Category Archives: All Guest Authorss Posts

The war against online gambling

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On 14 November 2007, in a statement made before the House of Representatives Committee on the Judiciary concerning internet gambling, Catherine Hanaway, the Unites States Attorney for the Eastern District of Missouri stated:

It is the Department’s view, and that of at least one federal court (the E.D.Mo.), that this statute (The Wire Act) applies to both sporting events and other forms of gambling, and that it also applies to those who send or receive bets in interstate or foreign commerce, even if it is legal to place or receive bets in both the sending jurisdiction and the receiving jurisdiction&#8230-.. Currently, the FBI has several pending investigations concerning Internet gambling and the FBI has been the lead agency on several other investigations, which have already led to prosecutions. The FBI coordinates and consults with the Department on issues arising in Internet gambling investigations, particularly on international issues.

http://www.bettingmarket.com/deptofjust990007.htm

ads, auctions and markets: a proposal

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Ads make the web go round. US internet advertisement expenditure is expected to surpass $21 billions in 2007, while the share of web ads in the UK is already bigger than ad spending in radio and newspapers. More specifically, adwords (+adsense) is maybe the single reason behind growth and sustainability of the biggest business fairytale in our times, returning for example $2.6 (+$1.0) billions in 2006Q3 alone.

Textual ads are auction powered. Speaking of Google, let me repeat the well-known process (which is valid with some variations also in Yahoo&#8217-s Search Engine Marketing and Microsoft&#8217-s ad center -forgive my partial knowledge). Each time you view or click on an ad link, the advertiser rewards the site owner for the use of her screen real estate and the redirection of your attention span. More accessible real estate costs a lot, as the more the advertisers pay the higher their ad is ranked and exposing their message to more visitors. Ad ranking occurs mainly from a dynamic Vickrey auction model, namely cost-per-click bids is the most influential factor defining your ads rank. But, to my eyes, the system&#8217-s current status seems sub-optimal. From the ad platform engine&#8217-s perspective, earnings aren&#8217-t maximized, as the advertiser pays only for actual clicks and not for impressions. From the advertiser&#8217-s view, the ad&#8217-s impact is also sub-optimal, as high rank doesn&#8217-t guarantee more visitors, in the case of low ad relevancy to the user&#8217-s query and actual interests. Finally, and most importantly, the auction-based fundamental model doesn&#8217-t accumulate the collective intelligence of the previous visitors&#8217- behavior and probably results in a poor user experience. (Well, in practice, clickthrough rates are also evaluated and the adrank algorithm is much more complicated, but this doesn&#8217-t reduce the validity of comments on the fundamental choice of an auction model).

While the auction-based approach apparently works, let me propose a more simple, direct and transparent market-based variation. In such a case, the ad-space of the universe of all potential keywords combination consists a gigantic marketplace, while each keywords&#8217- combination will form a market in this marketplace. In each market, an advertiser&#8217-s submission triggers the creation of a stock, which is initially traded at the defined cost-per-click price. But this price is nothing but constant- it goes up each time a user clicks on the ad, or down each time a user clicks on a different ad (this second action could even be omitted). As a result, stock prices, therefore ad ranking, evolves dynamically to enhance previous visitors&#8217- choices and leverage the wisdom of crowds in forming an elegant user experience. Moreover, it maximizes engine&#8217-s gainings and advertisers&#8217- impact, while enables a fully trackable procedure for advantage of both the platform and its users.

I would like to stress my lack of extended or insiders&#8217- knowledge on the topic, but I&#8217-m more than eager to discover relevant attempts, or -even better- participate in some attempt to put this idea into reality.

cross-posted from my blog

Austan Goolsbee on Iraq and the Collective Wisdom of Bond Markets

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Austan Goolsbee, writing in the New York Times, discusses Michael Greenstone&#8217-s paper (discussed here at Midas Oracle in September) that examines the market for Iraq&#8217-s bonds for an assessment of the long-term future of the Iraq government. Goolsbee&#8217-s quick conclusion: &#8220-But global financial markets have been monitoring the war for months, and with remarkable consistency, they have concluded that the long-term prospects for a stable Iraq are very bleak.&#8221-

It wasn’t until Professor Greenstone began examining the financial markets’ pricing of Iraqi government debt that he had his eureka moment. It was immediately clear that the bond market — which, historically, has often been an early indicator of the demise of a political system — was pessimistic about the Iraqi government’s chances for survival.

First, some background &#8230- the Iraqi government issued about $3 billion of new bonds in January 2006. These dollar-denominated bonds pay 2.9 percent twice a year and mature in 2028, paying the face value of $100.

To say the least, the market for these bonds is not robust: as of last week, a bond with a face value of $100 was trading at around $60. Professor Greenstone calculated that, from the markets’ standpoint, the implied default risk over the life of the bond was about 80 percent.

