How To Make Money With Prediction Markets

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Speculating On The Real-Money Prediction Exchanges (Betting Exchanges)

Beware that it requires skills, knowledge, wisdom and velocity to be profitable, on the long term.

– List of the main real-money and play-money prediction exchanges (betting exchanges) at Midas Oracle

– Complete list of the real-money and play-money prediction exchanges (betting exchanges) at Midas Oracle

– Complete list of the real-money and play-money prediction exchanges at CFM

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Getting Commissions From The Real-Money Prediction Exchanges (Betting Exchanges)

– BetFair – Refer and Earn

– TradeSports – Partners Program

– InTrade – Partners Program

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Getting Commissions From The Software Vendors

Information about commissions is not public, as of today. Contact the software vendors individually.

– List of the main software packages for prediction markets at Midas Oracle

– Complete list of the software packages for prediction markets at Midas Oracle

– Complete list of the software packages for prediction markets at CFM

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Consulting For The Organizations Running Internal Prediction Markets

As of today, the organizations that implement internal prediction markets (or other information aggregation mechanisms) take advice from the software vendors only.

– List of the main prediction market consultants at Midas Oracle

– Complete list of the prediction market consultants at Midas Oracle

– Complete list of the prediction market consultants at CFM

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Founding A Prediction Market Startup

Good luck to you.

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Getting A Job In The Prediction Market Industry

Good luck to you.

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Robin Hanson about his concept of decision markets:

[&#8230-] A novel approach to policy deserves more attention, including sympathetic discussions, when there is a positive expected payoff from further explorations of it. Such explorations can include math models, lab experiments, and field experiments. A positive payoff comes if such explorations can refine the approach into useful fielded implementations, while a negative payoff comes from wasted effort and harmful implementations. If the cost of experimenting is low and the final positive payoff could be very high, a novel policy approach can be worth exploring even with a very low probability of success.

As I wrote many times here, Robin Hanson&#8217-s concept will have applications if you view it as &#8216-decision-aid markets&#8216- (where conditional prediction markets are used to assess scenarios) &#8212-not &#8216-decision markets&#8217- (where the machine would decide for us).

All this conditional ( ) that Robin Hanson can interest people into trading on his complex prediction markets&#8230- That&#8217-s the biggest challenge.

Read the previous blog posts by Chris F. Masse:

• Terrorism Futures
• InTrade-TradeSports and BetFair-TradeFair should take a close look at Cantor Fitzgerald’s strategy to gain a share of the $100 billion U.S. gambling industry.
• The secrecy-seeking Mark Davies is solely to blame for all this mess… but this vibrating BetFair spin doctor has managed to repair the PR damages quite brillantly, it shall be said.
• A Betting Exchange = A Bookmaker —> !??
• BetFair’s new bet matching logic + BetFair Malta’s trading on the multiples
• Dick Cheney, the new Churchill?
• BetFair Malta’s combo market maker (trading algorithm + human market makers) operating on the multiples

VIDEO: InTrade CEO John Delaney interviewed by CNBC Larry Kudlaw

The sound output is feeble. I can barely hear them. They should put it on YouTube.

At the end of the segment, Larry Kudlaw asks John Delaney to give him a call the day he is in New York. Larry Kudlaw does not seem to know that John Delaney will not come in New York any time soon, because there is a chance that he gets arrested once his plane touches the US soil.

Are the CNBC viewers aware that the InTrade prediction markets are illegal in America?

BetFair:

Market Suspended – Martin Arguello v Nikolay Davydenko

Betfair Customer Services 02 Aug 18:45
Betfair has suspended settlement of the betting markets on this afternoon’s second round match of the ATP Orange Prokom Open in Poland between Martin Arguello and Nikolay Davydenko, pending investigation and consultation with relevant regulatory authorities. Betfair has had a Memorandum of Understanding with the ATP since 2003, and will use it to exchange information should it become necessary.

