Super Tuesday = Free money, if you are smarter than the crowd

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At Overcoming Bias, Eliezer Yudkowsky invites pundits, partisans, and anyone else with a nascent opinion about the limits of prediction markets to, in effect, put up or shut up. (Though he puts it in somewhat nicer words). Here is a selection, but read the whole thing:

If you think that Hillary is going to do better than the polls on Super Tuesday, and you&#8217-re going to sneer afterward and say that Intrade was &#8220-just tracking the polls&#8221-, buy Hillary now.

If you think that Obama is going to do better than the polls on Super Tuesday, and you&#8217-re going to gloat about how prediction markets didn&#8217-t call this surprise in advance, buy Obama now.

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The point is not that prediction markets are a good predictor but that they are the best predictor. &#8230- If prediction markets react to polls, they&#8217-re getting new information, that they didn&#8217-t predict in advance, which happens. Being the best predictor doesn&#8217-t make you omniscient.

Everyone&#8217-s going to find it real easy to make a better prediction afterward, but if you think you can call it in advance, there&#8217-s FREE MONEY GOING NOW.

Buy now, or forever hold your peace.

Barack Obamas victory in South Carolina wont stop the Clintons.

No GravatarDixit InTrade.

The Clintons

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South Carolina

The Barack Obama event derivative was expired to 100.

Dem SC Obama

Dem SC CLinton

Dem SC Edwards

Source: InTrade

Read the previous blog posts by Chris F. Masse:

  • Many people twitter on prediction markets.
  • Folks, when you have something important to say, write up a full post, not a comment.
  • Prediction Market Journalism
  • TechCrunch is 221 times bigger than Midas Oracle.
  • Earthquake measuring 9.0 or more on Richter scale to occur anywhere on or before December 31, 2008
  • Why Midas Oracle (and not TV news shows or print newspapers) will dominate the future.
  • The Six Degrees Of Separation

Search engine futures!

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Cross posted from Oddhead Blog.

I am happy to report that on my suggestion intrade has listed futures contracts for 2008 search engine market share.

Here is how they work:

A contract will expire according to the percentage share of internet searches conducted in the United States in 2008. For example, if 53.5% of searches conducted in the United States in 2008 are made using Google then the contract listed for Google will expire at 53.5&#8230-

&#8230-Expiry will be based on the United States search share rankings published by Nielson Online.

I think this could be a fascinating market because:

  • Search engine market share is very important to these major companies, with dramatic effects on their share prices.
  • Search engine market share is fluid, so far with Google growing inexorably. However, Microsoft has cash, determination, Internet Explorer, and the willingness to experiment. Ask.com has erasers, 3D, ad budgets, and The Algorithm. Yahoo!, second in market share, often tests equal or better than Google, and new features like Search Assist are impressive.
  • The media loves to write about it.
  • A major search company might use the market to hedge. Well, this seems far-fetched but you never know. Certainly, from an economic risk management standpoint it would seem to make a great deal of sense. (Here, as always on this blog, I speak on behalf of myself and not my company.)

Finally, I have to comment on how refreshingly easy the process was in working with intrade. They went from suggestion to implementation in a matter of days. It&#8217-s a shame that US-based companies are in contrast stuck in stultifying legal and regulatory mud.

Work for free for InTrade -and become famous (a little bit).

InTrade embraces &#8216-crowd sourcing&#8217-:

Intrade is looking for New Market Ideas!

Friday, Jan 25, 2008

What uncertain event are you interested in trading? What uncertain event are you interested in getting predictive information on from the Intrade community? Please let us know by mailing [email protected].

By suggesting a new market* and agreeing to be cited you will be joining an impressive list of luminaries from Academia, Business, and Government.

Here is just a small sample of those who have previously suggested markets that Intrade has listed?

  • Robin Hanson (Prof.)
  • International Strategy &amp- Investment Group
  • Peter McCluskey
  • David Pennock (Dr.)
  • Mark Perry (Prof.)
  • Koleman Strumpf (Prof.)
  • Justin Wolfers (Prof.)
  • Eric Zitzewitz (Prof.)

Before we list any new market we [endeavor] to ensure the following:

  1. The market will be easily understood and capable of definitive settlement.
  2. Market is based on an event that is of significant economic, social, or public interest.
  3. Typically be defined as a yes or no (0-100) proposition.

Ensuring your suggestion complies with the above criteria [maximizes] the chance we will list your suggestion for free. In other circumstances we may still list your suggestion for a fee.

*A market that we list and had not previously listed or considered.