The important point is that anyone who owns one of these Iraqi bonds has to decide each day whether the Iraqi government is likely to be functional enough to make its debt payments, or will default along the way. All else being equal, if the surge policy is effective, it ought to be raising the market price of these bonds.

Bondholders “aren’t politically motivated,” Professor Greenstone said. “They don’t have to rationalize their previous statements or justify their votes from years past. All they care about is whether there will be a functioning Iraq in the future such that they will receive their payments.” At a certain price, most securities will find a buyer, and there are still buyers for Iraqi bonds. But the price they are willing to pay is very low.

Goolsbee tosses in a few examples which show, in his words, &#8221- the collective wisdom of financial markets has proved remarkably adept at evaluating events and predicting the future, even the turning points of war&#8220-:

During the American Civil War, for example, when Confederate forces lost at Gettysburg, Confederate cotton bonds traded in England dropped by about 14 percent. During World War II, German government bonds fell 7 percent when the Russians started their counterattack at Stalingrad in 1942, and French government bonds rose 16 percent after the Allied invasion at Normandy in 1944. Many such examples of the prescience of financial markets have been documented by economic historians.

Of course a few cherry picked examples, while suggestive, should not be considered conclusive.

Chris Masse, in a post about negative comments on the war by a just-retired high ranking military officer, said:

We can’t rely on retirees to tell us the truth. We need an anonymous information aggregation mechanism that gives an incentive to people who come forward with advanced information: the prediction markets.

While bond markets might be useful as a stand in for prediction markets, presumably well-designed prediction markets could provide a somewhat more articulated position than can be extracted from a twenty-year bond market.

NOTE: Greenstone&#8217-s paper, &#8220-Is the &#8216-Surge Working? Some New Facts,&#8221- is available from the SSRN.

Summary of Conference on Corporate Applications of Prediction/Information Markets (1 November), Kansas City

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A summary of the talks at last week&#8217-s conferences is available here,

http://people.ku.edu/~cigar/PMConf_2007/PMConference_Notes.html.

Additional information will be posted in the near future.

Previous blog posts by Koleman Strumpf:

  • Prediction Markets in the Classroom: Inkling Markets
  • Slides of presentations from Conference on Corporate Applications of Prediction/Information Markets (1 November), Kansas City
  • Reminder: Corporate Applications of Prediction Markets Conference (1 November)
  • Conference: Corporate Applications of Prediction/Information Markets (Thursday, 1 November 2007)
  • Copernican Principle: How To Predict the End of the World
  • Win Justin’s Money? (re: Is there manipulation in the Hillary Clinton Intrade market? Redux.)
  • Is there manipulation in the Hillary Clinton Intrade market?

The Global Betting Exchange

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The company behind BETDAQ will launch a new exchange in the near future. It is backed by significant players in the global sports trading market. It will offer breath of markets and level of liquidity unsurpassed in the betting exchange sphere. It wil target the retail exchange bettor. It will not be purple in colour.

Main investor: Dermot Desmond

Alleged investor: J. P. McManus

Other investors: [One or two surprises to come…]

Signed: Deep Throat

&#8212-

The Global Betting Exchange

&#8212-

Note to the Midas Oracle readers: Actually, there are two brand-new, real-money prediction exchanges (betting exchanges) that will pop up onto the prediction market scene soon. (That is, Global Betting Exchange is only one of them.)

The Racing Post and TimeForm/BetFair are two competitors in the UK horseracing data publication business.

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The Racing Post and TimeForm compete in the same space- they make money from horse racing data. The Racing Post through its newspaper- TimeForm through its database publications. On the Web, they compete head to head in many respects &#8212-and both give away a certain proportion of their content for free.

The Racing Post model is heavily skewed towards the old betting market model- fixed odds bookmakers- price comparison etc- while BetFair (the new owner of TimeForm) is based on the Web. On top of that, BetFair does not need The Racing Post that much, whereas The Racing Post needs BetFair. The fact that BetFair&#8217-s prices are dynamic (and, 99% of the time, the best prices on offer) fucks up The Racing Post&#8217-s model.

Signed: Deep Throat

External Links: BetFair (the owner of TimeForm) + The Racing Post

Previously: In the UK, BetFair is pushing the bookmakers into the betting museum.

BetFair will soon announce plans to publish their own starting prices.

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Probably, in response to this.

In horse racing, starting prices (SP) are the odds prevailing in the on-course fixed-odds betting market at the time a race begins. The method by which they are set for each runner varies in different countries but is generally by consensus of an appointed panel on the basis of their observations of the fluctuation in prices.

Signed: Deep Throat

PurePlays Patented Legal Hack

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Some months ago, I noted that Betzip.com (since rechristened &#8220-PurePlay.com&#8221-) employs an intriguing legal hack to avoid anti-gambling regulations. It charges its customers a flat monthly fee, which qualifies them to win large prizes for winning online poker games. Non-paying customers can play the same games for free, too—though without qualifying for the largest prizes.

