At Overcoming Bias, Eliezer Yudkowsky invites pundits, partisans, and anyone else with a nascent opinion about the limits of prediction markets to, in effect, put up or shut up. (Though he puts it in somewhat nicer words). Here is a selection, but read the whole thing:
If you think that Hillary is going to do better than the polls on Super Tuesday, and you’-re going to sneer afterward and say that Intrade was “-just tracking the polls”-, buy Hillary now.
If you think that Obama is going to do better than the polls on Super Tuesday, and you’-re going to gloat about how prediction markets didn’-t call this surprise in advance, buy Obama now.
…-
The point is not that prediction markets are a good predictor but that they are the best predictor. …- If prediction markets react to polls, they’-re getting new information, that they didn’-t predict in advance, which happens. Being the best predictor doesn’-t make you omniscient.
Everyone’-s going to find it real easy to make a better prediction afterward, but if you think you can call it in advance, there’-s FREE MONEY GOING NOW.
Buy now, or forever hold your peace.
Excellent. This guy is higher in my esteem, now. That’s the definitive argument to shut up Niall O’Connor. Niall, what are you short on?
Actually, I have for some time been long McCain, short OBama and I expect McCain to go to overall fav in the betting markets soon. I also anticipate that the Bradley Factor will play a bigger role in the outcome of Super Tuesday, than many in the markets have anticipated.
But the point is, that I do not, and never have, believed that the market was or indeed is predicting the event on my behalf.
I am a bettor, who knows that there are generally no risk free profits; I do not indulge myself in crystal ball methodology. I know the percentages and I play the market if I belive that something may have been mispriced. Sometimes I get it right; sometimes I will get it wrong.
In the case betting markets, where a 1/40 shot wins, it wins; when it loses, it loses. We do not indulge ourselves in pointless banalities and narrative fallacies. We do not speak of the market as having predicted the event.
Some prediction market advocates did and do speak of the market as predicting events; they accordingly deserve the cogent criticism that that has been levelled against them.
Prediction markets are merely betting markets with pretensions, and, sadly, for them, they are more often than not less liquid and less efficient than said betting markets.
I also suspect that many of those that have jumped on the prediction market bandwagon, are nothing more than quasi-fascist agitators, who believe that we should allow markets to take over our lives.
Niall, what you “believe”, we don’t care. What we “believe” in is the economic science on prediction markets that scholars like Robin Hanson and Justin Wolfers publish on. They have a PhD in economics, and practice peer-reviewed research. You don’t.
But Niall sounds like he’s read some Taleb, so that’s even better than an Econ PhD?
Taleb, though correct in principle, was not able to make money in the markets (buying vol and paying theta), and had to scuttle his Empirica fund.
Uneducated and unread me, I’m still able to withdraw profits from Intrade/Tradesports without any additional deposits, by golly!