For an updated version of this document, see the “-paged”- Prediction Markets Timeline.
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CHRONOLOGY &- HISTORY: Prediction Markets Timeline
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Feel free to post a comment or contact me, and I’-ll correct or add a factoid. Thanks.
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#1. Historical Prediction Markets
According to Paul Rhode and Koleman Strumpf, prediction markets almost never got it wrong forecasting the 19 presidential elections that took place from 1868 to 1940. (PDF)
#2. The three Iowa Electronic Markets founders (Robert Forsythe, Forrest Nelson and George Neumann)
“-We ran our first market in 1988. We didn’t have regulatory approval at that point so we were restricted solely to the University of Iowa community. We had under 200 traders and under $5,000.”- –- [Robert Forsythe – PDF file]
– [CFTC’s no-action letter to the IEM – 1992 – PDF file]
– [CFTC’s no-action letter to the IEM – 1993 – PDF file]
#3. Robin Hanson
a) Robin Hanson set up and ran a rudimentary prediction exchange (a market board, PPT file) in January 24, 1989. The outcome to predict was the name of the winner of a Poker party.
b) Until evidence of the contrary, it seems that Robin Hanson was the first to set up and run a corporate prediction exchange —-at Xanadu, Inc., in April 1989. See: A 1990 Corporate Prediction Market + Anonymity is important for employees trading on internal prediction markets.
Robin Hanson: “-I started a market at Xanadu on cold fusion in April 1989. In May 1990, I started a market there on whether their product would be delivered before Deng died.”-
c) Until evidence of the contrary, it seems that Robin Hanson was the first to set up and run a bunch of imagination-based prediction markets. See the Murder Mystery Evening described by Barney Pell —-circa June 8, 1989.
d) Until evidence of the contrary, it seems that Robin Hanson was the first to write a paper on prediction markets created and existing primarily because of the information in their prices (as opposed to markets created primarily for speculation and hedging).
Could Gambling Save Science? –- (Reply to Comments) –- by Robin Hanson –- 1990-07-00
Market-Based Foresight: a Proposal –- by Robin Hanson –- 1990-10-30
Idea Futures: Encouraging an Honest Consensus –- (PDF) –- by Robin Hanson –- 1992-11-00
e) Robin Hanson godfathered the Foresight Exchange (created in 1994) and NewsFutures (created in 2000).
f) Robin Hanson invented the concepts of decision markets (PDF) and decision-aid markets.
g) Robin Hanson invented a new market design (for the 2000-2003′-s Policy Analysis Market), the Market Scoring Rules, a mix between CDA and Scoring Rules —-now in use for most enterprise prediction markets and public, play-money prediction exchanges. Note that MSR is mainly used in a one-dimension version, but many researchers are interested in its combinatorial version.
#4. Other Pioneering Public Prediction Exchanges (Betting Exchanges, Event Derivative Exchanges) and Inventors/Innovators/Entrepreneurs
a) The Foresight Exchange was founded on September 22, 1994 by Ken Kittlitz, Sean Morgan, Mark James, Greg James, David McFadzean and Duane Hewitt. The Foresight Exchange is a play-money prediction exchange (betting exchange) managed by an open group of volunteers. It pioneered user-created and user-managed, play-money prediction markets. Any person can join the Foresight Exchange and interact with the rest of the Web-based organization. An independent judge (independent from the owner of the claim) should be appointed among the volunteers. [Thus, it’s not “DYI prediction markets”.]
b) The Hollywood Stock Exchange was founded on April 12, 1996, by Max Keiser and Michael Burns. See the patent for the Virtual Specialist. For more info, see: Is HSX the “longest continuously operating prediction market”??? –- REDUX
c) BetFair was founded in 1999 by Andrew Black and Edward Wray, and was launched in England in June 2000. As of today, BetFair is the world’-s biggest prediction exchange (betting exchange, event derivative exchange).
d) NewsFutures was founded in March 2000 and launched in September 2000 in France and in April 2001 in the US by Emile Servan-Shreiber and Maurice Balick. See: NewsFutures Timeline. NewsFutures was the first exchange to let people buy or sell contracts for each side of a binary-outcome event. The advantage of this design is that it avoids the need for “-shorting”-, a notion that tends to confuse novice traders. NewsFutures later extend that approach to deal with n-ary outcome events while implementing automatic arbitrage.
e) TradeSports was launched in Ireland in 2002 by John Delaney. InTrade was later purchased and became a non-sports prediction exchange (betting exchange). As of today, InTrade is the biggest betting exchange on the North-American market —-where betting exchanges are still illegal. As for TradeSports, it closed at the end of 2008, alas.
#5. The Policy Analysis Market Brouhaha
a) Robin Hanson was the main economist behind the 2000–2003 US DoD’-s DARPA’-s IAO’-s FutureMAP–Policy Analysis Market project. (For this project, Robin Hanson invented a new market design, the Market Scoring Rules.) On July 28, 2003, two Democratic US Senators called for the termination of PAM, the the big media gave airtime to their arguments, and the US DOD quickly ended the IAO’-s FutureMAP program.
b) The second branch of the 2000–2003 US DoD’-s DARPA’-s IAO’-s FutureMAP program was handled by the Iowa Electronic Markets and was intended to predict the SARS pandemic. (This project later gave birth to IEM’-s Influenza Prediction Market.)