They should look in the direction of PopSci PPX for new ideas. [And they should look for a Merriam-Webster dictionary to write the North-American English correctly. I have corrected them two times.]

Yahoo! Research scientist David Pennock&#8217-s prediction market proposals for InTrade are great.

And what about a prediction market on whether North Korea will soon launch an intercontinental missile? :-D

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NEXT: I recommend that you read the comments on David Pennock&#8217-s post.

Read the previous blog posts by Chris. F. Masse:

  • Why you should launch your brand-new prediction exchange at a conference
  • Why Indian Software Outsourcing Companies are Outsourcing to China
  • Midas Oracle is the only popular, independent, exhaustive, multi-author, multi-exchange, Web-based resource on prediction markets.
  • Here’s an example of the total crap that the BetFair blog is publishing.
  • P(election) = P(nomination) * P(election conditional on nomination)
  • Journalism Failures — Big Time
  • South Carolina showdown: Barack Obama vs. Hillary Clinton

Democratic and Republican caucuses in Nevada + Republican primary in South Carolina

Here are the event derivative charts of expired InTrade contracts.

[Psstt&#8230- I have high hopes about being able to publish the charts of expired BetFair contracts, too, soon. :-D ]

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Democratic and Republican caucuses in Nevada

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Democratic caucus in Nevada (the Hillary Clinton event derivative was expired at 100):

Dem Nevada Clinton

Dem Nevada Obama

Dem Nevada Edwards

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Republican caucus in Nevada (the Mitt Romney event derivative was expired at 100):

Rep Nevada Romney

Rep Nevada McCain

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Republican primary in South Carolina

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Republican primary in South Carolina (the John McCain event derivative was expired to 100):

Rep SC McCain

&#8220-Field&#8221- = Mike Husckabee

Rep SC Field

Rep SC Romney

Rep SC Thompson-F

Source: InTrade

Read the previous blog posts by Chris. F. Masse:

  • Super Bowl XLII
  • The Glorious Incertitude Of Sports
  • TradeSports Cost Of Transaction
  • The prediction market industry needs people who have balls.
  • Is it good to have a prediction market melting pot of academics and businesses?
  • Is it time to buy some Michael Bloomberg event derivatives?
  • Professor Leighton Vaughan-Williams excluded from the BetFair blog feed

The GOP SC and Dem NV Showdown: Intrade v. Zogby

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If McCain wins SC, the GOP contest will be called for Intrade. If Thompson or Romney wins, that contest will be called for Zogby. If any other GOP candidate wins, the contest will end in a draw.

If Obama wins NV, the Dem context will be called for Intrade. If Edwards wins, that contest will be called for Zogby. If H.Clinton or another candidate wins, the contest will end in a draw.

Zogby does not have recent information posted about the GOP in NV nor the Dems in SC, so a meaningful contest with Intrade cannot be had. While it&#8217-s not a forfeiture by Zogby, at least it&#8217-s a tiebreaker for Intrade.

Election eve candidate probabilities posted at Caveat Bettor.

The BetFair blog claims a worldwide victory.

UPDATE: I just got it that Professor Leighton Vaughan-Williams&#8217-s story and the BetFair compound chart published on top of his story should be understood independently from each other, as this chart was pasted there by the BetFair blog editor.

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Winston Churchill

Professor Leighton Vaughan-Williams on the official BetFair blog:

[&#8230-] Those taking the same advice on Tuesday evening [2008-01-15 = date of the Michigan primary] were similarly well rewarded as well-backed Mitt Romney stormed into clear favouritism in the markets and a comfortable victory at the polls. After a blip in the New Hampshire Democratic primary the old certainties – that election favourites tend to win elections – was re-established.

As in the Republican New Hampshire primary, the polls and pundits had declared the race between Senator McCain and Governor Romney as a toss-up while the betting markets pointed to a comfortable victory in both cases for the eventual winners. Once again, in the battle of the polls, pundits and markets, the power of the betting markets to assimilate the collective knowledge and wisdom of the crowd had prevailed. [&#8230-]

No BetFair charts are provided. Bad prediction market journalism.

UPDATE: The compound chart was under my very nose:

Michigan BeFair

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UPDATE: I just got it that Professor Leighton Vaughan-Williams&#8217-s story and the BetFair compound chart published on top of his story should be understood independently from each other, as this chart was pasted there by the BetFair blog editor.

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UPDATE: The BetFair blog has added a new label on the infamous compound chart&#8230-

Compound chart - BetFair blog fiasco

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NEXT: Did the BetFair blog use trading data from InTrade to hint at BetFair&#8217-s accuracy??