Why adopt that business model? Presumably, because it allows PurePlay to argue that it does not offer a gambling service. Specifically, PurePlay could claim that, because the amount players win has no relation to how much they stake, it dodges the &#8220-consideration&#8221- element of the legal definition of gambling. Query whether that claim would survive the devoted attentions of a prosecutor and court. I set that question aside, though, and here focus on PurePlay&#8217-s claim that they have patented their business model.

Curious about the scope of PurePlay&#8217-s patent, I searched its website for details. It offered none. I wrote to PurePlay asking for the patent&#8217-s number. PurePlay refused to say. So I put my able research assistant, Mr. Sherwood Tung, on the case. He found PurePlay&#8217-s patent, and more.

MMJK Inc., an entity located in San Francisco, California, owns PurePlay. It holds U.S. patent # 7,094,154. The Patentscope database of the World Intellectual Property Organization indicates that MMJK has also sought similar patent protection in many foreign countries. The patent&#8217-s abstract reads thusly:

A computer networked, multi-user game system utilizing subscription based membership and alternative methods of entry, as well as the award of prizes of immediate value to the winner is described. A game tournament is hosted by a game server computer coupled to client computers operated by participating players. The games offered are games that involve elements of both skill and chance and require active player participation and decision making. A subscription-based membership is established for each player by charging a fee for a pre-determined membership time period. An alternative method of entry is provided to allow non-subscription players to participate in the tournament without payment of the fee. The non-subscribing players receive equal access to the games and at least the same chance of winning as the subscribing players, but are limited to a single entry per game or tournament. The game server hosts at least one game or tournament within the period, and players are potentially eliminated until a winning player and any runner-up players are determined. A prize pool is disbursed to the winning players in the form of cash, cash-equivalent notes, or prizes that have inherent and immediate value.

That of course offers only a shorthand description of the patent. You must carefully read its claims to know its actual scope. Or, I should say, its supposed scope- any patent can fall to a legal challenge, and business method patents prove especially susceptible to failing &#8220-non-obvious&#8221- inquiries.

[Crossposted to Agoraphilia and The Technology Liberation Front.]

Reminder: Corporate Applications of Prediction Markets Conference (1 November)

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The conference will be held next Thursday (1 November) at the Kauffman Foundation in Kansas City. All of the details are available on the conference webpage (http://people.ku.edu/~cigar/PMConf_2007) and the schedule is listed below.

I am pleased to note that Mat Fogarty (Founder and CEO, Xpree) and Alexander Costakis (Managing Director, HSX) have been added to the program.

Please get in touch with me ([email protected]) if you are interested in attending or have any questions.

&nbsp-

Schedule

8:30 Registration, Coffee, Opening Remarks

9:00 Lessons from Corporate Applications of Prediction Markets

Henry Berg, Microsoft

Discussant: Robin Hanson (George Mason Department of Economics)

Christina Ann LaComb, GE (The Imagination Market- abstract is free, text is gated)

Discussant: Marco Ottaviani (Kellogg School of Management, Management and Strategy)

10:45 Coffee Break

11:00 Lessons from Corporate Applications of Prediction Markets (cont)

Dawn Keller, Best Buy (Best Buy’s TAGTRADE Market)

Discussant: Paul Rhode (Department of Economics. Eller College of Management, University of Arizona)

Bo Cowgill, Google (Putting Crowd Wisdom to Work)

Discussant: Eric Zitzewitz (Dartmouth Department of Economics)

12:45 Lunch

Keynote address: Jim Lavoie, Co-Founder and CEO, Rite-Solutions

1:45 Lessons from Prediction Market Organizers and Operators

John Delaney, Founder and CEO, Intrade

David Perry, Co-Founder and President, Consensus Point

Mat Fogarty, Founder and CEO, Xpree Inc

3:15 Break (refreshments)

3:30 The Legal Playing Field

Tom W. Bell, Chapman University School of Law

Discussant: Robert E. Litan (VP Research and Policy at the Kauffman Foundation, Senior Fellow at the Brookings Institution, Director of the AEI-Brookings Joint Center on Regulatory Studies)

4:15 General Discussion

Alexander Costakis (Managing Director, Hollywood Stock Exchange) will also be available to answer questions and may make a short presentation.

Previous blog posts by Koleman Strumpf:

  • Prediction Markets in the Classroom: Inkling Markets
  • Slides of presentations from Conference on Corporate Applications of Prediction/Information Markets (1 November), Kansas City
  • Summary of Conference on Corporate Applications of Prediction/Information Markets (1 November), Kansas City
  • Conference: Corporate Applications of Prediction/Information Markets (Thursday, 1 November 2007)
  • Copernican Principle: How To Predict the End of the World
  • Win Justin’s Money? (re: Is there manipulation in the Hillary Clinton Intrade market? Redux.)
  • Is there manipulation in the Hillary Clinton Intrade market?