#6. James Surowiecki’-s The Wisdom Of Crowds
a) James Surowiecki’-s book, The Wisdom Of Crowds, was published in 2004.
b) Impact of The Wisdom Of Crowds.
#7. Recent Public Prediction Exchanges (Betting Exchanges, Event Derivative Exchanges) and Inventors/Innovators/Entrepreneurs
a) US-based and US-regulated HedgeStreet was launched in 2004 by John Nafeh, Russell Andersson, and Ursula Burger. A designated contract market (DCM) and a registered derivatives clearing organization (DCO), HedgeStreet is subject to regulatory oversight by the Commodity Futures Trading Commission (CFTC). In November 2006, IG Group bought HedgeStreet for $6 million.
b) Inkling Markets was launched in March 2006 and co-pioneered (with CrowdIQ, which later bellied up) the concept of DIY, play-money prediction markets.
c) In September 2006, TradeSports-InTrade was the first prediction exchange (betting exchange, event futures exchange) to apply Chris Masse’-s concept of X Groups. See: TradeSports-InTrade prediction markets on Bush approval ratings.
d) HubDub was launched in early 2008 and is the second most popular play-money prediction exchange, behind HSX.
#8. Enterprise Prediction Markets
a) Until evidence of the contrary, it seems that Robin Hanson was the first to set up and run a corporate prediction exchange —-at Xanadu, Inc., in April 1989. See: A 1990 Corporate Prediction Market + Anonymity is important for employees trading on internal prediction markets.
b) In the 1996–-1999 period, HP ran a series of internal prediction markets to forecast the sales of its printers.
c) Eli Lilly sponsored 10 public, industry-level prediction markets in April 2003 (on the NewsFutures prediction exchange).
d) Eli Lilly began using internal prediction markets in February 2004 (powered by NewsFutures).
e) Google‘-s Bo Cowgill published about their use of internal prediction markets in October 2005.
f) Since then, many companies selling software services for enterprise prediction markets have been created.
#9. Disputes Between Traders And Exchanges
a) The scandal of the North Korean Missile prediction market that erupted in July 2006 is, as of today, the biggest scandal that rocked the field of prediction markets.
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> “NewsFutures was the first exchange to let people buy or sell contracts for each side of a binary-outcome event.”
I believe the Foresight Exchange worked/works this way?
Addendum: Upon further investigation, I think FX is indeed different: http://ideosphere.com/fx/docs/FXdocs.cgi
Thanks David Pennock. We will look into your remark and make the appropriate change in the text if it appears that it is necessary. Need to consult with the key people.
Emile Servan-Schreiber has sent me this (he has to run and is not able to post it directly):
Emile is only partly-correct
In the Foresight Exchange, explicit orders to buy and sell NO shares can be placed using the UI. In other words, instead of an order to sell YES shares, you can place an order to buy NO shares and have the same effect. However, it is true that most positions are represented using YES shares, meaning that NO positions are indicated by a negative number of shares. We explicitly moved away from treating YES and NO positions as distinct entities because many people found this confusing. It thus seems that either approach is potentially non-intuitive.
There are a couple of inaccuracies in the timeline:
1) If I recall correctly, CrowdIQ was first to introduce DIY markets, beating Inkling by at least a few days and possibly a few weeks.
2) The markets NewsFutures implemented for Eli Lilly in 2003 were not internal but external: Lilly sponsored ten industry-level questions/contracts which were submitted to our panel of regular NewsFutures traders. Only later (in 2004) did we start to implement internal markets for Lilly. By the way, the NF-Lilly relationship may just be the longest-running working relationship between a Fortune 500 company and a PM provider…
3) It is fairly obvious from reading the INTEL case study that they are not using a trading market at all but rather something closer to HP’s BRAIN.
Finally, I’m curious about what metric you are using to assess that CP is the market leader in North America.
Hi Emile. Thanks for your time.
1. I’m e-mailing people to get confirmation of that.
2. I will correct that.
3. I disagree. Nothing is “fairly obvious” in their paper. I re-read it many times, and judged that it is more likely that it is prediction markets. However, I will re-read it again and see if a correction is necessary. Thanks.
4. The ranking of the providers of software for internal prediction markets
http://www.midasoracle.org/2007/07/20/the-ranking-of-the-providers-of-software-for-internal-prediction-markets/
The way I read the Intel paper, Emile is correct. On page 131, the first full paragraph says (among other things) “It is essentially a survey mechanism that enables each participant to create a probability distribution of unit sales while watching others enter their distributions”. The following paragraph says “Each participant’s chances of winning prizes are proportional to his or her share of all investments in the winning range.” In the second column, I find the quote “Perhaps other information based on the demonstrated knowledge and track records fo participants, individually or grouped by […] will lead us to be able to handicap traders by the knowledge they impart to the system over time.”
It’s hard to conflate probability distributions with actual markets. If the other participants’ distributions are visible, then it’s not being mediated via bids on the market.
The second quote could be construed as something similar to DP’s DPM, (“share of all investments in the winning range”) but if the chances of winning a prize are proportional to the share of winning investments, then it doesn’t appear to matter what price they were purchased at. Sounds more like a survey than a market.
