, and I roll over the debt at the short rate. I consider two economies. The first economy is an AI adopter, for example, the U.S., which experiences an AI boom at home. The government pays the new interest rate but also enjoys faster growth.

The second economy is a bystander, for example, Spain. This economy lives in an integrated financial market but does not adopt AI (this is an extreme case of zero adoption, just to make the exercise transparent): it pays the same world interest rate and continues growing at its old 1.6% trend.

Let’s first consider the adopter. With an intertemporal elasticity of substitution of one-half, the Euler equation implies that consumption growth is about half the real interest rate. Hence, the gap between the interest rate and growth does not close during the AI-driven growth boom. Instead, it widens. For example, with a unit elasticity of substitution among tasks, the real rate rises from 5.1% to 42% by 2040, while growth increases only from 1.6% to 22%. Debt doubles by 2038, reaches 296% of GDP in 2040, and 907% in 2045. To hold the ratio at 100%, the government needs a primary surplus of 10% of GDP in 2035 and 24% from 2045 onward. With a low elasticity of substitution of 0.2, the numbers are milder, but the pattern is the same: 204% in 2040, 397% in 2045, and a stabilizing surplus of 13% of GDP.

But the adopter has a way out. The capital share goes to one, so net capital income is about 88% of GDP, and a flat tax on it can cover the surplus. A 36% tax on net capital income holds the debt at 100% of GDP in the limit with unit elasticity, and a 20% tax does so with strong complementarity across tasks. The tax is above the gap because it slows growth, from 21.9% to 13.6% with unit elasticity and from 11.7% to 9.1% with an elasticity of 0.2, while it does nothing to the rate the Treasury pays, which technology pins at the machines’ net return. Painful, but the boom survives and the adopter can pay its debt.

The grim news is that the bystander economy has no way out. Its capital income is still a third of GDP, which grows at 1.6%, and the surplus it needs is 11% of GDP in 2030, 26% in 2035, and 44% forever with unit elasticity (18% and 24% with an elasticity of 0.2). On a balanced primary budget, its debt doubles by 2033 and triples by 2035. No tax system raises that.

Two more bad pieces of news for the bystander. First, long yields jump on impact, so a Treasury that issues ten-year debt pays more, and sooner, than rolling over at the short rate assumes: it is the same bill but front-loaded. Second, the bystander’s own capital flows to the machines abroad, so its GDP and tax base fall below trend. One relief is that households can save for other people’s machines and get rich on the returns, which the bystander’s government can tax to some extent. This back-of-the-envelope calculation is a benchmark, not a forecast of what is to come. But the arithmetic is simple, and it runs counter to the hope that an AI-fueled growth boom will take care of public debt, because growth comes with an interest rate that is twice as high. Not a pretty future for most of Western Europe. Due to AI, the choice is between default, inflation, or, most likely, financial repression: capital controls that keep domestic savers from investing in machines abroad.

I am somewhat more optimistic than this. The assumption of zero Spanish adoption already is noted, but also ideas are public goods, and Spain can benefit from American (and Chinese) AI, and the resulting scientific advances. The long-run supply of capital also might be quite elastic, we will see.

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Comments

In reply to rayward. Seriously? Railroads, electricity, ... by NotRover
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How Long Do Wealth Shocks Persist? Less Than Three Generations in England, 1700–2026

Tyler Cowen — Thu, 22 Oct 2026 18:36:11 +0000

What happens across generations to wealth shocks? Do they endure and even magnify, or do they dissipate? By implication, how much modern wealth is attributable to events before 1900? This paper uses random shocks to family size in England before 1880 that created wealth shocks for the children to measure the persistence of wealth shocks. Fertility in England before 1880 was a biological lottery. For richer families, family size strongly influenced child wealth. This paper finds that such biology-induced wealth shocks had no impact on descendant wealth by three generations later. Since wealth itself persisted across more than five generations this implies that, in the long run, wealth mainly derives from sources other than inherited wealth. The observed link between nineteenth century and modern wealth does not lie in wealth transfers alone. Wealth persisted because of the familial inheritance of behaviors associated with wealth accumulation and retention.

