Tag Archives: event derivative markets

Prediction Markets in the Classroom: Inkling Markets

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hile prediction markets have been in the spotlight this year, they are still unfamiliar to many folks. As one small step towards improving their visibility, along with my colleague James Lemieux I ran a prediction market at the University of Kansas School of Business. The markets ran for three and a half months and almost all traders were undergraduate business majors (you can see the very end stages of the market at: http://kufin400.inklingmarkets.com, username: myfoxkc and password: myfoxkc).

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These markets were quite popular. The 475 traders made over 27,000 transactions in the 139 available markets. As a matter of reference, that is about 200 transactions per market while in Google&#8217-s market this ratio is 260.

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There was a mix of both socially redeeming topics (issues of interest to the Business School such as how many internships the undergrads would get this school year) and others designed to attract interest (politics, sports, entertainment, finance). I was surprised to see that passions&#8211- and trade volume&#8211- ran quite high even in the more serious markets. For example, one contract&#8217-s expiry was based on whether the XM-Sirius merger would be consummated by March. When the DOJ announced its approval at the end of that month, there was only a small price increase. As the comments below suggest, this was not because the traders were asleep at the wheel but rather because they had a good understanding of the regulatory environment.

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Inkling Markets provided the platform for our markets (if you are unfamiliar with Inkling, they have active public markets which you can sample). Inkling&#8217-s software and support is really ideal for classroom markets. There are nice features for both the people running the markets (James and I) as well as for traders (the students).

For the market admin:

– it is a snap to set-up and administer new contracts

– Adam Siegel and Nate Kontny are very responsive to questions, often responding within the hour

For traders:

– an intuitive trade interface, which is accessible even for those without experience with financial markets (though this can be a drawback if you would also like students to become familiar with order books)

– lots of goodies (customizable profile pages, market-specific discussion boards, graphs) leads students to visit the market a lot

– the daily/weekly top traders list encourages participation

I would strongly recommend others give prediction markets in the classroom a try. I found them to be both a great pedagogical tool and also one which the students really, really like. Students learned first hand about the role of information discovery as well as the biases often seen in prediction markets (though I will add it was difficult to illustrate the home town bias given the success of the athletic teams at my school this year). Feel free to get in touch with me if you have questions about how to set-up your own classroom markets.

Chris Masses pragmatism

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  1. Supporting the development of big, for-profit, generalist prediction exchanges (which get most of their revenues from sports prediction markets)-
  2. Asking the biggest prediction exchanges to organize socially valuable prediction markets.

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Don&#8217-t you rate me as a &#8220-pragmatist&#8221-, doc?

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Third Workshop on Prediction Markets, July 9 in Chicago

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Please join us at the Third Workshop on Prediction Markets, in Chicago on the afternoon of July 9, 2008. We plan academic talks, an industry panel, and open discussion. Participation is open to anyone, and we hope to be as flexible as possible in allocating speaking time. See the workshop website or the full Call for Contributions and Participation for details.

Dont ask the experts. Ask the prediction markets. They know better.

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George Tziralis should have refined a bit the statement he made in the first video below &#8212-statement which I have slightly modified in the title above. We need inputs from the primary, advanced indicators, the experts, and the prediction markets. We need all of that. The prediction markets will never eliminate either the polls or the experts. The prediction markets come as a supplement in the mix.
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Ask Markets

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InTrades Software Glitch? – [See Jason Ruspinis comment, at the bottom of the post.]

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Here is a beauty from InTrade, 12 hours ago: Bids and Asks at the same price. Looks like the &#8216-ol InTrade price-matching mechanism is working great.

Signed: Deep Throat

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Editor&#8217-s Note: Here&#8217-s a new screen shot, taken this Saturday early morning (US Easter: 2:50 am).

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Jason Ruspini:

Actually it’s working fine. This means the same trader has a bid and offer at the same price. Otherwise traders would be able to manufacture bogus volume by trading with themselves.