The third quote could mean that they’re only considering heading in the BRAIN direction in the future, but it’s indicative of the way they’re thinking about the institution.
So with Chris Hibbert, it’s the second person who thinks the Intel mechanism has nothing to do with prediction markets.
“The process enables product and market experts to dynamically negotiate product forecasts in an environment offering anonymity and performance-based incentives.”
–> in the abstract
The word “negotiate” was a green flag. (And I also saw many red flags pointing in the direction of a non-trading mechanism.)
I will re-read this paper and Emile and Chris’s comments, and make the necessary changes in the document above, if needed.
INTEL BUSINESS CASE: Does Intel really use internal prediction markets?
http://www.midasoracle.org/2007/07/20/intel-business-case-does-intel-really-use-internal-prediction-markets/
The Virtual Specialist tech. is the only patented tech. in this space. It covers virt. securities, virt. currency, virt. price discovery, etc. Anything that came before it is a betting pool and not a ‘market’ per se.
I did not include these other sites in the orig. patent doc. for hsx’s virt. spec. tech. as they are not a ‘market’ as that term is understood to mean by those in the securities industry.
“The Virtual Specialist tech. is the only patented tech. in this space. It covers virt. securities, virt. currency, virt. price discovery, etc. Anything that came before it is a betting pool and not a ‘market’ per se. […] I did not include these other sites in the orig. patent doc. for hsx’s virt. spec. tech. as they are not a ‘market’ as that term is understood to mean by those in the securities industry.”
I haven’t read the patent, but “virtual specialist” sounds like the automated market maker. There’s much more to a market than having a market maker, and market makers are not at all required in order to have a market. If the securities industry uses a narrower definition, that’s interesting, but it still sounds like the patent omits relevant prior art for anything that matches the broader definition.
The presidential election markets described by Rhodes and Strumpf didn’t use “virtual currency”, (they were based on US Dollars) and had no automated market makers. If “virtual securities” means anything, it is integral to all prediction markets going back to these historical precedents. All later examples use them as well. It’s doesn’t seem possible to separate the concept of virtual securities from the idea of prediction markets. The IEM (1988) also used real money, and had no AMM, but I don’t see how anyone could argue that it isn’t a market. There are offers to buy and sell, and there is price discovery as the economists define it. FX (1994) uses a virtual currency and is a market by every definition I know. Robin’s papers (1990, 1992) described how to run markets and how to use an AMM to improve liquidity. Robin’s earliest manual experiments (Xanadu, murder mystery games) had manually operated market makers.
HSX may have the only patent in the area, but I would guess that that’s mostly because everyone else since the work of Hanson and the IEM has been able to see that there are precedents for nearly everything that has followed. Pennock’s DPM is the first innovation in market institutions since Hanson’s MSR and Combinatorial Market design.
According to Wikipedia, betting pools don’t offer different prices at different points in time, don’t allow resale of assets, don’t publish prices. These hardly apply to anything that has been called a prediction market.
“The Virtual Specialist tech. is the only patented tech. in this space. It covers virt. securities, virt. currency, virt. price discovery, etc. Anything that came before it is a betting pool and not a ‘market’ per se. […] I did not include these other sites in the orig. patent doc. for hsx’s virt. spec. tech. as they are not a ‘market’ as that term is understood to mean by those in the securities industry.”
I haven’t read the patent, but “virtual specialist” sounds like the automated market maker. There’s much more to a market than having a market maker, and market makers are not at all required in order to have a market.
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MK: I hope you’re not throwing out price discovery…
Regardless, there is something else that needs to be taken on board; relative pricing of virtual securities – and this is the key differentiating point when comparing the V.S. with other systems.
(Keep in mind that there are things in the tech. that are not in the patent filing – I will attempt to condense some of the salient design points here )
With the V.S. Tech., price discovery is not a matter of adding up the buys/sells and then calculating a ‘fair and orderly’ price to ‘clear’ the market. (as is the case with all the examples you site below).
This ‘old’ way of doing things (read: NYSE) would not scale in an environment such as HSX with a potentially infinite number of traders creating a virtually infinite amount of virtual currency – who are all guaranteed instant execution on any/all ‘market orders’ (vs. ‘limit orders.’).
The way this is achieved is by ignoring the absolute buys/sells for any given v.security (at any given moment) and instead focusing on the size and speed of the displacement or ‘tick,’ (observed as the price movement in multiples of 1/8 ths).
Depending on the speed at which money is coming into/leaving the economy, the number of traders clustered in an area, various imbalances measured in different ways, the ‘time value of money,’ and 20 plus other variables – – the technology automatically adjusts the ‘tick’ size in both intuitive and counter intuitive ways; i.e. ‘purposeful noise’ to test for ‘veracity.’ (if we really want to know if traders really want to own something we can throw in some volatility to see if they have ‘strong hands’)
Traders react to these relative price movements rather than absolute prices… The tech. reacts to how the traders are behaving rather than on absolute prices and it does do in a consistent, albeit “unpredictable” way.