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All bets are void in Davydenko v Arguello match

Betfair Customer Services 03 Aug 11:46
Following consultation with the men’s professional tennis tour, the ATP, Betfair has decided to void all bets [*] placed on Thursday’s 2nd round match between Nikolay Davydenko and Martin Vassallo Arguello at the Orange Prokom Open. Betfair suspended settlement of bets at the conclusion of the match yesterday because of concerns over irregular betting patterns. The company has taken this action in the interests of maintaining integrity and fairness in all our markets.

[*] First time in the history of BetFair.

Times – Telegraph

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BetFair (which is a regulated betting exchange) has signed agreements with over 25 sports bodies and has an internal team looking for foul betting. TradeSports-InTrade (which is an unregulated betting exchange) has none. Thus, it is quite possible that some sports prediction markets at TradeSports are rigged. You will notice that nobody in America asks this tough question. (All US-based prediction market conferences being sponsored by InTrade-TradeSports, and all the US-based researchers being depend on InTrade-TradeSports data, no wonder.)

Midas Oracle and CFM are the only publications that tell you the whole truth about the prediction markets:

• the good side,
• and the dark side.

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ADDENDUM: The BetFair people do not send anonymous insults sent from fake e-mail accounts. They are professional and ethical people.

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Previous: BETFAIR DOES FIGHT VIGOROUSLY ANY ATTEMPTS AT MONEY LAUDERING. + BetFair on Responsible Gambling

NEXT: BetFair has an anti-fraud team whereas InTrade-TradeSports has none.

Read the previous blog posts by Chris F. Masse:

• Terrorism Futures
• InTrade-TradeSports and BetFair-TradeFair should take a close look at Cantor Fitzgerald’s strategy to gain a share of the $100 billion U.S. gambling industry.
• The secrecy-seeking Mark Davies is solely to blame for all this mess… but this vibrating BetFair spin doctor has managed to repair the PR damages quite brillantly, it shall be said.
• A Betting Exchange = A Bookmaker —> !??
• BetFair’s new bet matching logic + BetFair Malta’s trading on the multiples
• Dick Cheney, the new Churchill?
• BetFair Malta’s combo market maker (trading algorithm + human market makers) operating on the multiples

New York Times:

Content Makers Are Accused of Exaggerating Copyright

An association of computer and communication companies, including Google, Microsoft and Yahoo, on Wednesday accused several professional sports leagues, book publishers and other media companies of misleading and threatening consumers with overstated copyright warnings. In a complaint to the Federal Trade Commission, the group, the Computer and Communications Industry Association, said that the National Football League, Major League Baseball, NBC and Universal Studios, DreamWorks, Harcourt and Penguin Group display copyright warnings that are a “systematic misrepresentation of consumers’ rights to use legally acquired content.” The complaint alleges that the warnings may intimidate consumers from making legal use of copyrighted material, like photocopying a page from a book to use in class. […]

At Midas Oracle, we never had any problem with copyright laws&#8230- except when it came to the economists&#8217- petition on prediction markets engineered by AEI-Brookings. We felt that it would have been better if the media and the bloggers were given permission to re-publish the text of the petition on its entirety &#8212-not just the abstract. We felt that it was a case where the goal of the authors was to maximize exposure of their ideas, not to maximize the power of the copyright rights holder.

Another reason to approve Steve Levitt and Koleman Strumpf for not signing the petition.

Previous: Economists’ Petition on Prediction Markets + Squawk on Prediction Markets – by Tom W. Bell + Bob Hahn turns the PETITION into a CONSENSUS. + Steve Levitt of Freakonomics: I WON’T SIGN YOUR PETITION, BOB. + Chris Masse’s comment on the Freakonomics’ blog post about the legality of US prediction markets + Safe Harbor Letter too Timid – by Chris Hibbert + The limitations of logic (and the need for passion) – by Caveat Bettor + Jason Ruspini on the Economists’ Petition

Nowhere.

Not on Freakonomics.