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People I come in agreement with about the need to free the prediction markets as much as possible -a short list, which will grow, I hope.

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  1. Chris Hibbert
  2. Steve Levitt
  3. Koleman Strumpf
  4. Tom W. Bell

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Waiting to see the positions of Michael Giberson, Jason Ruspini, Caveat Bettor, Robin Hanson, Justin Wolfers, Eric Zitzewitz, etc.

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Free Markets &#8211-&gt- Free Predition Markets

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CFTC Oversight May Not be a Boon.

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I want to quibble with one of Dave Pennock&#8217-s comments on the CFTC request. Pennock wrote &#8220-It&#8217-s not often that an industry in its infancy cries out for more government oversight.&#8221-

It&#8217-s actually quite common. The term in the economics literature that includes this is regulatory capture. When there&#8217-s a regulatory body specific to a particular industry, it&#8217-s very common for industry to be the major source of expertise in the area, and so for the regulators to be reasonably friendly with the businesses. The businesses can work for regulation that limits entry, and cuts down on competition that reduces profits, and they can work together to ensure that public relations problems are addressed in a cohesive way. But cutting down on competition often means fewer choices for consumers by way of tighter controls on what products are offered.

In our case, the thing I worry about is a narrow ruling that only &#8220-socially valuable&#8221- questions can be asked, and an expensive process for deciding what innovative questions can be posed. It seems likely that some interests will work to ensure that sports and entertainment questions be declared off-limits. The companies that have the strongest interest in fighting that faction are mostly persona non grata in the CFTC&#8217-s eyes, since they currently operate outside the law (TradeSports) or outside the country (BetFair).

The narrower the set of approved questions, or the more expensive the process of getting approval, the less chance that markets will be commercially successful. I think the experiments within companies have indicated (though not proven) that a mix of valuable and popular claims is necessary in order to attract continuing participation.

My biggest worry about fighting for CFTC regulation at this point is that they&#8217-ll approve something narrow, and this won&#8217-t produce enough successes to demonstrate that loosening the restrictions over time would be beneficial. The alternative is to continue to find ways to introduce markets under the radar and demonstrate their value to the academic audience, which could lead to a friendlier hearing in a more distant future after prediction markets have demonstrated social value and little risk of harm.

Of course the other likely outcome is that the novel experiments don&#8217-t happen because of the threat of litigation or regulation. But that seems unlikely given the growth in internal markets within companies. I think there&#8217-s more likelihood of long-term success without regulation than with it, and we&#8217-re better off waiting until the chances that the regulations will provide a broad approval are significantly higher.

(Cross-posted from pancrit.org.)

Folks, yesterday, I forgot to link to the PDF file posted by the CFTC (their concept release, how snobbish). Download it, and read it -well discuss it later, here. No need to rush an opinion, we have about 2 months to make up our collective mind. Lets have it open.

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Via professor Eric Zitzewitz of Dartmouth, the CFTC announcement.

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CFTC&#8217-s Concept Release – (PDF file)

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InTrade&#8217-s John Delaney&#8217-s message to the prediction market crowd.

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Midas Oracle authors (and that includes PMIA&#8217-s Emile Servan-Schreiber) can post their views, here, if they wish &#8212-or link externally to their own blog, if they wish.

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David Pennock has published a comment that rebuts mine.

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One comment, over there.

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Finally, I&#8217-m searching for a co-author, or a bunch of co-authors, who share my views, and would like to submit a short e-mail to the CFTC, before the end of June, 2008.

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I try to only follow electoral races in highly digested form -that is, thru the lens of the political prediction markets.

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Excellent formulation by Mike Linksvayer.

Tells a lot about the usage of the prediction market probablities, and how we should market them to people. BetFair, InTrade and TradeSports, are you listening?

I check prices at Intrade most days, which gives me a more accurate and much more concise status update than any amount of time spent reading or watching commentary.

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