ALSO: the tick admin. is adjustible to react differently to ‘upticks’ vs. ‘downticks’ For example, the rate of money moving into HSX is faster than it’s moving out – – so it takes more of an imbalance to move a stock up than down. The tech. looks at behavior and tries to maximize trading.. this is why hsx is the most heavily traded exchange in the world (at least it was at one time….) Because it’s set up – to use price signals to get traders trading… The value is in the trading, not the underlying ‘price’ of the virtual security… The problem I had with the board of directors at hsx was that they were being pressured by movie studios to move prices of movies – to trigger ‘interest’ and therefore more eventual ticket sales… I refused to do this as it would have corrupted the exchange… But I see this type of thing going on in other markets – There is talk of manipulation in various markets, virtual and analog… I can see the pattern clearly. Those interested in Virt. Markets should try to put an end to the manipulation… An article coming out in TraderMonthly interviews myself, michael burns and others who were involved with birthing this industry… and the topic of manipulation is a hot topic.. not sure when this article is coming out…
We also had admin. ‘tick’ screen for ‘black’ films vs. ‘white’ films… The trading population was mostly white.. prices for ‘black’ films naturally trade at a discount… the admin. screen overcomes this by increasing beta (tick size per imbalance) for black films vs. white films… We had a similar screen for R vs. GP, chick flicks vs. action flicks, comedies vs. dramas… etc.
it’s harder to manipulate the VS /hsx (when managed) than it is to manipulate the NYSE or FTSE. As reported in the UK 30% of deals are preceded with insider dealing and market man. – these patterns would be picked up by the VS – as we routinely had to do – and addressed within the system without stopping order flow.
In a market where only relative values count (where there are no absolute values). The V.S. can achieve relative price consistency and stability thoughout the system on thousands of virtual securities simultaneously – executing guaranteed market orders (i.e., instant executions).
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If the securities industry uses a narrower definition, that’s interesting, but it still sounds like the patent omits relevant prior art for anything that matches the broader definition.
MK: Our patent attorneys, and I, looked at the prior art;
(remember, we spent over $400,000 on technology and research) and in my opinion, virtual markets begin with the VS patent. (Some call this a ‘prediction market’ erroneously in my opinion for reasons I’ve previously discussed but the term has become idiomatic at this point and fallen into general use).
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the presidential election markets described by Rhodes and Strumpf didn’t use “virtual currency”, (they were based on US Dollars) and had no automated market makers.
MK: Dollars then were backed by Gold – or had some connection to Gold (until 1971) – so there was no need for a virtual specialist.
…unlike in 1996 (when the VS was invented) – and today – where currencies and markets trade in a virtual hsx-like environment – where only relative values are important. No global currency is tied to anything tangible like Gold at this time. There are no absolute values in a world of unlimited fed. credit and a ‘fractional reserve’ (read: empty) banking system that can generate virtually unlimited quantities of currencies at virtually zero cost.
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If “virtual securities” means anything, it is integral to all prediction markets going back to these historical precedents.
MK: Disagree. Only since our modern age of a 450 trillion dollar ‘derivative’ economy (and a multi-billion hollywood dollar hsx economy) has their been the need for a virtual specialist to trade virtual securities and virtual currencies.
All later examples use them as well. It’s doesn’t seem possible to separate the concept of virtual securities from the idea of prediction markets.
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MK: virtual securities – only exist within the context of virt. currencies and a virt. specialist and the rise of virtual economy – tied to the network economy – tied to Metcalfe’s network law, ‘increased economics’ etc. (By the way, markets are not inherently predictive… but that’s another discussion…)
The IEM (1988) also used real money, and had no AMM,
MK: IEM is extremely limited, narrow, and not a market in the sense that it is not an exchange. The VS is tech. that runs an exchange, not a few bets in a betting pool/poll
but I don’t see how anyone could argue that it isn’t a market.
MK: …betting pool; or poll is a better description.
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There are offers to buy and sell, and there is price discovery as the economists define it.
MK: We’re talking about virtual economics; virtual market making; something new, something with a patent that recognizes this fact; something that is unique in the field; created by bankers for bankers.
FX (1994) uses a virtual currency
MK: NO. FX uses ‘play money’ and this is not a virtual currency.
and is a market by every definition I know.
(?)
Robin’s papers (1990, 1992) described how to run markets and how to use an AMM to improve liquidity.
MK: close but no cigar..
Robin’s earliest manual experiments (Xanadu, murder mystery games) had manually operated market makers.
MK: manual being the key word in that phrase…
HSX may have the only patent in the area, but I would guess that that ’s mostly because everyone else since the work of Hanson and the IEM has been able to see that there are precedents for nearly everything that has followed. Pennock’s DPM is the first innovation in market institutions since Hanson’s MSR and Combinatorial Market design.
MK: i guess i’m more interested in ow will the social networking phenomenon be monitized in ways that compensate the ones creating the content for example… thus my new site kinooga i’ve applied for a patent on the ‘fractional copyright auction system’
These virtual markets have real potential beyond playing guessing games… these virtual currencies should be fully convertible as we see now on Second Life… (We used to maintain a fixed exchange rate for the Hollywood dollar… of a million to one for example).
According to Wikipedia, betting pools don’t offer different prices at different points in time, don’t allow resale of assets, don’t publish prices. These hardly apply to anything that has been called a prediction market.