That is from a recent paper by Gregory Clark and Neil Cummins. Via the excellent Kevin Lewis.

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Thursday assorted links

Tyler Cowen — Thu, 22 Oct 2026 15:55:47 +0000

1. The cherries trade.

2. New YouTube channel for Indian architecture.

3. Where do Math Olympiad gold medal winners end up? “By total gold medal count, China is the clear leader, followed by the pack of USA, Russia, and South Korea. Over 20 years China has 105 out of a possible 120 gold medals which means nearly all their students achieved gold. This is so successful that it’s common knowledge that it is harder to make the China IMO team than to get a gold medal in the IMO itself.”

4. Is El Salvador cost-competitive?

5. Rebecca Lowe on Bach.

6. Do the Democrats still care about the Ivy League?

The post Thursday assorted links appeared first on Marginal REVOLUTION.

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Modern Principles of Economics!

Alex Tabarrok — Thu, 22 Oct 2026 11:18:12 +0000

If you are teaching economics Modern Principles is the book to use! Great and original writing, over one hundred videos, iClicker, Achieve and lots of additional support. Contact Mike Krotine to get an examination copy.

https://alextabarrok.com/video/modern-principles.mp4

The post Modern Principles of Economics! appeared first on Marginal REVOLUTION.

Click the icon below to watch.

Comments

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A simple point about the intertemporal regulation of AI

Tyler Cowen — Thu, 22 Oct 2026 07:12:46 +0000

At some point AI will be more regulated than it is today. Furthermore, I believe that most parts of the American economy, once they are regulated, end up overregulated.

Thus it is likely that the AI sector will, at some point, end up overregulated.

Given that reality, perhaps the AI sector should be underregulated today. After all, overregulation will have decades, maybe centuries, to catch up and even the ledger.

Many regulatory issues can be considered within this framework. You can think that AI is “underregulated today”, in the static sense of that term, and still not favor additional regulation right now. You might prefer to keep it underregulated for some while to come.

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Do mass shootings in universities lead to permanent effects?

Tyler Cowen — Thu, 22 Oct 2026 04:42:11 +0000

Using a stacked difference-in-differences design covering shootings between 1990 and 2025, I compare cohorts at affected universities before and after the shooting with cohorts at matched control universities. I find no detectable effects on time to degree, but undergraduates enrolled at the time of the shooting are 4.2% less likely to pursue further studies. Those who do continue shift toward health: the share of exposed cohorts who later enroll in a health degree rises by 1.3 percentage points (8.8%), and this effect persists among cohorts who enroll after the shooting. Effects on students present during the shooting are consistent with a response to trauma; for later cohorts, I find evidence of sorting, as master’s students with prior healthcare experience become more likely to enroll in affected universities. These results suggest that mass shootings leave institutional and cultural legacies that outlast the students who witnessed them.

That is from the job market paper of María Medellín-Esguerra, who is currently on the job market from Brown University.

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More on Elizabeth Holmes and prison

Tyler Cowen — Wed, 21 Oct 2026 19:12:57 +0000

The Free Press asked me to expand upon my views of this matter, here is one excerpt from the piece:

Third, fewer women in prison does not have to mean less deterrence overall, as arguably we should concentrate more of our legal resources on deterring violent men.

Note that if we can release enough women from prison, more prison space will be freed up, and I mean more prison space for men, including violent men. It is common to read of shortfalls in jail and prison space, which lead to violent men being released early. Many of these men go on to commit violent crimes, a truly major injustice. Or they commit an ongoing string of misdemeanors, sometimes ranging into the dozens or even hundreds, such as shoplifting or disorderly conduct. Our cities become much less livable as a result.

If we can, over time, convert some of the current prison space for women into prison space for men, especially violent and destructive men, I expect a net increase of justice in this country. I also think it will be a better country to live in.

