Tag Archives: betting markets

The new Hollywood Stock Exchange website (recently redesigned) sucks as much as an indigestible fruit cake.

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HSX-sucks.com &#8212- I predict that somebody will soon register this domain name.

Many HSX event derivative traders have complained to me privately about the website redesign: they hate it more than they hate the recent financial bailout. One HSX trader went off on the Prediction Markets group discussion area at LinkedIn. Today, another HSX trader is writing a long prosecution of the HSX website redesign. Read it in all, and spot the many comments at the bottom, from fellow HSX traders.

The root of the problem is Alex Costakis &#8212-the director of HSX. My assessment of him is that he doesn&#8217-t get the Web. He is as clueless as a maggot trying to play Jazz. He is not an open person, and the Web is all about openness. This guy is a drag on HSX. I predict he will lead to HSX&#8217-s death.

The only 2 persons that could lead to a revival of HSX are Max Keiser or Nigel Eccles. Let&#8217-s hope that Cantor Fitzgerald will call them for help.

UPDATE: See the comments.

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The New York Times on InTrades US political election prediction markets

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The NYT writers discusses 2 (different?) issues.

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#1. There was market arbitrage opportunies in the recent past between InTrade and BetFair &#8212-unlike 4 years ago, and contrary to the laws of economics.

– The price of the Barack Obama event derivative was cheaper on InTrade than on BetFair and the Iowa Electronic Markets. Conversely, the price of the John McCain event derivative was more expensive on InTrade than on BetFair and the Iowa Electronic Markets.

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#2. The NYT writer reports (without linking to it) the findings of the InTrade investigation about the behavior of their unnamed &#8220-institutional investor&#8221-.

– InTrade CEO John Delaney suggests that that institutional investor:

  1. might operate on InTrade at specific times where it might not be able to find liquidity on BetFair and/or IEM-
  2. might be a bookmaker willing to hedge its risks on a prediction exchange (a.k.a. betting exchange).

– Justin Wolfers&#8217- PHD student remarks that that institutional investor is not making an effort to shop around for the best prices, within each InTrade political prediction market.

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RELATED: See the comments on Midas Oracle here, here, here, and here.

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The blogger at Marginal Revolution misinforms the public by repeating the misinterpretation thrown around by liberal hack Paul Krugman about the alleged manipulation on the InTrade prediction markets.

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Alex Tabarrok writes that &#8220-someone was manipulating Intrade to boost John McCain&#8217-s stock price&#8221-.

No&#8230-!!!&#8230-

John Delaney said that that firm has been hedging on InTrade &#8212-a normal and beneficial activity on the other (larger and more liquid) financial markets.

InTrade is not liquid enough to weather (quickly enough) the impact made by the hedging activities, at this time, but will in the future, if growth continues.

Manipulation is bad.

Hedging is good.

There is no manipulation going on in the InTrade political prediction markets.

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– InTrade CEO John Delaney has conducted an investigation on the alleged manipulation. The suspicious moves in prices were in fact caused by the buying and selling made by an &#8220-institutional&#8221- trader (a hedge fund, I presume) who has been managing &#8220-certain risks&#8221- (hedging).

– Jason Ruspini, who wrote before this report came out, does believe that manipulations &#8220-non-informational&#8221- trades have been prevalent on InTrade. (We will see whether Jason changes his mind in light of InTrade&#8217-s debunking report.)

Mystification, demystification, value assessment, and prediction markets – REDUX

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A little explainer on my previous post, as I got some feedback on it.

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#1. Yes, the measure of the usefulness of an idea or theory is the number and the quality of web links it receives.

– Google PageRank (the engine powering the world&#8217-s #1 media) organizes the world&#8217-s information according to how many links go to one source of information, and how high the social status of those links are.

– A quality document posted on the Web is always linked to &#8212-if it is not, it is not a quality document. Period.

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#2. The prediction markets should be useful to the experts [*] &#8212-otherwise, they are useless and should be terminated (as a forecasting tool).

– The lovers of the prediction markets represent a little coterie of hyper-excited economists, free-market columnists, and opportunistic bloggers.

– The high traffic to the InTrade prediction exchange website is generated out of curiosity. This is the result of the free publicity performed by researchers who live off the trading data handed out by the InTrade executives &#8212-it&#8217-s a symbiosis (&#8221-you pump up my exchange in the media- I help your academic career&#8221-).

– For the happy few who understand the mechanism of information aggregation, the prediction markets are a tool of convenience: they get all the week&#8217-s politics summed up in a number &#8212-that spare them the need to read the newspapers. The problem with that behavior is that when there is an upset, those people don&#8217-t understand why the prediction markets failed, because they didn&#8217-t pay attention to the primary indicators.