MK: Let’s create a wiki entry called, ‘enhanced betting pools’ i.e., ‘prediction markets…
Sorry to be so adamant on this point, but I perceive real danger when this idea of ‘prediction markets’ gets into the hands of nuts like the crazies at the Pentagon who then use it justify their inappropriate actions.
Addendum: Also, the V.S. patent from 1996 is the first of three awarded in the area of virtual econonomics; with another two pending… (my notes on this go back to 1983 when i was working on Wall Street )
also; in response to what I figured would be the rise of something like PAM / – – I created Karma Banque as a way to monitize dissent to give people a chance, using virtual economics – to fight back against the tyrants at the Pentagon and those who support the Pentagon… Why do academics support the Pentagon/genocide? Oh yea, funding…
Anyone interested in Virt. Econ should be fighting, not supporting the Pentagon.
also; you mention you have not read the VS patent; it’s like a rabbi having never read the bible. The VS patent is the bible for the VS/ ‘prediction market’ industry.
Folks,
Thanks for your interest in the prediction markets timeline. As you have understood, this is a draft, and I will add items in the timeline as I read and understand your comments.
Thanks to all.
MK: I hope you’re not throwing out price discovery…
No, I mentioned that myself.
Regardless, there is something else that needs to be taken on board; relative pricing of virtual securities – and this is the key differentiating point when comparing the V.S. with other systems.
That sounds interesting. The only other system I know of that seems to do something like that is Hanson’s Combinatorial Market Maker. I’m not sure why it’s useful outside the context of tying conditional probabilities together, but you’re welcome to consider it important.
With the V.S. Tech., price discovery is not a matter of adding up the buys/sells and then calculating a ‘fair and orderly’ price to ‘clear’ the market. (as is the case with all the examples you site below).
I think that’s only a reasonable description of the systems based on Automatic Market Makers. (I haven’t seen any of the Prediction Market literature use the phrase ‘fair and orderly’, so I don’t know what your quote marks refer to.) The systems that record book orders (IEM, FX, TradeSports, NewsFutures, …) don’t match this description.
This ‘old’ way of doing things (read: NYSE) would not scale in an environment such as HSX with a potentially infinite number of traders creating a virtually infinite amount of virtual currency – who are all guaranteed instant execution on any/all ‘market orders’ (vs. ‘limit orders.’).
It sounds like you’re claiming more volume than the NYSE, but I don’t think you mean that. How is your system more “potentially infinite” than any other? Any of the AMMs guarantee instant execution; yours isn’t the only technology that does that.
The way this is achieved is by ignoring the absolute buys/sells for any given v.security (at any given moment) and instead focusing on […] The tech. reacts to how the traders are behaving rather than on absolute prices and it does do in a consistent, albeit “unpredictable” way.
That’s nice. Can you show (via academic studies, or any other peer-reviewed results) why this would give better predictions than relying on market mechanisms?
There is talk of manipulation in various markets, virtual and analog… I can see the pattern clearly. Those interested in Virt. Markets should try to put an end to the manipulation… An article coming out in TraderMonthly interviews myself, michael burns and others who were involved with birthing this industry… and the topic of manipulation is a hot topic..
I don’t remember hearing Michael talk at any of the Prediction Markets meetings I’ve been to, or seeing the name in any of the bibliographies of papers on the subject. Google knows several people by that name, but I couldn’t identify any of them as relevant. Actor, coder, student, studio executive; Wikipedia also has athletes, and politicians. I’ve read papers on manipulation and prediction markets by Hanson, Zitzewitz, Strobel, Ottaviani, Oprea.
it’s harder to manipulate the VS /hsx (when managed) than it is to manipulate the NYSE or FTSE.
Have you talked to the SEC about that? Or the financial press? Wouldn’t they be interested technology that could reduce manipulation?
In a market where only relative values count. The V.S. can achieve relative price consistency and stability thoughout the system on thousands of virtual securities simultaneously.
When is it the case that only relative values matter? If you’re claiming that none of the other institutions in use in other markets have this feature, what’s your evidence? Why isn’t anyone else trying to replicate these abilities or even discussing whether they are valuable?
MK: Our patent attorneys, and I, looked at the prior art; (remember, we spent over $400,000 on technology and research) and in my opinion, virtual markets begin with the VS patent. (Some call this a ‘prediction market’ erroneously in my opinion for reasons I’ve previously discussed but the term has become idiomatic at this point and fallen into general use).
Spending money isn’t evidence of success or thoroughness. Apparently you mean something different from what I mean by Prediction Markets, if you think the ideas started with you. It’s interesting to hear that you think the term doesn’t apply to your work.
CH: If “virtual securities” means anything, it is integral to all prediction markets going back to these historical precedents.
MK: Disagree. Only since our modern age of a 450 trillion dollar ‘derivative’ economy (and a multi-billion hollywood dollar hsx economy) has their been the need for a virtual specialist to trade virtual securities and virtual currencies.