Not on Marginal Revolution.

Not on Caveat Bettor.

Nobody asked the good questions: Why is it that point-shaving betting is so popular? Could it be that bettors like point-shaving betting very much for good reasons? And should governments and/or sports authorities forbid a popular form of betting on the ground that a small group of people are cheaters? Is there a way to catch those cheaters without clamping down on the whole bunch of point-shaving bettors (who are honest people, for the most part)?

I have the feeling that Prawf Koleman Strumpf would have had a more libertarian approach to this point-shaving betting issue. And shouldn&#8217-t we look more closely at the United Kingdom, where BetFair cooperates with the sports bodies and the police to trace the cheaters?

Previous: Justin Wolfers wants America’s sports bodies to allow sports betting so as to outlaw the quirky bets that induce corruption. + Point Shaving in the NBA: An Economic Analysis of the NBA’s Point Spread Betting Market

UPDATE: Michael Giberson&#8230-

Practical considerations are raised by the proposal to outlaw certain types of bets. Given that, in the U.S., sports gambling is already prohibited in all but a few places, and nonetheless illegal gambling is thriving. One wonders how to induce parties already willing to gamble illegally to only illegally gamble on governmentally-approved forms of bets.

Wolfers answer seems to be that expanding legal sports gamblings on outcomes only would allow legal operators to out-compete illegal operators. But the competitiveness of legal operators will depend in part on their ability to offer attractive betting opportunities, and that ability would be limited under his proposal.

Nonetheless, legalization of sports gambling does carry with it the advantages of relative transparency, which can aid in the detection gambling-based manipulation. [*]

These practical considerations don’t raise to the level of the principled libertarian critique that Chris is in search of, but they do tend to point toward the same result: broader legalization of gambling conducted under a regime of legally enforceable property rights.

[*] Just a related note. In the U.K., the (legal) bookmakers have been reluctant to to give the names of cheaters to the Police, whereas the (legal) BetFair has always been prompt to fight sports corruption.

UPDATE #2: Niall O&#8217-Connor&#8230-

[*] Just a related note. In the U.K., the (legal) bookmakers have been reluctant to to give the names of cheaters to the Police, whereas the (legal) BetFair has always been prompt to fight sports corruption.

This is indeed true- with one significant caveat. It is my belief that most of the major bookmakers and the spread betting companies use Betfair to hedge. They are, thus in theory masking the identity of their clients, when they use Betfair. As you rightly say, they have in the past been reluctant to expose these clients to the light. Should Betfair therefore accept hedging money from these organisations, which, by its own admission, do not have the appropriate systems in place&#8230-

#1. DIY prediction markets, a la Inkling Markets. Con: nobody will come to trade it.

#2. Ask the big prediction exchanges (BetFair, TradeSports-InTrade, NewsFutures) to float your X proposals. Con: very difficult to get the higher-ups to listen to you.

#3. Create your own vertical prediction exchange (a la Media Predict or PopSci&#8217-s PPX). Con: you need to secure the backing of a media to attract traders.

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The solution, in my view, would be for each of the big betting exchanges (BetFair, TradeSports-InTrade and NewsFutures) to allow the creation of media-backed, vertical sub-exchanges linked to their main, generalist platform &#8212-so the liquidity can move in a bidirectional way.

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Second Workshop on Prediction Markets – San Diego, California, U.S.A. – June 12, 2007

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8:30 – 8:35 Opening remark

4:45 – 5:45 Industrial Panel

• Russell Anderson, HedgeStreet
• Matthew Fogarty, Electronic Arts
• David Perry, Consensus Point
• Emile Servan-Schreiber, Newsfutures

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One hour only for the software vendors?? It&#8217-s an academic conference, then, not an industry conference. Which may explain why only two software vendors made the trip.

The real industry forum is Midas Oracle, anyway. There are 50 times more people on this group blog every day that God makes than in their phone-booth academic conference.

