Category Archives: Analysis (Industry)

Implied Prices for Presidential Decision-Aid Markets

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Via our good friend Mike Linksvayer: &#8212- Implied Prices for Presidential Decision-Aid Markets &#8212- Implied Prices for Presidential Decision-Aid Markets

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My good Doctor Robin Hanson,

Please, refresh my memory:

– Are your experimental, conditional prediction markets offered by the Iowa Electronic Markets or by InTrade Ireland?

Additional question for our Master Of All Universes:

– Who has done more for web-hosting experimental prediction markets, overall: the Iowa Electronic Markets or InTrade Ireland?

Thanks for providing me with some answer(s) on those 2 important questions.

Best Regards,

Signed: Chris &#8220-GadFly&#8221- Masse

PostScriptum: When the CFTC refreshes its webpage that indexes the comments to its concept release on &#8220-event markets&#8221-, you will see that that issue has been raised by some &#8220-gadfly&#8221-. :-D

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Robin Hansons purity test is based on an absurd principle.

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It&#8217-s not the motivation that is important to assess &#8212-it&#8217-s the liquidity that counts. The more trades, the better. Liquidity leads to statistically accurate probabilities predictions. Liquidity, liquidity, liquidity, doc.

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Robin Hanson:

One proposed distinguishing criteria includes the size of an individual trader&#8217-s stake, and the number of traders. The Iowa Electronic Markets are limited on both of these parameters. Such limits do succeed in preventing large hedging markets from masquerading as info-motivated event markets. But they do little to prevent generic gambling markets from masquerading as info-motivated event markets.

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Total absurdity.

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UPDATE: Robin Hanson comments&#8230-

Again, important for what purpose? The CFTC was clear that they are concerned about how to keep generic gambling from slipping in via whatever they might approve. I was addressing that concern. I don’t see how you can read anything I said as arguing against liquidity.

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What I said to BusinessWeek

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BusinessWeek&#8217-s Ricky McRoskey:

Experts expect the initial reaction to CFTC regulation to be more low-cap, nonprofit markets like the one created by the University of Iowa. Some doubt the forecasting power in these small-scale markets, since there wouldn&#8217-t be enough monetary incentive for traders to seek and discover information. &#8220-We do not need nonprofit prediction exchanges,&#8221- says Chris Masse, editor and publisher of the prediction market blog midasoracle.org. He says that [offshore] exchanges like Intrade and Betfair, which are for-profit, have the capital to continually offer more cutting-edge pricing systems and additional contracts while nonprofits like the IEM have not.

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I meant that real-money prediction exchanges that make profits do support innovation (see BetFair&#8217-s new bet matching system and starting-price system) and are well positioned to foster socially valuable prediction markets (see the huge effort that InTrade is making in this direction).

Voila. :-D

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Psstt&#8230- You&#8217-ll notice that I am the only one in that story to mention and speak favorably of InTrade-TradeSports and BetFair-TradeFair. :-D

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What I think of Robin Hansons comment to the CFTC… and what I think about his slam at TradeSports-InTrade, BetFair-TradeFair, and HedgeStreet.

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Overall, his input is very brainy.

It&#8217-s a major contribution to the general discussion about prediction markets.

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Please, allow me to disagree on one thing he said.

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Robin Hanson:

One proposed distinguishing criteria includes the size of an individual trader&#8217-s stake, and the number of traders. The Iowa Electronic Markets are limited on both of these parameters. Such limits do succeed in preventing large hedging markets from masquerading as info-motivated event markets. But they do little to prevent generic gambling markets from masquerading as info-motivated event markets.

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I have a fundamentally different view. What is important is not what Robin Hanson thinks of TradeSports-InTrade, BetFair-TradeFair, and HedgeStreet &#8212-and what their motivation(s) are.

What is important is whether those prediction exchanges do generate trustworthy and accurate probabilistic predictions. Period.

They do or they do not. Period.

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And guess which prediction exchange has been more than willing to host Robin Hanson&#8217-s conditional prediction markets: Hint: it&#8217-s not the Iowa Electronic Markets.

Did Robin Hanson tell that to the CFTC? :-D

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UPDATE: Robin Hanson&#8217-s comment, posted below this post.

Chris, I did not take the CFTC call for comments as asking for what I would choose if I were king. I instead took it as them asking for help negotiating treacherous political waters. Part of the reality of their difficult situation is that the public, and hence Congress is quite wary that new rules might in effect legalize general gambling. Convincing the public that betting markets provide accurate predictions is not enough to convince them to legalize such markets in general. If there is any doubt, if I were king I would in fact legalize general gambling.