Let’s see; “securities” in this context would normally mean stocks and bonds; originally that referred to the certificate that provided evidence of ownership of a share of an asset, tangible or not. Now it means the ownership, whether there’s a certificate or not. “Virtual” securities seem to refer to ownership shares when the asset isn’t a commodity or a company. They’re usually called “derivatives” if the asset’s value derives from the value of an “actual” security, or from the value of an index or other statistic. Virtual securities, as commonly used in the Prediction Markets field and elsewhere seems to be assets that have value defined on another basis. That seems to fit all the assets traded on Prediction Markets. You seem to mean something else when you say “virtual securities”. Care to explain?
CH:The IEM (1988) also used real money, and had no AMM,
MK: IEM is extremely limited, narrow, and not a market in the sense that it is not an exchange. The VS is tech. that runs an exchange, not a few bets in a betting pool/poll
You’ll have to define your terms more clearly. I don’t understand your point here. I doubt that the distinction lies in the number of participants. What makes IEM a “betting pool” in your terminology? I already pointed to Wikipedia, which seems to offer a different theory. What do you mean when you say IEM (or anything else) is not a “market” because it isn’t an “exchange”? I’m not familiar with a relevant set of definitions that accords with your usage.
There are offers to buy and sell, and there is price discovery as the economists define it.
MK: We’re talking about virtual economics; virtual market making; something new, something with a patent that recognizes this fact; something that is unique in the field; created by bankers for bankers.
You can say it’s new, but that doesn’t make it so. Having a patent shows something, but it’s not proof that you invented the field. If it’s unique, then maybe it has some other field to itself, and we shouldn’t be talking about it in the context of Prediction Markets. But I doubt that HSX is as unique as you seem to think. And reading the patent apparently isn’t going to tell me how it relates to everything that came before or after.
MK: NO. FX uses ‘play money’ and this is not a virtual currency.
What distinction is important to you here? The terms don’t tell me what you think makes the difference. You seem to use the words differently than I do.
CH: According to Wikipedia, betting pools don’t offer different prices at different points in time, don’t allow resale of assets, don’t publish prices. These hardly apply to anything that has been called a prediction market.
MK: Let’s create a wiki entry called, ‘enhanced betting pools’ i.e., ‘prediction markets…
Okay. What would we learn from that that isn’t already in the Prediction Markets page? It sounds like you’re denigrating prediction markets; is that your point?
Sorry to be so adamant on this point, but I perceive real danger when this idea of ‘prediction markets’ gets into the hands of nuts like the crazies at the Pentagon who then use it justify their inappropriate actions.
Using markets to give planners an idea of what scenarios are most likely in volatile areas of the world? Or betting pools on terrorist incidents as the media and the congresscritters mischaracterized the plan? What the danger you want to avoid?
MK: Addendum: Also, the V.S. patent from 1996 is the first of three awarded in the area of virtual econonomics; with another two pending…
Pending patents are hard to take as evidence of anything relevant. My congratulations on the filings, but they don’t seem to bear on any of the issues at hand.
MK: also; you mention you have not read the VS patent; it’s like a rabbi having never read the bible. The VS patent is the bible for the VS/ ‘prediction market’ industry.
I haven’t talked to proselytizers for this particular religion before. If I had to pick a document that seems to be widely respected within this community, I’d have to pick Hanson’s “Logarithmic Market Scoring Rules for Modular Combinatorial Information Aggregation”. I can think of a handful of implementations off the top of my head. It’s widely cited and discussed, and both Pennock and I have written explanations to make it more widely accessible.
MK: I hope you’re not throwing out price discovery…
No, I mentioned that myself.
Regardless, there is something else that needs to be taken on board; relative pricing of virtual securities – and this is the key differentiating point when comparing the V.S. with other systems.
That sounds interesting. The only other system I know of that seems to do something like that is Hanson’s Combinatorial Market Maker. I’m not sure why it’s useful outside the context of tying conditional probabilities together, but you’re welcome to consider it important.
:::Because it’s the basis of this tech. that you’re learning something about in an industry that you are involved in.
With the V.S. Tech., price discovery is not a matter of adding up the buys/sells and then calculating a ‘fair and orderly’ price to ‘clear’ the market. (as is the case with all the examples you site below).
I think that’s only a reasonable description of the systems based on Automatic Market Makers. (I haven’t seen any of the Prediction Market literature use the phrase ‘fair and orderly’, so I don’t know what your quote marks refer to.)
:::the quote refers to the rules and regulations of the New York Stock Exchange; as it relates to the specialist system at the heart of the NYSE ‘double auction’ system – the basic model for exchanges.
The systems that record book orders (IEM, FX, TradeSports, NewsFutures, …) don’t match this description).
:::That’s impossible, since we’re talking about price clearing. Anything less would be extremely one-dimensional and not terribly useful. (maybe this is true – but I’ll give IEM and FX the benefit of the doubt as to their usefulness).
This ‘old’ way of doing things (read: NYSE) would not scale in an environment such as HSX with a potentially infinite number of traders creating a virtually infinite amount of virtual currency – who are all guaranteed instant execution on any/all ‘market orders’ (vs. ‘limit orders.’).
It sounds like you’re claiming more volume than the NYSE, but I don’t think you mean that.
:::Yes, when I was at HSX we had days with more volume than the NYSE.
How is your system more “potentially infinite” than any other? Any of the AMMs guarantee instant execution; yours isn’t the only technology that does that.