That said, best wishes to David Pennock for his conference. (That&#8217-s him who is behind all this commotion, right?? )

Previous blog posts by Chris F. Masse:

• Psstt… Spot that comment, on Google News, about… “bellwethers”… from a political scientist.
• INSIDER’s STORY: The insightful strategic business report about The Evil Empire that Henry Berg does not want you to see
• Prediction markets are about lowering transaction costs. That’s how sports come in.
• The birth certificate of the next president of the United States of America –maybe
• The marketing association between BetFair and TOTE Tasmania works better than expected.
• The term “event markets” sucks —and the uncritical thinkers using this crappy term suck too.
• CLIMBING HIS WAY TO THE TOP: Erik Snowberg is now Assistant Professor of Economics and Political Science at California Institute of Technology.

Bob Hahn turns lead into gold.

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Via Google&#8217-s Bo Cowgill, Robert Hahn and Paul Tetlock&#8217-s Op-Ed in the Wall Street Journal (mirror at AEI-Brookings – mirror at AEI):

[…] These markets often predict more accurately than experts. Why? They draw on the knowledge of people who might otherwise be ignored. Their anonymity frees participants from pressures to agree with opinion leaders. And they create straightforward profit incentives that encourage participants to search for better information. […] A consensus plan, endorsed by more than 20 leading researchers, including Nobel economics laureates Kenneth Arrow, Daniel Kahneman, Thomas Schelling, and Vernon Smith, and published by the AEI-Brookings Joint Center, suggests the creation of a safe harbor for small-stakes, not-for-profit prediction markets to encourage experimentation. One could, for example, introduce exemptions for research-focused markets in which the size of individual investments does not exceed $2,000 per participant. The Commodity Futures Trading Commission (CFTC) could provide this safe harbor in the form of a &#8220-no-action&#8221- letter. Alternatively, the commission could create formal guidelines that make it cheaper and easier to start these markets. […] Prediction markets have become more than fodder for television news features on what those zany Internet folks will think of next. They are coming of age as serious tools for information gathering and analysis &#8212- tools with great potential for improving the efficiency of government and the productivity of industry. To help achieve that potential, Washington needs to nurture their development and keep them from becoming collateral damage in the endless war over who can gamble and where.

Step #1: Make some gullible economists sign a &#8220-petition&#8221-, entirely engineered by Bob Himself, and which is flawed and too timid.

Step #2: Make the gullible Wall Street Journal readers believe that a &#8220-no-action letter&#8221- is the solution, claiming that that&#8217-s the &#8220-consensus&#8221-.

Robin Hanson, who is at heart a free-gambling-for-all economist, took part of this pitiful farce. Bad judgment, doc. If Robin Hanson wants to stay the &#8220-reigning expert&#8221- of the field of prediction markets, he will have to mind a more pertinent industry analysis in the future. Viva Steve Levitt.

Previous: Steve Levitt of Freakonomics: I WON’T SIGN YOUR PETITION, BOB. + Chris Masse’s comment on the Freakonomics’ blog post about the legality of US prediction markets + Safe Harbor Letter too Timid – by Chris Hibbert + The limitations of logic (and the need for passion) – by Caveat Bettor + Jason Ruspini on the Economists’ Petition

&#8220-Anonymous&#8221- to Patri Friedman (thanks to Jason Ruspini for the link):

Have you tried Betfair? www.betfair.com . Chris Masse over at Midas Oracle www.midasoracle.com &#8212- the main prediction markets blog &#8212- tends to support them over InTrade. The interface is not as nice as InTrade&#8217-s though (they give punter odds rather than decimal probability prices).

