Foretelling The Future: Online Prediction Markets —- (4 pages in all)
ABC video
YouTube video
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Not a single word about InTrade-TradeSports fucking up its traders during the North Korea Missile episode.
Although James Surowiecki is a great thinker overall, I’-m not happy he served InTrade’-s past forecasting successes in absolute terms —-and not in terms of probabilities. That shows James Surowiecki can’-t be the ultimate leader of the field of prediction markets. Robin Hanson, Justin Wolfers, Koleman Strumpf, Eric Zitzewitz, or even Emile Servan-Schreiber, would have not made that mistake.
All prediction markets are not created equal. Spot that they go too far, saying terrorism prediction markets or earthquake prediction markets could serve a societal purpose. That is complete bullshit. That is pure hype. As I said yesterday, an analyst should check whether a given prediction market is really able of aggregating important information. Just because John Delaney wants to create a betting market to get money doesn’-t mean that that given prediction market will be able to give sound forecasts. Otherwise, we would have prediction markets about future lottery outcomes and we would make a fortune out of that.
Spot that they put the emphasis on the easy translation between the 0–-100 prices and the 0–-100 probabilities. That puts BetFair’-s model (based on those damn digital/decimal odds) out of the picture.
– Economic forecasters do pay attention to InTrade.
– Most InTrade traders are US citizens, or, at least, US residents —-not “-foreigners”-.
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I could go on. This post is riddled with inaccuracies.
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It is the kind of stuff that explains InTrade to morons surfacing from their Afghan cave —-as I told you 5 minutes ago. I’-m fed up with that kind of superficial journalism. We all know what InTrade is. Let’-s move on to real prediction market journalism.
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Previous blog posts by Chris F. Masse:
Prediction Markets
Meet professor Justin Wolfers.
Become “friend” with me on Google E-Mail so as to share feed items with me within Google Reader.
Nigel Eccles’ flawed “vision” about HubDub shows that he hasn’t any.
How does InTrade deal with insider trading?
Modern Life
“The Beacon” is an excellent blog published by The Independent Institute.
Don’-t you love the Web? Within 15 minutes after my posting my absolute and definitive refusal to publish any bits about the VP prediction markets, I received a long rebuttal by Google’-s Bo Cowgill —-whose great prediction market paper is still for you to download (PDF file), by the way.
Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that traders bring when they agree on prices. Prediction markets are meta forecasting tools that feed on the advanced indicators (i.e., the primary sources of information). Garbage in, garbage out…- Intelligence in, intelligence out…-
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 6 times out of 10, the favored outcome will occur- and 4 times out of 10, the unfavored outcome will occur.
Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism.
Because the decision to select a running mate is a decision made in secrecy, with many (personal or else) factors we are not aware of, and many things we are not fully informed about. Barack Obama and John McCain’-s minds are not that open —-whatever you can read in the Press from the so-called campaign insiders. That’-s the typical kind of prediction markets that traders and probability seekers should not approach.
So, I won’-t cover InTrade and BetFair’-s VP prediction markets, here.
Some of our academics, consultants, and exchange executives have sold the prediction markets as the ultimate forecasting tool —-which is true, but people translated that as “-this is an omniscient tool for forecasting”-–
The best usage of the prediction markets is that they do average what the experts think (see Justin Wolfers’- mention of a “-useful counterweight”-) —-but that’-s a far cry from being an omniscient oracle (which is what people are expecting).
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Some people would enjoy the usage of a “-useful counterweight”- —-but not that many.
The “-useful counterweight”- thing is not a hot-selling proposition.
You don’-t draw crowds with that.
You draw crowds with an over-selling proposition.
You draw crowds by manufacturing hype.
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. In 2004, the market odds on Intrade predicted the presidential vote of every state but Alaska. In 2006, the odds correctly indicated the outcome of every Senate race.
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Our Explainer On Prediction Markets
Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that traders bring when they agree on prices. Prediction markets are meta forecasting tools that feed on the advanced indicators (i.e., the primary sources of information). Garbage in, garbage out…- Intelligence in, intelligence out…-
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 6 times out of 10, the favored outcome will occur- and 4 times out of 10, the unfavored outcome will occur.
Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism.
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Previous blog posts by Chris F. Masse:
Become “friend” with me on Google E-Mail so as to share feed items with me within Google Reader.
Nigel Eccles’ flawed “vision” about HubDub shows that he hasn’t any.