:::It’s the only patented system that does it. Potentially infinite refers to a fairly inelastic box office gross of, let’s say, 40 mn. being traded with a potentially infinite amount of money on either side of the trade (an advance on the open-interest system used in option trading).
The way this is achieved is by ignoring the absolute buys/sells for any given v.security (at any given moment) and instead focusing on […] The tech. reacts to how the traders are behaving rather than on absolute prices and it does do in a consistent, albeit “unpredictable” way.
That’s nice. Can you show (via academic studies, or any other peer-reviewed results) why this would give better predictions than relying on market mechanisms?
:::this is NOT about predictions… (more on this in a second); Prediction Markets are at best, a sub-set of Virt. Spec., and Virtual Markets. In my opinion, using this tech. for predictions (as PM’s try to) is like using a nuclear reactor to warm a cup of tea.
:::also, as for peer reviewed papers; keep in mind that the VS patent is the basis of the VM industry. This is the Old Testament of the industry. I am currently working on the New Testament.
There is talk of manipulation in various markets, virtual and analog… I can see the pattern clearly. Those interested in Virt. Markets should try to put an end to the manipulation… An article coming out in TraderMonthly interviews myself, michael burns and others who were involved with birthing this industry… and the topic of manipulation is a hot topic..
I don’t remember hearing Michael talk at any of the Prediction Markets meetings I’ve been to, or seeing the name in any of the bibliographies of papers on the subject. Google knows several people by that name, but I couldn’t identify any of them as relevant. Actor, coder, student, studio executive; Wikipedia also has athletes, and politicians. I’ve read papers on manipulation and prediction markets by Hanson, Zitzewitz, Strobel, Ottaviani, Oprea.
:::Look harder. He’s the co-inventor.
it’s harder to manipulate the VS /hsx (when managed) than it is to manipulate the NYSE or FTSE.
Have you talked to the SEC about that? Or the financial press? Wouldn’t they be interested technology that could reduce manipulation?
:::Watch my films: “Rigged Markets” the SEC and FSA are featured.. “Death of the Dollar,” or my new film that will be broadcast on August 1st “carried away” about Forex fraud; again featuring SEC, FSA and Moody’s… Do you get AJE where you are? You should ask your local station to provide it. Do you read the FT? (…last years NASDAQ price rigging scandal… Or how about Citibank’s eurobond manipulation. There are hundreds of examples. The fact that markets are routinely manipulated is irrefutable at this point).
:::A more appropriate question would be; where are the non-rigged, non-manipulated markets? This is where the VS tech. can help. It’s an advance – and its potential has not been fully realized. There has to be a desire to have less-rigged markets first.
In a market where only relative values count. The V.S. can achieve relative price consistency and stability throughout the system on thousands of virtual securities simultaneously.
When is it the case that only relative values matter?
:::Which of the world’s currencies today is backed by something other than relativism and “faith”? Oh yea, zero.
If you’re claiming that none of the other institutions in use in other markets have this feature, what’s your evidence? Why isn’t anyone else trying to replicate these abilities or even discussing whether they are valuable?
::: I think a Nobel Prize was awarded recently in the new field of ‘behavioral economics.’ Start there…
MK: Our patent attorneys, and I, looked at the prior art; (remember, we spent over $400,000 on technology and research) and in my opinion, virtual markets begin with the VS patent. (Some call this a ‘prediction market’ erroneously in my opinion for reasons I’ve previously discussed but the term has become idiomatic at this point and fallen into general use).
Spending money isn’t evidence of success or thoroughness. Apparently you mean something different from what I mean by Prediction Markets, if you think the ideas started with you. It’s interesting to hear that you think the term doesn’t apply to your work.
:::the term has become idiomatic… so we are forced to use this term even though it’s a misnomer… Spending money is not proof of thoroughness, but it helps to understand why Citigroup and GE valued the company at $125 mn. and why Cantor bought the company. My belief is that PM’s, to the extent that they exist, should acknowledge that they are a sub-set of the VS tech and Virtual Markets.
CH: If “virtual securities” means anything, it is integral to all prediction markets going back to these historical precedents.
MK: Disagree. Only since our modern age of a 450 trillion dollar ‘derivative’ economy (and a multi-billion hollywood dollar hsx economy) has their been the need for a virtual specialist to trade virtual securities and virtual currencies.
Let’s see; “securities” in this context would normally mean stocks and bonds; originally that referred to the certificate that provided evidence of ownership of a share of an asset, tangible or not. Now it means the ownership, whether there’s a certificate or not. “Virtual” securities seem to refer to ownership shares when the asset isn’t a commodity or a company. They’re usually called “derivatives” if the asset’s value derives from the value of an “actual” security, or from the value of an index or other statistic. Virtual securities, as commonly used in the Prediction Markets field and elsewhere seems to be assets that have value defined on another basis. That seems to fit all the assets traded on Prediction Markets. You seem to mean something else when you say “virtual securities”. Care to explain?
