–
So, just like flipping a coin, if Inkling told you something has a 15% probability of coming true, you can’-t just look at one outcome (i.e. one coin flip). You need to look at multiple scenarios where Inkling said something would happen 15% of the time. If those things actually come true, 15% of the time, Inkling is doing well at this.
Previous blog posts by Chris F. Masse:
–
Measured Enthusiasm for Prediction Markets – (PDF file) – by Jason Ruspini.
–
My thoughts:
–
Jason Ruspini on the regulation of US event derivative markets:
CFTC-like regulation would save these markets from having to navigate national and state gambling laws, but would come at the cost of flexibility. Some contracts would not be approved for political reasons even if they had demonstrable hedging utility and “economic purpose”.
Via Adam Siegel of Inkling Markets,
John McQuaid of Wired.
–
The excerpt below is good enough, though:
[…] But forecasting also needs more so-called noise traders, who do business with almost no information. Noise traders boost accuracy by increasing volume and the potential profits of informed traders. Diversity helps, too. If you can get different types of people to play, experts say, not only do you get a bigger pool and more information, but differing random guesses will cancel each other out, leaving real signals to rise above the noise. Plus, if you have a critical mass of investors with a variety of backgrounds, locations, and interests, they are less likely to move as a herd. […]
–
Previous blog posts by Chris F. Masse:
–
Our good friend Barry Ritholtz.has persuaded himself that our real-money prediction markets suffer from an irremediable and fatal problem: liquidity on political event derivative markets is too thin for smart Wall Street people like him to take their market-generated probabilities seriously. Barry Ritholtz is keen to tout oranges–-apples comparisons: the NYSE volume versus the Obama–-Clinton volume at InTrade. It’-s a bullshit argument, but he managed to persuade some gullible journalists writing for some clueless mainstream media that thin liquidity was responsible for the New Hampshire upset —-and else.
Barry, if you had 1,000,000,000 trades on the New Hampshire prediction market, you’-d still have an inaccurate prediction. The polls were wrong, and there’-s nothing …- NOTHING…- that the InTrade and BetFair traders could have done to get this election right. Get over it, Barry. Traders are not magicians. 
–
[For why the polls were wrong, see: The New York Times, Zogby, Rasmussen, Gallup…]
–
ABC 20/20 featuring InTrade on May 9, 2008 —- 10:00 pm ET
Foretelling the Future: Online Prediction Markets —- (4 pages in all)
Now Intrade is more than just a place where people win or lose money making bets. It turns out that the share prices on Intrade can be accurate predictors of the future. Intrade attracts a large and diverse crowd of bettors, and because each participant puts their money on the line, they may be more likely to make careful decisions. As a result of the collective intelligence of more than 77,000 bettors on Intrade [*], the prices on the site may be a good way to predict the outcome of current events —- more accurate than some polls and pundits.
–
[*] and thanks to InTrade’-s market mechanism…-
–
UPDATE:
ABC video
YouTube video
–
Previous blog posts by Chris F. Masse:
Unless you’-re just just surfacing from an Afghan cave, you can easily guess who that “-David”- could be…-
–
Previous blog posts by Chris F. Masse:
Robin Hanson – Overcoming Bias –
–
Robin Hanson at LinkedIn
–
Robin Hanson:
Info Value = the added accuracy the markets provide relative to other mechanisms, times the value that accuracy can give in improved decisions, minus the cost of maintaining the markets, relative to the cost of other mechanisms.
A highly accurate market has little value if other mechanisms can provide similar accuracy at a lower cost, or if few substantial decisions are influenced by accurate forecasts on its topic.
–
Robin Hanson:
[…-] I meant trying to field the highest value applications. That is naturally measured in accounting terms – value minus cost. Measures of popularity or familiarity would not at all be the same thing.
–
Robin Hanson:
[One should] try to offer a cost-benefit calculation. You could count how many employees had ever gone to a TQM meeting, but that wouldn’-t tell you if TQM is valuable or not.
–
[Here’-s Robin Hanson’-s website. For your information (if you are a newbie), Robin Hanson is the most advanced researcher in the field of prediction markets. He co-invented the modern-day prediction markets, the concept of decision markets, and a new marked design, the Market Scoring Rule.]
–
Related Info:
Using Prediction Markets to Track Information Flows: Evidence from Google – (PDF file – PDF file) – by Bo Cowgill, Justin Wolfers, and Eric Zitwewitz – 2008-01-06
–
Previous blog posts by Chris F. Masse:
–
Robin Hanson:
A highly accurate market has little value if other mechanisms can provide similar accuracy at a lower cost, or if few substantial decisions are influenced by accurate forecasts on its topic.
–
[Here’-s Robin Hanson’-s website. For your information (if you are a newbie), Robin Hanson is the most advanced researcher in the field of prediction markets. He co-invented the modern-day prediction markets, the concept of decision markets, and a new marked design, the Market Scoring Rule.]
Previous blog posts by Chris F. Masse:
Via Mat Fogarty of Xpree (an innovative firm providing software for enterprise prediction markets), the Scientific American magazine on prediction markets –-”-When Markets Beat the Polls”-.
Ask me by e-mail to get a copy of the PDF file.
Abstract:
When Markets Beat the Polls– March 2008- Scientific American Magazine- by Gary Stix- 8 Page(s)
In late March 1988 three economists from the University of Iowa were nursing beers at a local hangout in Iowa City, when conversation turned to the news of the day. Jesse Jackson had captured 55 percent of the votes in the Michigan Democratic caucuses, an outcome that the polls had failed to intimate. The ensuing grumbling about the unreliability of polls sparked the germ of an idea. At the time, experimental economics–-in which economic theory is tested by observing the behavior of groups, usually in a classroom setting–-had just come into vogue, which prompted the three drinking partners to deliberate about whether a market might do better than the polls.
A market in political candidates would serve as a novel way to test an economic theory asserting that all information about a security is reflected in its price. For a stock or other financial security, the price summarizes, among other things, what traders know about the factors influencing whether a company will achieve its profit goals in the coming quarter or whether sales may plummet. Instead of recruiting students to imitate buyers or sellers of goods and services, as in other economics experiments, participants in this election market would trade contracts that would provide payoffs depending on what percentage of the vote George H. W. Bush, Michael Dukakis or other candidates received.
Robin Hanson had more.