How does InTrade deal with insider trading?
Modern Life
“The Beacon” is an excellent blog published by The Independent Institute.
The John Edwards Non-Affair… is making Memeorandum (twice), again.
Prediction Markets = marketplaces for information trading… and for separating the wheat from the chaff.
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.
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[*] and thanks to InTrade’-s market mechanism…-
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UPDATE:
ABC video
YouTube video
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Previous blog posts by Chris F. Masse:
Become “friend” with me on Google E-Mail so as to share feed items with me within Google Reader.
Nigel Eccles’ flawed “vision” about HubDub shows that he hasn’t any.
How does InTrade deal with insider trading?
Modern Life
“The Beacon” is an excellent blog published by The Independent Institute.
The John Edwards Non-Affair… is making Memeorandum (twice), again.
Prediction Markets = marketplaces for information trading… and for separating the wheat from the chaff.
Superdelegate chicanery notwithstanding, Obama has won his party’-s nomination, so my head-to-head contest between a major pollster (Zogby) and major prediction market (Intrade) will be coming to a close.
Unsurprising to those who know a little bit about the scholarship, economics, and/or track record of prediction markets, the traders of Intrade provided us much better data this election season than the respondents to the Zogby polls.
Standings
Wins
Losses
Ties
Pct
Contender
Avg Eve Prob
7
3
11
59.5%
Intrade
71.3%
3
7
11
40.5%
Zogby
40.7%
Schedule
Score
Date
State
Party
Intrade
Zogby
Winner
Intrade Pct
Zogby Pct
7-3-11
6-May
IN
Dem
Clinton
2-way-tie
Clinton
85%
42%
6-3-11
6-May
NC
Dem
Obama
Obama
Obama
90%
50%
6-3-10
22-Apr
PA
Dem
Clinton
Clinton
Clinton
82%
47%
6-3-9
4-Mar
OH
Dem
Clinton
2-way-tie
Clinton
70%
45%
5-3-9
4-Mar
TX
Dem
Obama
2-way-tie
Clinton
57%
44%
5-2-9
5-Feb
NJ
Rep
McCain
McCain
McCain
96%
52%
5-2-8
5-Feb
NJ
Dem
Clinton
2-way-tie
Clinton
67%
43%
4-2-8
5-Feb
NY
Rep
McCain
McCain
McCain
98%
53%
4-2-7
5-Feb
GA
Dem
Obama
Obama
Obama
96%
48%
4-2-6
5-Feb
MO
Dem
Obama
Obama
Obama
63%
47%
4-2-5
5-Feb
CA
Rep
McCain
Romney
McCain
56%
40%
3-2-5
5-Feb
CA
Dem
Obama
Obama
Clinton
52%
46%
3-2-4
29-Jan
FL
Rep
McCain
2-way-tie
McCain
51%
33%
2-2-4
26-Jan
SC
Dem
Obama
Obama
Obama
90%
38%
2-2-3
19-Jan
SC
Rep
McCain
McCain
McCain
56%
29%
2-2-2
19-Jan
NV
Dem
Obama
Clinton
Clinton
54%
42%
2-1-2
15-Jan
MI
Rep
McCain
2-way tie
Romney
54%
27%
2-0-2
8-Jan
NH
Dem
Obama
Obama
Clinton
91%
39%
2-0-1
8-Jan
NH
Rep
McCain
McCain
McCain
82%
34%
2-0-0
3-Jan
IA
Dem
Obama
3-way tie
Obama
54%
28%
1-0-0
3-Jan
IA
Rep
Huckabee
2-way tie
Huckabee
53%
28%
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Lord willing, I will have another showdown season, but will most likely choose another pollster. Whereas Intrade listed contracts and probabilities for every state primary, Zogby only provided election eve updates for only 21 of the 87 held to date. Rasmussen stands out as a worthy pollster, but I would be happy with any candidate referrals from my readers as well.
Cross-posted from Caveat Bettor.
Previous blog posts by Caveat Bettor:
Land-Ocean year-to-date temperatures 0.35 Celsius over baseline
Intrade lists Global Warming Contracts!
Intrade beats Zogby on Super Tuesday
Super Tuesday Showdown: Intrade v. Zogby
The Democrat SC Showdown: Intrade v. Zogby
Zogby beats Intrade in predicting Nevada caucus winner Clinton.