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The CFTC is going to close the comments in 3 days. We have 3 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges (e.g., InTrade USA or BetFair USA), and counter the puritan and sterile petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowi

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ADDRESSES: Comments should be sent to the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, Attention: Office of the Secretariat. Comments may be sent by facsimile to 202.418.5521, or by e-mail to [email protected].

Reference should be made to the &#8220-Concept Release on the Appropriate Regulatory Treatment of Event Contracts.&#8221- Comments may also be submitted through the Federal eRuleMaking Portal at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&amp-log=linklog&amp-to=http://web.archive.org/web/20080930170145/http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Bruce Fekrat, Special Counsel, Office of the Director (telephone 202.418.5578, e-mail [email protected]), Division of Market Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

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THE MIDAS ORACLE TAKES:

– CALL TO ACTION: Let&#8217-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with &#8220-event markets&#8221-.

– In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

– The definitive proof that FOR-PROFIT prediction exchanges (like BetFair and InTrade) are the best organizers of socially valuable prediction markets (like those on global warming and climate change).

– Analysis of the HedgeStreet&#8217-s comment sent to the CFTC.

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BACKGROUND INFO:

– CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts&#8230- notably how they define &#8220-event markets&#8221-, how they are going to extend their &#8220-exemption&#8221- to other IEM-like prediction exchanges, and how they framed their questions to the public. Here are the comments sent to the CFTC.

– The BusinessWeek news article about the CFTC&#8217-s concept release.

– The Arnold &amp- Porter lawyer&#8217-s take. &#8212- (PDF file)

– The Schulte, Roth &amp- Zabel lawyers&#8217- take. &#8212- (PDF file)

– The Sullivan &amp- Cromwell lawyers&#8217- take. &#8212- (PDF file)

– Michael Giberson&#8217-s economic take.

– Chris Hibbert&#8217-s libertarian take.

– Tom W. Bell&#8217-s libertarian take.

– The American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

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COMMENTS TO THE CFTC

– Very soon, two prediction market organizations and one VIP will submit their comment to the CFTC.

– What Vernon Smith told the CFTC. &#8212- (PDF file)

– Jed Christiansen&#8217-s pragmatic take. &#8212- Final draft – (PDF file) – His comment to the CFTC – (PDF file)

– The International Swaps and Derivatives Association&#8217-s comment to the CFTC – (ISDA) &#8212- (PDF file)

– Jason Ruspini&#8217-s comment to the CFTC &#8212- (PDF file)

– Tom W. Bell&#8217-s petition, which will be sent to the CFTC. &#8212- (Jonathan Gewirtz is in.)

– HedgeStreet&#8217-s comment to the CFTC. &#8212- (PDF file)

– A young economist rebuts the American Enterprise Institute. &#8212- (MO mirror) &#8212- Comment to the CFTC – (PDF file)

– Tom W. Bell rebuts the American Enterprise Institute.

– Robin Hanson&#8217-s comment to the CFTC. &#8212- (MO mirror)

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APPENDIX:

Paul Wolfowitz&#8217-s profile at the American Enterprise Institute

– How the neo-cons drove the United States of America into the unecessary Iraq war

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HOW TO DESTROY INTRADE, TRADESPORTS AND BETFAIR: a betting application for FaceBook

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If US laws were gambling compatible, would a FaceBook betting application solve the chicken-and-egg problem that any brand-new prediction exchange is facing? (Short sellers will come to the exchange only if there are enough backers, who will come only if there is enough liquidity, etc.) Could MySpace, FaceBook and LinkedIn (who have registered people by the millions, already) provide a starting launch for future prediction exchanges?

YooPick for FaceBook

YooPick @ FaceBook

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PS: Yet another hit for Robin Hanson&#8217-s MSR. :-D

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What to think of HedgeStreets comment to the CFTC

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It&#8217-s a very important take.

– HedgeStreet&#8217-s comment to the CFTC. &#8212- (PDF file)

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Basically, they are saying:

  1. We saw that the CFTC is entertaining the &#8220-exemption&#8221- way for prediction markets on politics and on other news.
  2. You have lost your sanity, folks. The &#8220-exemption&#8221- solution will bring you plenty of problems.
  3. You should approve these prediction markets under the classic, regulated way (the DCM solution). The classic regulation is the right way to deal with the potential problems you mentioned in your &#8220-concept release&#8221-.