::::Tell that to Barclays Bank now suing Bear Sterns for selling them what amounts to smeared lipstick on a cocktail napkin with the number 2 billion scribbled on it. “No, it has value, really”
CH:The IEM (1988) also used real money, and had no AMM,
MK: IEM is extremely limited, narrow, and not a market in the sense that it is not an exchange. The VS is tech. that runs an exchange, not a few bets in a betting pool/poll
You’ll have to define your terms more clearly. I don’t understand your point here. I doubt that the distinction lies in the number of participants. What makes IEM a “betting pool” in your terminology? I already pointed to Wikipedia, which seems to offer a different theory. What do you mean when you say IEM (or anything else) is not a “market” because it isn’t an “exchange”? I’m not familiar with a relevant set of definitions that accords with your usage.
:::It’s just not a professional market with any professional use. The VS is designed by and now used by bankers (Cantor just being one co. that uses it).
There are offers to buy and sell, and there is price discovery as the economists define it.
MK: We’re talking about virtual economics; virtual market making; something new, something with a patent that recognizes this fact; something that is unique in the field; created by bankers for bankers.
You can say it’s new, but that doesn’t make it so.
:::A U.S. patent says it’s new.
Having a patent shows something, but it’s not proof that you invented the field.
:::I believe I’ve got three of these patents now in this field, with another two pending – based on my professional experience as a securities professional with my designs and ideas that go back to 1983.
If it’s unique, then maybe it has some other field to itself, and we shouldn’t be talking about it in the context of Prediction Markets. But I doubt that HSX is as unique as you seem to think. And reading the patent apparently isn’t going to tell me how it relates to everything that came before or after.
:::PM’s are nothing more than a subset of VM’s and the VS tech. My goal is to get this point across in new ways as I’ve been doing with Karma Banque – the beginnings of a virtual market of dissent. We need to expand this tech. in ways that challenge corporations.
MK: NO. FX uses ‘play money’ and this is not a virtual currency.
What distinction is important to you here? The terms don’t tell me what you think makes the difference. You seem to use the words differently than I do.
:::It’s unproven that PM’s outcomes are in any way important to the overall economy.
CH: According to Wikipedia, betting pools don’t offer different prices at different points in time, don’t allow resale of assets, don’t publish prices. These hardly apply to anything that has been called a prediction market.
MK: Let’s create a wiki entry called, ‘enhanced betting pools’ i.e., ‘prediction markets…
Okay. What would we learn from that that isn’t already in the Prediction Markets page? It sounds like you’re denigrating prediction markets; is that your point?
::: Markets are not inherently predictive, nor would any one want them to be as this would destroy much of the source of cheap capital that makes capitalism (in America) work. Prediction Markets can potentially denigrate VM, the VS tech. and markets such as the NYSE by belittling them with so-called predictive powers. PM’s are just an amusing adjunct to the VS tech. and Virt. Markets.
Stock markets are nothing if not unpredictable
By MAX KEISER, Financial Times
Published: May 02, 2002
http://tinyurl.com/2u2zdp
Sorry to be so adamant on this point, but I perceive real danger when this idea of ‘prediction markets’ gets into the hands of nuts like the crazies at the Pentagon who then use it justify their inappropriate actions.
Using markets to give planners an idea of what scenarios are most likely in volatile areas of the world? Or betting pools on terrorist incidents as the media and the congresscritters mischaracterized the plan? What the danger you want to avoid?
:::Planners? Huh? Who are these planners you mention? the Pentagon? the current administration? Business leaders? You think virt. markets are going to make these guys less corrupt? No, it only gives them LESS accountability as they can point to ‘market forces’ to justify their unjustifiable actions.
MK: Addendum: Also, the V.S. patent from 1996 is the first of three awarded in the area of virtual economics; with another two pending…
Pending patents are hard to take as evidence of anything relevant. My congratulations on the filings, but they don’t seem to bear on any of the issues at hand.
:::Wake up.
MK: also; you mention you have not read the VS patent; it’s like a rabbi having never read the bible. The VS patent is the bible for the VS/ ‘prediction market’ industry.
I haven’t talked to proselytizers for this particular religion before. If I had to pick a document that seems to be widely respected within this community, I’d have to pick Hanson’s “Logarithmic Market Scoring Rules for Modular Combinatorial Information Aggregation”. I can think of a handful of implementations off the top of my head. It’s widely cited and discussed, and both Pennock and I have written explanations to make it more widely accessible.
::: the LMSRFMCIA is just silly buggers. Last I looked there are dozens reference to the VS tech. by professionals who trade billions daily, and the LMSRFMCIA? …strictly dweebs-ville.
“Last I looked there are dozens reference to the VS tech. by professionals who trade billions daily”
Interesting.
As Cantor says in this weeks Economist; they use my technology to trade REAL money as part my reinvention of the specialist system… something that no PM has ever done; i.e. crossed over to the ‘real world’ I maintain that PM’s are a subset of my invention, the Virtual Specialist.. So far, no credible rebuttal has appeared… it’s useless to quote academic papers in the echo chamber of dweebs and geeksville… My patented tech. is referenced dozens of times by even newer tech that is involved in this area of virtual economics. What I can’t understand is why doesn’t Cantor defend it’s patent… It’s not like eSpeed stock has moved at all in five years… I believe that the eSpeed’s stock is trading at a discount to the value of the VS patent.. An activist hedge fund could buy out eSpeed, fire Lutnick and those other a’holes and than license the tech. to Wall Street for billions… Duh!!!