Lawrence O’-Donnell (a leftist journalist –-but a good one, whom I appreciate):
A senior campaign official and Clinton confidante has told me that there will be a Democratic nominee by June 15. […] Yes, Clinton spokespersons publicly seem to be lost on gravity-free planet Clinton, but privately they know the end is near.
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There’-s a quasi consensus among the political pundits to say that Hillary Clinton will not be the Democratic nominee in November 2008.
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Tim Russert:
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That was Wednesday night. I have just watched NBC Nightly News this Thursday, and the same Tim Russert appeared with 2 white boards full of calculations, which all pointed to Hillary Clinton being toasted.
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My general thoughts about the place of the political prediction markets in this primary election season:
The weight of the political prediction markets in the US political scenery is close to epsilon. I have been monitoring Memeorandum (the Web’-s best political news and opinion aggregator), and it has never featured one piece of political prediction market journalism —-not only that, but none of the popular popular pieces, featured by Memeorandum, has ever mentioned the political prediction markets and their probabilities. The people who breathe politics on a daily basis (the experts and the bloggers) don’-t give the first fig about the prediction markets. They couldn’-t care less.
The prediction market luminaries who predicted that the prediction markets were to become a tool used in political campaigns were dead wrong. I have never read that campaign staffers use actively the political prediction markets. Campaigns use private polls, only.
Like in 2004 (when Howard Dean was crowned, early on), the prediction markets, at the start of the primary season, were incapable of foreseeing who would be each party’-s nominee, ultimately —-Barack Obama and John McCain both came out of the blue. But the polls and the political experts didn’-t see them, too.
Nothing surprising in that. While the idiots emphasize the supposed magical power of the prediction markets (using adjectives such as “-fascinating”- or “-intriguing”- when writing about them), the well informed people know for a fact that they simply aggregate information from the primary, advanced indicators and the opinions expressed by the political experts. Nothing more than that. The prediction markets are incapable of foretelling upsets, by essence.
The last weeks were particularly interesting, in that regard, because the Obama-vs-Clinton polls have been of no interest —-only the views of the political experts who could count in terms of delegates and super-delegates were of interest. The political prediction markets on the Democratic side, these last weeks, have been a reflection of the pundits’- calculations.
Outside of our blog, the only person who has aimed at practicing prediction market journalism is Justin Wolfers. He has understood the concept.
I would have my own concept of prediction market journalism, and I don’-t agree with the way he executes, but that’-s a detail. The main thing is that he has gotten the concept. That’-s what is important, and that’-s what makes all the difference between Justin Wolfers and the HubDub bloggers (for instance). The concept. The concept. The concept. The idea is to center the narrative around the inputs given by the relevant prediction market(s) —-not just gluing artificially news bits and a prediction market chart (or a link to a prediction market).
InTrade, BetFair and NewsFutures are, in my view, the 3 prediction exchanges that matter for prediction market journalism —-as of now.
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Now, the charts of the expired prediction markets —-starting with Pennsylvania (of 2 weeks ago):
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Yesterday’-s North Carolina:
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Yesterday’-s Indiana:
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Sources: InTrade &- BetFair
(Go there for the remaining primaries and caucuses. I don’-t put them on, here, because they don’-t matter anymore.)
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Now, the charts of the prediction markets, going forward:
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2008 US Presidential Election Winner – Individual
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2008 US Presidential Elections
Source: Dynamic, compound prediction market charts from InTrade
Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that traders bring when they agree on prices. Prediction markets are meta forecasting tools that feed on the advanced indicators (i.e., the primary sources of information). Garbage in, garbage out…- Intelligence in, intelligence out…-
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 6 times out of 10, the favored outcome will occur- and 4 times out of 10, the unfavored outcome will occur.
Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism.
–
More Info:
– The Best Resources On Prediction Markets = The Best External Web Links + The Best Midas Oracle Posts
– Prediction Market Science
– The Midas Oracle Explainers On Prediction Markets
– All The Midas Oracle Explainers On Prediction Markets
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Previous blog posts by Chris F. Masse:
Prediction Markets
Meet professor Justin Wolfers.
Become “friend” with me on Google E-Mail so as to share feed items with me within Google Reader.
Nigel Eccles’ flawed “vision” about HubDub shows that he hasn’t any.
How does InTrade deal with insider trading?
Modern Life
“The Beacon” is an excellent blog published by The Independent Institute.