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That&#8217-s a pretty strong argument.

(Just remember the conundrum that Jason Ruspini has exposed.) (PDF file)

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Now, the counter argument is to say that the DCM way slows innovation &#8212-thus the need to &#8220-exempt&#8221-.

That&#8217-s a pretty strong argument, too.

Indeed, one can point that it&#8217-s IEM, InTrade and BetFair who have grown the field of prediction markets &#8212-not HedgeStreet.

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DEVELOPING&#8230- :-D

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UPDATE: Jason Ruspini seems to be in agreement with HedgeStreet. I like that. See his comment, just below.

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UPDATE: Jason Ruspini gives his understanding of the HedgeStreet&#8217-s comment to the CFTC.

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UPDATE: A second look at HedgeStreet&#8217-s comment to the CFTC about &#8220-event markets&#8221-

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The freshest comments sent to the CFTC

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– Jed Christiansen&#8217-s comment to the CFTC – (PDF file)

– HedgeStreet&#8217-s comment to the CFTC. &#8212- (PDF file)

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Previous blog posts by Chris F. Masse:

  • The last comments are up on the CFTC website, finally.
  • InTrade CEO John Delaney sends a good comment to the CFTC.
  • Robin Hanson’s purity test is based on an absurd principle.
  • NewsFutures is the most usable prediction exchange I know of.
  • HubDub question
  • Implied Prices for Presidential Decision-Aid Markets
  • What I said to BusinessWeek

The Chicago Mercantile Exchange is not a friend of the prediction markets. Nor is the ISDA.

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Will the Chicago Mercantile Exchange write to the CFTC?

&#8230- asks Google&#8217-s Bo Cowgill.

That could be&#8230- However, I&#8217-m not holding my breath. Here&#8217-s why. The CME (along side the CBOE and ISDA) represents forces that does not push for the kind of financial innovations we are pushing here, on Midas Oracle. We are pulling for Web-based, de-intermediated, low-cost, event derivative exchanges. The financial dinosaurs (like the CME) do not.

Take a look at the CME&#8217-s 2003 letter to the CFTC about HedgeStreet&#8217-s application as a DCM. – (PDF file) – Here are the titles of the first 2 sections:

  1. HedgeStreet’s Proposal is Materially Deficient.
  2. The [HedgeStreet] Application Violates the CEA.

No need to go further. :-D &#8230- You have computed that the CME was (in 2003) no friend of HedgeStreet &#8212-and, thus, of our prediction markets. (For those who are just surfacing from an Afghan cave, yes, the CFTC did approve HedgeStreet&#8217-s application, finally, and told the CME to go fugging themselves.) So, I&#8217-m not holding my breath for a CME comment to the CFTC&#8217-s concept release on &#8220-event markets&#8221-. Saying that the CME is talking for the prediction market community is like saying the Ayatollah Khamenei was talking for priests, ministers, and rabbis.

As for the ISDA, they represent big institutional traders&#8230- who do not use exchanges ( !! ). What they say to the CFTC (PDF file), basically, is to be careful not to hurt the framework of the whole landscape. Well, thanks ISDA, but the CFTC knew that already.

As I said, 2 prediction market organizations will, each, submit their comment to the CFTC. I don&#8217-t expect that to be a deep read, with regards to derivative regulations. However, their industrial strategy might transpire, and that might be interesting for curious people like me. :-D

The 3 interesting takes about the &#8220-event markets&#8221- are from:

  1. the CFTC &#8212-if you are able to sense what their true opinion is.
  2. Jason Ruspini &#8212-(PDF file).
  3. Tom W. Bell &#8212-upcoming.

The future of US-based, non-sports, non-hedgeable prediction markets depends on those 3 poles of thought.

In the coming weeks, you&#8217-ll see many intellectual interactions between them.

The real question is: Will Jason Ruspini and/or Tom W. Bell have a proven impact on the CFTC process? I wish that, but both of them do stray away from the CFTC&#8217-s strict framework.

DEVELOPING&#8230-

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My question to Jason Ruspini

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Jason, thanks for your hard work on this issue. Your 7-page letter to the CFTC is a master document. &#8212- (PDF file)

What makes you think that your proposals will create more freedom for our prediction exchanges than the CFTC&#8217-s proposals?

Could you point to specific instances to us where you think that your input is more libertarian than the CFTC way? After all, your proposals contain many &#8220-don&#8217-t do that, and forbid that&#8221- things. :-D

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