Tuesday, 25 March 2014


Trading on the Kim Dotcom Internet Party stocks over at iPredict, complicated enough ex ante, has gotten even more complicated.

Prior to this weekend's rumours of an alliance with the Mana Party, the so-simple contract paying out $0.10 for every 1% earned by the Internet Party was really this mess:
Here's what you're trading on, if you're buying this contract. 

So, what the hell should you pay for a contract that pays $0.10 for every 1% of the vote earned by the yet-to-be-formed Kim DotCom Internet Party?

Let's label a few terms and make a few guesses. 
  • Pp is the probability that there is a Party, say 0.8.
  • Ps is the probability that DotCom really would kill the party if it doesn't poll 5% prior to the election, say 0.75
  • Vh is the expected vote share conditional on a poll result of 5% prior to the deadline
    • This one's hard to ballpark. You could make an argument for pegging it lower than 5% because a single outlier poll could be sufficient for his going ahead. But I expect that the state of the world in which he can get a single >5% figure is the state of the world in which we've had substantial GCSB revelations affecting NZ; in that state of the world, I'd put even odds on 5%. And so I'll stick it at 5, or $0.50 in iPredict prices.
  • Vl is the expected vote share conditional on no polling result of 5% prior to the deadline.
    • I'll peg this at 0.5%. If he goes ahead despite no polling result above 5%, credibility's shot. And it's also the state of the world in which there's no substantial GCSB revelations. So $0.05 in iPredict prices.
  • Pt is the probability that the Internet Party polls at least 5% prior to the deadline.
    • I'll peg this at at even odds IF we get substantial GCSB revelations during the election campaign, and nil otherwise. Supposing even odds on substantial revelations, that gives us 25%.
The expected value of the contract is then:


Using my rough ballpark estimates, that's then:

= 0.8*($0.09375+.25*$0.04375)
= 0.8*$0.1375
= $0.11

Denote as Pm the likelihood of a merger with Mana. Denote as Ph the likelihood that Hone Harawira wins his seat in a world in which he's merged with DotCom. If there's a merger AND if Hone's seen as very likely to win his seat, I expect DotCom would void his promise to kill the party were it short of 5% - every vote would count for the Internet Party if it had a seat under MMP.

I'm not going to put up the equation this time. It's going to be just too messy. But the following will matter:
  • Pp, the probability that there will be a party, is now 0.98 (I expect)
  • The party's expected vote share varies substantially based on whether they're allied with Mana.
    • With Mana:
      • On the upside, people may have fewer worries about throwing away their vote, but they shouldn't have had that worry anyway given the promise to kill the party were it not polling less than 5%. So maybe they get a bit of an up-tick from the expectation that there won't be a wasted vote.
      • On the downside, you get an internet freedom, anti-surveillance party that's merged with some fairly non-standard economic ideas, conspiracy theories, and assorted random-draw oddities. The Green Party already combines internet freedom, anti-surveillance, non-standard economic ideas, and a slightly different set of random-draw oddities. I'm not sure what niche the DotMana Party then seeks to fill. Maybe it has a bit more "stick it to the Man" appeal than do the establishment Greens, but are there really many voters in that space? 
      • So, the whole Ps argument is going to change then: the Party goes ahead conditional on polling above 5% or on Hone's being likely to win Te Tai Tokerau. Note that his odds there dropped from 90% to 83% over the past week. So we then have a 17% chance that Hone loses his seat. 
      • In this world, the contract is really trading on the vote share for the combined party, and not simply on the likelihood of the party's reaching 5%. 
    • Without Mana:
      • On the upside, we're mostly back to status-quo ex ante;
      • On the downside, there's the substantial WTF?! effect on those who would have been supporters of the Internet Party. I'd expected that an Internet Party could do well by staying well out of stuff other than internet issues: they'd then provide a landing spot for anti-surveillance or pro-internet voters who weren't comfortable with the Greens and who didn't trust ACT's commitment to freedom on this issue.* An alliance with Hone Harawira doesn't particularly make him more appealing to folks in that group, or at least I'd bet against it. 
      • In this state of the world, and absent his buying some other MP, we're back to the calculation I'd run before, albeit around a lower mean due to the WTF effect.
    • I have no idea how to start assessing the likelihood of a merger with Mana. My priors on what Hone Harawira might do on any margin are pretty flat. And Pm will matter.
I'm not going to peg new fair odds lines here. The initial market reaction had Internet Party dropping from 0.9% to 0.7%, spiking up to 1.5%, dropping back to 0.7%, then rising again to 1%. But it's a very thin market. I would be setting some buy orders at $0.05 (0.5%) and some sell orders at $0.15 (1.5%). But I've low confidence in either estimate and, more importantly, the market's going to move a lot when a final announcement comes on the Mana merger. Such announcements seem to like to happen when I'm driving and unable to trade. And so I'm staying the heck out of the order book for now.

* Jaime Whyte is very much against the expansion in surveillance that came with the GCSB and TICS legislation. His predecessor, John Banks, or at least Banks's office, very much favoured it. Some in the ACT Party come from the Sensible Sentencing Trust wing; I'm not sure they've ever seen an expansion in the police or security apparatus that they didn't heartily endorse. They trust that the GCSB will Do The Right Thing; they view the current surveillance arrangements as fully consistent with liberalism. Whyte doesn't. But that all does make it harder for ACT to commit to what I'd view as a liberal policy on these issues.