There is precedent for such a conversion of facilities. In 2013, California turned the Valley State Prison for Women into a men’s prison, as the female prison population was declining and more space was needed to relieve overcrowding among the males.

As an economist might say, sending women to prison is not a free lunch. Given that prison space is scarce, it means the release of more violent criminals, mostly male.

Some reliance on prison is unavoidable. But it amazes me how much people will go to the mat to defend an institution — whole cloth at that — that makes no real sense in terms either humanitarian or even simply organizational.

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Wednesday assorted links

Tyler Cowen — Wed, 21 Oct 2026 16:09:38 +0000

1. The Romans and sex.

2. Apartments that expand at the touch of a button.

3. Has this guy composed more songs than anybody else?

4. Psychoanalyzing Elizabeth Holmes.

5. AI wrote some of the Dallas Michelin reviews. And the reviewer responds.

6. New Yorker profile of James Daunt. The last event I was at I saw three Daunt bags, one of them mine (not in the UK).

7. New Kyla Scanlon YouTube series.

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One reason I do not love AI writing, or even AI-assisted writing

Tyler Cowen — Wed, 21 Oct 2026 06:20:34 +0000

Of course I read to absorb the content, but I also am in a position to meet many authors, have contact with them, and spend time with them. So reading anything also is a potential option on those future connections. But when I am reading an AI piece, the value of that option comes pretty close to zero.

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The Causal Effect of Foreign Ideas on U.S. Innovation

Tyler Cowen — Wed, 21 Oct 2026 05:00:58 +0000

Globalization is once again better than many people realize:

We study the role of foreign ideas in U.S. innovation by constructing a directed “genealogy” of technologies from the full text of 13 million patents filed between 1887 and 2024. By tracing which earlier technologies appear in the founding patents of new ones, we recover a large-scale input–output network of technological recombination that identifies the foreign technologies that serve as inputs into innovation in the United States. We report four main findings. First, foreign ideas are pervasive: 54% of U.S. technologies build on at least one foreign input, and the most fertile U.S. technologies rely on foreign inputs most heavily. Second, foreign ideas have large causal effects on U.S. innovation. Using the historical settlement of migrants as a source of exogenous variation in local ancestry, we show that U.S. counties more exposed to knowledge from a given foreign country absorb substantially more technologies from that country and, in turn, invent significantly more U.S. technologies building on them. Third, foreign ideas shape not only the level but also the direction of technical change: U.S. counties are far more likely to pioneer the specific technologies whose foreign inputs are already in their local idea stock, and the changing origins of foreign ideas accompany the shift of American innovation from its historical heartland toward the coasts. Fourth, these effects leave a lasting imprint on local labor markets: decades later, counties that absorbed more of an origin’s ideas host more jobs working with those ideas, and even more work with the U.S. technologies descended from them.

Here is the full paper by Tarek Alexander Hassan, Aakash Kalyani & Juan Cruz Lopez Del Valle.

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Comments

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Saving for the machines

Tyler Cowen — Tue, 20 Oct 2026 18:38:49 +0000

From Jesús Fernández-Villaverde:

When machines can perform a growing share of tasks, growth depends on two margins: how the task structure affects the returns to accumulating machines, and how strongly capital accumulation responds to those returns. I argue that, in a standard task model, capital supply governs the size of the growth boom associated with automation, while the task structure sets the duration of this growth boom and the evolution of wages. I document how the same technology path that generates 11.7% annual growth when households choose their saving rate optimally delivers only 2.2% when the saving rate is fixed at the calibrated U.S. 2025 level of 23%. Therefore, slow growth might reflect too little capital accumulation instead of a technological bottleneck. Also, the saving rate rises mainly because automation raises the capital share, not because households become thriftier. Long yields price the growth boom: the ten-year real yield jumps from 5.1% to 13.6% on impact. In my benchmark calibration, hand-to-mouth households lose the equivalent of two-fifths to two-thirds of their consumption, while keeping them on trend temporarily costs at most a fifth of GDP.

Here is a thread on the paper. Here are the slides. More bottlenecks!

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