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For your information, I re-publish below the InTrade charts of the last 3 primary races (Wyoming excluded). [BetFair and NewsFutures do not provide on their site the charts of expired contracts. I could ask them later, though.]

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Iowa

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The Democrats.

The Barack Obama event derivative was expired to 100.

Dem Iowa Obama

Dem Iowa Clinton

Dem Iowa Edwards

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The Republicans

The Mike Huckabee event derivative was expired to 100.

Rep Iowa Huckabee

Rep Iowa omney

Rep Iowa McCain

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New Hampshire

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The Democrats

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The Hillary Clinton event derivative was expired to 100.

Dem NH Clinton

Dem NH Obama

Dem NH Edwards

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The Republicans

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The John McCain event derivative was expired to 100.

Rep NH McCain

Rep NH Romney

Rep NH Huckabee

Rep NH Giuliani

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Michigan

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The Democrats

The Hillary Clinton event derivative was expired to 100.

MI Dem Clinton

MI Dem Obama

MI Dem Edwards

MI Dem Field

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The Republicans

The Mitt Romney event derivative was expired to 100.

MI Rep Romney

MI Rep McCain

MI Rep Giuliani

MI Rep Field

Source: InTrade


Author Profile&nbsp-Editor and Publisher of Midas Oracle .ORG .NET .COM &#8212- Chris Masse&#8217-s mugshot &#8212- Contact Chris Masse &#8212- Chris Masse&#8217-s LinkedIn profile &#8212- Chris Masse&#8217-s FaceBook profile &#8212- Chris Masse&#8217-s Google profile &#8212- Sophia-Antipolis, France, E.U. Read more from this author&#8230-


Read the previous blog posts by Chris. F. Masse:

  • Are David Pennock’s search engine prediction markets the worst marketing disaster since the New Coke?
  • Midas Oracle is incontestably [*] the best vertical portal to prediction markets.
  • Comment spam paid by Emile Servan-Schreiber of NewsFutures-Bet2Give
  • BetFair Games needs a Swedish provider to develop its gambling offerings.
  • When Markets Beat the Polls – Scientific American Magazine
  • Robin Hanson has some fanboy in India. Great. Tiny caveat: The parroting Indian writer does not acknowledge Robin Hanson by name.
  • Molecular Nanotechnology

The Future of the Prediction Markets

No GravatarEven a prediction market fanboy feeds on the polls &#8212-first and foremost. Steve Dubner, the journalist and co-author of Freakonomics, is, along with his two blog colleagues (Steve Levitt and Justin Wolfers), a strong supporter of the prediction markets. They all have blogged enthusiastically on prediction markets, since the inception of their blog. Steve Levitt calls the InTrade-TradeSports people in Ireland his &#8220-friends&#8220-. Wow. The Freakonomics blog even has a &#8220-Prediction Markets&#8221- blogroll (i.e., a list of external weblinks to the best resources on prediction markets) &#8212-where, of course :-D , Midas Oracle is the cornerstone. :-D To sum it all up, Steve Dubner and his colleagues are true believers in the predictive power of the prediction markets. Good.

Until you analyze this Steve Dubner&#8217-s Freudian lapsus:

[&#8230-] (Fascinating aside: according to a recent Times poll cited in the article linked above, the Florida G.O.P. race is as of now a virtual deadlock between four candidates: Huckabee, Giuliani, McCain, and Romney. This will almost certainly shift as a result of interceding activity, but still, what a spectacle!)

Which forecasting tool does Steve Dubner use to get a sense of the political race du jour? Not the prediction markets&#8230- but the polls.

That speaks volume on the nature of the prediction markets, as forecasting tools.

  1. The polls and the surveys are the primary purveyors of crucial political information, which the political analysts (and&#8230- Steve Dubner :-D ) use to write their reports.
  2. The political prediction markets feed on polls, aggregate them (and other disparate pieces of information), and delivers &#8220-the consensus opinion in a much finer and dynamic way than all the amorphous media buzz&#8220-. They are secondary forecasting tools. They are taken seriously only by the free-market believers (like us) &#8230- but, as the Steve Dubner&#8217-s quote shows, even the prediction market true believers check the polls first.