– I am aware of the vapors of some dreamers, but the fact is the polls are still the main forecasting tool in politics &#8212-and the main primary indicator of the event derivative traders. (Snake eats itself.) It&#8217-s going to stay that way, I forecast.

– In an ideal world, the prediction market scholars should be able to point to situations where some prediction markets were very useful to society and to some other situations where the prediction markets were not useful at all. We need a hierarchy of the prediction markets &#8212-based on their usefulness.

– Where are the evidence that our prediction markets provide decisive help to the experts?

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[*] “the experts” = all the experts but the prediction market experts (who are expert in nothing else than pumping up the prediction markets).

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APPENDIX

Robin Hanson:

[I]nfo value [] is the added accuracy the markets provide relative to other mechanisms, times the value of accuracy 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.

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Prediction Market Definition -now updated with the name of Chris Hibbert and Eric Cramptons cult leader built into.

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Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that the traders bring when they agree on prices. These event derivative traders feed on the primary indicators &#8212-i.e., the primary sources of information. (Garbage in, garbage out&#8230- Intelligence in, intelligence out&#8230-) Hence, prediction markets are meta forecasting tools.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism.

A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays $100 only if candidate X wins the election, and $0 otherwise. When the market price of an X contract is $60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative can be interpreted as the objective probability of the future outcome (i.e., its most statistically accurate forecast). A 60% probability means that, in a series of events each with a 60% probability, then 60 times out of 100, the favored outcome will occur- and 40 times out of 100, the unfavored outcome will occur.

The value of a set of prediction markets consists in the added accuracy that these prediction markets provide relative to the other forecasting mechanisms, times the value of accuracy in improved decisions, minus the cost of maintaining these prediction markets, relative to the cost of the other forecasting mechanisms. According to Robin Hanson, a highly accurate prediction market has little value if some other forecasting mechanism(s) can provide similar accuracy at a lower cost, or if very few substantial decisions are influenced by accurate forecasts on its topic.

Mystification, demystification, value assessment, and prediction markets

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Justin Wolfers:

Prediction markets can yield valuable insight into the dynamics of political campaigns, a conclusion we&#8217-ve drawn from years of intensive study and research. We&#8217-ve even proselytized about the value of these markets, extolling their ability to yield sharper insights than pundits or polls. […]

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If this statement were true,

  1. Justin Wolfers&#8217- columns at the WSJ would have been linked to by the blogging political experts. They never were.
  2. The blogging political experts would have adopted the prediction market tool (over than just quoting the InTrade prices out of curiosity). They never did.

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Both the mystification of the prediction markets (mudding the primary indicators into commentary- suggesting that the traders&#8217- anticipations are always sound) and their demystification (listing the primary indicators) don&#8217-t do the trick: Economic science should be able to tell us whether the prediction markets on 2008 US elections are of high social utility, and whether other kinds of prediction markets are of higher social utility. I am not satisfied by what I have been reading, as of today. The prediction markets are rather a tool of curiosity, as of today, not much a tool of forecasting. The prediction markets are not used as a tool by the experts &#8212-by &#8220-the experts&#8221-, I mean all the experts but the prediction market experts (who are expert in nothing else than pumping up the prediction markets): the political experts, the financial experts, the management experts, the oil production experts, the credit experts, the health care system experts, the automobile market experts, the wine market experts, the web technology business experts, the web advertising experts, the medical drug experts, the foreign affairs experts, the military experts, the aviation industry experts, the condom industry experts, the restaurant industry experts, etc.

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APPENDIX

Robin Hanson:

[I]nfo value [] is the added accuracy the markets provide relative to other mechanisms, times the value of accuracy 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.

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PREVIOUSLY: See Robin Hanson&#8217-s take on Google&#8217-s enterprise prediction markets.

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InTrade has surpassed BetFair and TradeSports (and the Iowa Electronic Markets, too).

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InTrade&#8217-s PageRank is now 7 / 10 &#8212-while all the other major prediction market firms are at 6 / 10.

  1. It shows that the prediction market approach is paying off. Do provide journalist-friendly objective probabilistic predictions (expressed in percentages &#8211-not those fucking decimal odds), and the media will link to you, thanks to all the free-market economists who love your model and act as unpaid publicists for you. Make sure your website can resist under heavy traffic loads on Election Day, and during the occasional days where important news break. Then, milk out all this free publicity. Run registration ads allover your exchange website to attract new traders. Make money. Invest in IT &#8212-but don&#8217-t let the IT maniacs complicate your prediction exchange too much (as BetFair did).
  2. Long-term, the InTrade model (based on the prediction market approach) should be more profitable, in theory. Because of legal impediment, InTrade is not as profitable as it should be, alas.