  1. its hard to believe you could be knowledgeable intelligent Eric, but so side tracked to garbage, dotcom sideswipe idiot,but their you have the inmelligenstia are stupid

  2. "Jaime Whyte is very much against the expansion in surveillance that came
    with the GCSB and TICS legislation. His predecessor, John Banks, or at
    least Banks's office, very much favoured it."

    You are just making stuff up.

    No one in ACT, not Mr Banks not anyone in his office ever favoured the "expansion in surveillance" in any legislation. What total utter BS. You simply display your ignorance.

  3. Chris, your office strongly backed both pieces of legislation while trying hard to play down concerns raised by the civil libertarians.

  4. It is not “[my] office”. It is the ACT office.

    ACT did not “strongly back both pieces of legislation.” In fact we had both amended – ACT used its influence proportionately to improve both.

    ACT considered all of the evidence presented for both pieces
    of legislation including from “civil libertarians.” Some of this evidence was at best legally wrong and factually wrong; at worse, hysterical.

    I doubt you have looked at a single submission and none that
    runs counter to your deep anxieties largely originating from what is occurring overseas.

    No one in ACT believes we should “trust the GCSB to do the right thing.” You just make stuff up.

    Rather, any surveillance of New Zealanders should be clearly and specifically authorised within an unambiguous statutory framework.

    There is always a risk to freedom from the necessarily secret activities of the State. The real question is how you manage that risk through checks and balances.

    In terms of a real and present danger to freedom from Government, most of of these are less exotic and much more mundane; like taxes and the RMA.

  5. I'd read the submissions from the Law Society, Tech Liberty, the TUANZ response, and a couple others. I note that your read of the legislation wasn't shared by others who know more about legal matters than I do.

    ACT did support the legislation, with some ACT-proposed amendments. I agree with Jaime Whyte's comment published in the NBR: ACT should have voted against it.

  6. But not the LAC submission which was a lot more sensible than the law society. The law society presentation was embarrassing I sat through it. Tech liberty and TUANZ were a total waste of time and space. Nor it seems did you read the telcos on TICS or read the officials report on both.

    Depending on the issue "my read" was supported by Kitteridge, the Attorney General, LAC and officials. It really depends on what issue you are referring too.

    Yes. With respect Dr Whyte knows even less about what the New Zealand situation than you do. Who knows what he would have voted if he were better informed on the detail.

    You said "ACT strongly backed it" not "ACT supported it" - frankly you keep changing your ground.

    ACT supports lots of legislation (i.e. we vote for it) that we don't "strongly support". That is the nature of Parliament and the world of grown ups. ACT exercises its vote proportionately.

    On what philosophical or practical basis should ACT vote against legislation that provides a clear statutory framework for surveillance that must be specifically authorised?

    There are only a limited range of model designs for this area of public policy - which one anywhere are you suggesting we should have opted for? And remember we are a small country.

    On a practical level you ignore the locus of expertise argument; fail to confront the risk to freedom posed by reproducing the expertise in the SIS and Police and other agencies that have surveillance powers - as opposed to locating it in one place with stronger oversight. Not to mention the cost of duplication on the long suffering taxpayer.

  7. ACT strongly supported the legislation when faced with critique from inside the Party and from other civil libertarians. If it were just "hey, we vote for stuff all the time as part of coalition agreements", then ACT, I'd have expected, would have made a big deal about the small gains it made in oversight and in the statement of guiding principles.

    I agree that there has to be proper legislation in this area, but I would have favoured an approach more restrictive on GCSB rather than one that seemed mostly to codify existing practice plus a couple safeguards.

  8. What critique? You mean anxieties largely generated from

    ACT will seek small changes on legislation all the time; if
    we don’t particularly like a Bill and have improved it somewhat we normally don’t make a song-and-dance about it. We can often get more done that way.

    The Bill did not codify what GCSB was doing. That was the original 2003 Act. The issue was that it did this poorly.

    Even prior to 2003, the first ever statutory framework, GCSB had always had agency arrangements with other State organisations that have surveillance powers. It could always engage in surveillance of comms between a NZ citizen/resident and a non-citizen non-resident under its own statutory powers under the 2003 Act.

    To say that there was some sacred pact that “GCSB didn’t spy on New Zealanders” was wrong. In some
    cases under its own statutory powers it could; and as agent for other State organisations that can do surveillance it did and has always done so. It is the only part of the NZ State that has this capability. Others have the powers but not the native capability.

    What changed was not surveillance practice but rather legal fashion. Labour had tried to be discrete
    and crafty about the agency power in 2003 to avoid issues with the Alliance. Kitteridge said that drafting
    no longer passed muster as a result of a more robust contemporary approach to statutory interpretation – Crown law agreed.

    The second issue was better organisational leadership. The third oversight systems. Both significantly improved.

    Rest easy Dr Crampton, the NZ State is not collecting all your emails and metadata - hell it can't even run a computer pay system for 100k teachers.

  9. Problem is that the overseas anxieties can become awfully relevant here. I don't expect the Americans to much help us sort out teacher payrolls. But it isn't all that implausible that they'd help here with hoovering things up.

    Guess we'll see what Snowden releases during the election.