I think that:

  1. Because of its nature, the prediction market prism, which quantifies the impact of the news, will never be the dominant forecasting tool.
  2. Prediction market journalism will remain on the fringe. It should be developed to serve a targeted audience &#8212-the free-market believers, the busy people, and the event derivative traders.
  3. Conditional prediction markets (a.k.a. decision-aid markets) will never be taken seriously by the decision makers and the public. Robin Hanson&#8217-s tool is very smart, though. Applications should be found within the community of free-market believers, rather.
  4. Enterprise prediction markets (a la Google, Inkling Markets, Consensus Point, etc.) are very interesting because they reflect inside information that can&#8217-t be conveyed by the corporations&#8217- internal media.
  5. The prediction market approach (embodied by InTrade) will always be weaker than the betting exchange approach (embodied by BetFair). I still believe, though, that each prediction exchange should employ both &#8212-which is not the case, right now.

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ADDENDUM: In fairnesses to Steve Dubner, it should be noted that, in the same post, he put up a blunt challenge to polling methodology:

[&#8230-] As for the discrepancy between the two polling questions, take note: that’s the difference between a fill-in-the-blank polling question (i.e., “Which is the most important problem …”) versus a leading polling question (”Do you view crime as a ‘very serious problem’?”). The next time you read a poll and think it may be hinky, ask yourself what question the pollsters actually asked. [&#8230-]

Previous blog posts by Chris F. Masse:

  • Red Herring’s list of the top 100 North-American high-tech startups includes Inkling Markets —but not NewsFutures, Consensus Point, or Xpree.
  • Professor Koleman Strumpf explains the prediction markets to the countryland people.
  • Professor Koleman Strumpf tells CNN that a prediction market, by essence, can’t predict an upset.
  • Time magazine interview the 2 BetFair-Tradefair co-founders, and not a single time do they pronounce the magic words, “prediction markets”.
  • One Deep Throat told me that this VC firm might have been connected with the Irish prediction exchange, at inception.
  • BetFair Rapid = BetFair’s standalone, local, PC-based, order-entry software for prediction markets
  • Michael Moore tells the Democratic people to go Barack Obama in Pennsylvania (a two-tier state), but the polls and the prediction markets tell us that that won’t do the trick.

Prediction Markets vs. Bookmakers – The Ultimate Argument

No GravatarLas Vegas Sun:

“The bookie’s odds will be influenced by his appetite for risk, the action he’s got on his side and his own bias,” said John Delaney, chief executive officer of Dublin-based Intrade.com, the world’s largest prediction market. “If I were to ask you where you would find the expected value of IBM, would you ask a broker or go to the stock exchange? The aggregation of information that happens on an exchange typically provides better information than if you had several buyers and just one seller.”

Excellent.

Read the previous blog posts by Chris F. Masse:

  • BetFair-TradeFair (slightly) improve their blog, finally (it was about time) —and open 2 new sections: “prediction markets” and “financials”.
  • Control in Distributed Networks (Decisions 2.0: Distributed Decision-making)
  • What are enterprise prediction markets for?
  • BetFair sponsor medical doctor for jockeys.
  • Freakonomics @ Predictify
  • MyPronostic
  • Can you correctly forecast sales of music CDs?

InTrade is no psychic -but what if that bit of truth is systematically said BEFORE, as opposed to AFTER.

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David Leonhart in his New York Times blog, last week:

The political prediction markets just went through their version of the dot-com bubble. […]

Intrade’s odds have had a very good forecasting record over the last few years, having correctly called every Senate race in 2006, every state in the 2004 presidential election and all but one state in the 2004 Senate races. The odds also correctly called New Hampshire for John McCain this week and now make him the favorite for the Republican nomination- he is given a 38 percent chance, while Rudolph W. Giuliani is given a 29 percent chance.

Intrade’s executives, as well as the academic researchers who study the site, are careful to point out that its contracts provide only odds, not certainties. An outcome that’s given a 20 percent chance of happening should happen 20 percent of the time — not never. […]

The question I asked yesterday was: What would happen if that warning label were to be sticked on InTrade before each election, as opposed to after each predictive debacle? My bet is that, if you suppress the mention of InTrade&#8217-s magical touch, the Irish real-money prediction markets will be far less appealing to people. They want magic. All of the sudden, InTrade is not a psychic anymore, but simply a forecasting tool of convenience for busy people who don&#8217-t want to check the polls in details. This issue is crucial if we want to be able to define what is the &#8220-prediction market approach&#8221- &#8212-as opposed to the &#8220-betting exchange approach&#8221-.

Give me one reason why the political analysts should follow the US primaries thru the prism of the InTrade prediction markets instead of thru the polls. [My question is still unanswered, you will notice. Which shows to you the embarrassment of the prediction market luminaries (or so they think they are).]

Once the true nature of the prediction markets appears more clearly, it becomes evident that they are not tools for the experts, but tools for the ignorants, rather. Which is great, provided that this is said clearly from the start.