#1. BetFair won&#8217-t let any U.S. resident opens an account, because BetFair has decided to abide by US laws. (See: &#8220-We wish to reiterate our well documented and long-standing policy of not accepting US customers, funds, or bets.&#8220-) That said, some US residents have managed to open BetFair accounts via the complicity of British friends. As you all know, TradeSports-Intrade was created and became successful on two premises: number one, BetFair won&#8217-t enter the US market until it is legal, and, number two, US-based prediction exchanges (betting exchanges, event futures exchanges other than hedging-oriented) are not legally allowed to perform operations. Thus, the situation we have today: TradeSports-Intrade is the de facto monopoly in the US market of unregulated event derivatives. (MatchBook is trying to pierce with a marketing strategy a la TradeBetX. And, of course, online sportsbooks are TradeSports-Intrade&#8217-s competitors.)

#2. There are many real-money prediction exchanges (betting exchange, event futures exchanges). To trade or to get probabilities, you should select the one that has the most volume on the (regulated or unregulated) event derivative you&#8217-re interested in. For US politics, it&#8217-s TradeSports-InTrade. For British and Irish politics, it&#8217-s BetFair.

#3. BetFair is indeed a formidable operator &#8212-big, powerful, ethical, with a fantastic technical team, and a robust and sophisticated software. Very long term, BetFair is going to take over Trade-Sports-InTrade in the US.

#4. The prices (which the economists allow us to interpret as probabilities, when these prices come from prediction exchanges, as opposed to bookmakers) can be expressed in four ways: 0&#8211-100, American, fractional or decimal. It&#8217-s all equivalent. For instance, you take the number &#8220-1&#8243-, you divide it by the BetFair&#8217-s &#8220-last price matched&#8221- expressed as&#8221-decimal odds&#8221-, you multiply it by &#8220-100&#8243-, and you get your 0&#8211-100 price/probability.

BetFair: Republican Nicolas Sarkozy as next French President

Total matched on this event: $728,806
Betting summary – Volume: $463,083
Last price matched: 1.32 [“1” divided by “1.32” and multiplied by “100” = 75.8%]

BetFair explainer on decimal odds:

What are Decimal Odds?
All prices quoted on Betfair are &#8216-Decimal&#8217- Odds. Decimal Odds differ from the Odds traditionally quoted in the UK in that they include your stake as part of your total return. If you place a bet of ?10 at Decimal Odds of 4.0 and win, then your total return (including stake) is ?40. In the UK this would be quoted as 3/1, returning to you winnings of ?30 plus your original stake of ?10.
Decimal Odds are simpler to use than Traditional Odds, and are the most common form of Odds quoted in countries outside the UK. In addition, for the mathematically minded, Decimal Odds relate more closely to probability: in a race with four equally-matched horses, the probability of each horse winning is 25%. Each horse will have Traditional Odds of 3/1 or Decimal Odds of 4.0. Hence, the probability of an outcome equals 1 divided by its Decimal Odds (1 / 4.0 = 25%).
Decimal Odds also offer many more prices – Betfair offer every price between 1.01 and 2.0 to two decimal places. With no margins to protect, our customers deserve to see every price available.

#5. Any software for prediction markets (and betting exchanges) should be able to convert the prices in these four different formats &#8212-on top of being translated in many foreign languages.

#6. British consultant wannabe Jed Christiansen, freshly minted &#8220-from the London School of Economics&#8221-, has a new blog post out (he blogs on a monthly basis) on BetFair versus TradeSports-InTrade (BetFair being &#8220-betting&#8221-, and InTrade-TradeSports being &#8220-financial&#8221-), which is the most ridiculous statement I have ever read since Paris Hilton declared to the world that she was going to morph herself into a &#8220-savvy business titan&#8221-.

– Jed Christiansen tries to divine the &#8220-psychological approach&#8221- of BetFair and TradeSports-InTrade. Oh, mon Dieu!&#8230- Jed Christiansen&#8217-s thinking is rotten from the start. Just like the beauty is in the eye of the beholder, the marketing &#8220-approach&#8221- is conditional to its adoption by the customers/consumers. Any popular products (here, event derivatives, prediction markets) belong to its customers/consumers (here, the traders and the info consumers), and then the &#8220-approach&#8221- is to listen to the improvement they suggest to the service. Any incremental innovation of your prediction market software is just the anticipation of future traders&#8217- needs. Event derivative traders on both sides of the Atlantic have the same needs. The traders are in the driver&#8217-s seat. If they are satisfied, they patronize and come en masse (no pun intended), and if they are not, they leave. Traders don&#8217-t give the first fig about the &#8220-psychological approach&#8221- of the prediction exchanges. You can&#8217-t spin the British and Irish traders one way, and the American and Canadian traders another way. Trader&#8217-s needs are imperial and universal. It&#8217-s the traders who shape the prediction exchanges (betting exchanges) their way.

– Jed Christiansen makes a big fuss out of tiny differences between BetFair and TradeSports-InTrade. For instance, BetFair outputs prices as &#8220-decimal odds&#8221-, and, of course, the Grand Inquisitor views it as a sign from God that BetFair is &#8220-betting&#8221-. But that&#8217-s bullshit, as the readers of Midas Oracle all know. With a simple computation, you can transform the &#8220-decimal odds&#8221- into 0&#8211-100 prices. (You take the number &#8220-1&#8243-, you divide it by the BetFair&#8217-s &#8220-last price matched&#8221- expressed as&#8221-decimal odds&#8221-, you multiply it by &#8220-100&#8243-, and you get your 0&#8211-100 price/probability.)

– BetFair uses the words &#8220-back&#8221- and &#8220-lay&#8221- (instead of &#8220-bid&#8221- and &#8220-ask&#8221-) and the Grand Inquisitor views it as yet another sign from God that BetFair is &#8220-betting&#8221- (as opposed to &#8220-financial&#8221-).

– Jed Christiansen states that the &#8220-psychological approach&#8221- of BetFair (being &#8220-betting&#8221-) is dictated by the fact that its competitors are the British bookies (and the online bookmakers, I will add). The main competitors of InTrade-TradeSports are the US illegal bookmakers and the offshore sportsbooks. BetFair and InTrade-TradeSports both have the same kind of competitors, the fixed-odds bookmakers. (Being illegal in America, InTrade-TradeSports can&#8217-t market to the sophisticated US horse race bettors.)

Jed Christiansen has opted for religion over theory. He religiously believes that BetFair is &#8220-betting&#8221- and InTrade-TradeSports is &#8220-financial&#8221-, and he will take any insignificant piece of evidence to make his case.

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External Link: Nisan Gabbay on BetFair

Previous: BetFair Case Study – Betting Exchange – Prediction Markets

[…] Betfair on the other hand was built like a stock market exchange, where odds functioned as the share prices. […]

UPDATE: Yahoo! research scientist David Pennock comments&#8230-

I think Jed Christiansen is correct to a large degree. Betfair speaks the punter’s (gambler’s) language. TradeSports speaks Wall Street’s language. I have a bookie friend who upon first look at TradeSports couldn’t make heads or tails of it. Chris is right in that both betfair and TradeSports perform the same service. However their target audience, at least initially, is different.

NEXT: User Interface &amp- Target Audience: BetFair, TradeSports-InTrade, MatchBook, etc.

UPDATE: Jed Christiansen&#8230-

That was the point I was trying to make. In the end, both types of sites accomplish the exact same thing- an event futures market. But I was pointing out the differences in how the sites work that come from their positioning in the marketplace.

In my perfect world, a trader could choose how they interacted with an exchange. They could choose a basic interaction, or a user interface with lots of options. They could choose to see contracts in decimal odds or percentages, etc. It’s not as easy as it sounds, which is why we probably haven’t seen it yet.

UPDATE: David Stalcup&#8230-

In fact you can see odds listed decimal, 0–100 prices or moneyline format (-110) at TradesSorts. You just make that choice at TradeBetX with your TradeSports login info. You have the option of viewing odds in any format. TradeBetX/TradeSports are the same company, just different branding and options at TradeBetX.