The interesting John De Palma writes to me:

In response to the comment you made beneath your Iraq War blog entry&#8230-

Wolfers/Zitzewitz wrote: &#8220-&#8230- the public information on the probability of weapons of mass destruction in Iraq appears to have been of dubious quality, so it is perhaps unsurprising that both the markets were as susceptible as general public opinion to being misled.&#8221-
(The paper is posted here &#8211-PDF file. Figure 5 charts the historical pricing of the TradeSports WMD contracts.)

Also, Wolfers/Zitzewitz/Snowberg wrote in a separate paper: &#8220-Figure 5 shows the price of a contract on whether or not weapons of mass destruction (WMD) will be found in Iraq. Note that at some points the value of the contract exceeded 80%, yet weapons were never found. It is likely that this market performed poorly since the cost of gaining new information was quite high. Since WMD can be non-existent almost everywhere, but still exist somewhere, it was difficult to bet against the strong case made by the White House, at least initially.&#8221- Paper: PDF file.

An article in the NY Times last year reminded me of the TradeSports WMD market. From the New York Times:
&#8220-The Iraqi dictator was so secretive and kept information so compartmentalized that his top military leaders were stunned when he told them three months before the war that he had no weapons of mass destruction, and they were demoralized because they had counted on hidden stocks of poison gas or germ weapons for the nation&#8217-s defense.&#8221-
This assertion in the New York Times article suggests that even Iraqi &#8220-top military leaders&#8221- would have been on the wrong side of the TradeSports WMD trade.

A few years ago when Prof. Wolfers spoke at Columbia Univ, he used the WMD market as an example of an inefficiently priced one, consistent with what he wrote in those papers. It seemed to me that the footprint of what he was saying could be in contracts of that nature being priced too high. (Though I would think it difficult to empirically support that point since even if contracts like that are priced too rich historically, it could reflect the necessary posted margin involved with going short.)

Thanks.

From the Wolfers/Zitzewitz paper: Prediction Markets – 2004 – PDF file

Did BetFair mess the expiry of the 2006 US Senate prediction markets?&#8230- UK blogger Mike Smithson thinks so.

Anybody who had money on last November’s US MidTerms Senate market with Betfair will know what happens when the rules are not tied down tight enough. Then Betfair settled the election on the basis of a tie even though the actual outcome was that the Democrats took control of the Senate. Then the problem was the position of two senators who had not gone into the election as Democratic candidates but had said they would caucus with the [Democratic] party. An added complication for Betfair was that the Labour MP, Nick Palmer, had written to Betfair ahead of the election asking for clarification about Lieberman’s position and had received a written reply confirming that if he won he would be regarded as a Democrat. Palmer had posted this information of this site influencing, no doubt, a number of other punters in the process. […] [FYI, the rest of the story is on another alleged BetFair messing up.]

Chris Masse, circa November 2006:

[…] BetFair sticks with the ORIGINAL contract —as CLEARLY written ON DAY ONE on their “RULES” tab, and as understood correctly by everybody who can read plain English. NO SURPRISE, NO CONTROVERSY. &#8220-Which of these parties will have MORE SEATS in the US Senate following the 2006 US Senate Elections?&#8221- is a very different question than &#8220-Which of these parties will CONTROL the US Senate?&#8221-. There is no ambiguity in the first question. In the second question, it’s understood that you could control the US Senate with your allies (the Independents).

Now, let&#8217-s contrast that with the 2006 North Korea Missile scandal prompted by a TradeSports-InTrade mistake.

#1. John Delaney, CEO of the firm managing TradeSports-Intrade, acknowledged recently in writing that the poorly defined contract was their fault.

[…] We experienced an issue with our North Korean market definition. […]

#2. Nevertheless, the TradeSports-InTrade who were right on the outcome (i.e., who bet &#8220-yes&#8221- on whether North Korea would fire a missile) got screwed up and lost their money.

#3. TradeSports-InTrade did nothing to compensate the victims of its mistake.

#4. Only the bloggers (like Donald Luskin or Barry Ritholtz, alerted by Chris Masse) came to the rescue of the screwed-up traders. The main media were mum about this scandal. (Rachel King of BusinessWeek told me she asked the question to John Delaney, but, unfortunately, she did not have enough space in her news article to talk about that. Pffff&#8230- Pretext.)

#5. None of the prediction market scholars published a statement on the North Korea Missile controversy. The scholars are dependent on the three main prediction exchanges (BetFair, TradeSports-InTrade, Hollywood Stock Exchange, NewsFutures)&#8230-yeah, I know, I&#8217-ve listed four of them&#8230- but the &#8220-Three Musketeers&#8221- were four, too&#8230- anyway&#8230- my point is that the prediction market scholars are dependent on the data provided by the four main prediction exchanges (betting exchanges) to fuel their research, just like the heroin addicts are dependent on their dealer. The prediction market scholars will never, ever, ever, utter a word against the prediction exchanges. Remember: no prediction market data, no research, no academic career. The exception is Robin Hanson, who does not beg for data. The guy is a new institution designer (idea futures, decision markets, MSR, etc.).

#6. None of the prediction market commentators (whom you see blablating on this group blog and elsewhere) published a statement on the North Korea Missile controversy. The Midas Oracle readers should know that many of those fine blablaters have as a goal to get hired by one of the prediction exchanges (betting exchanges, futures exchanges). Of course, if you&#8217-re goal is to flatter exchange executives, then you won&#8217-t deliver the truth for your readers.

#7. John Delaney, CEO of the firm managing TradeSports-Intrade, insisted to let know to the general public (and the prediction market scholars) that Chris Masse lost $10,000.

#8. And I won&#8217-t mention the e-mail insults I received from Ireland.

#9. John Maloney, the mediocre, second-tier organizer of phone-booth, vendor micro-conferences (sponsored by TradeSports-InTrade) unleashed on Chris Masse, &#8220-the one-trick pony&#8221-.

#10. Contrary to BetFair, InTrade is unregulated in Ireland and TradeSports is unregulated in The Netherlands Antilles. It is thus impossible for the screwed-up traders to appeal to a higher authority. You will notice that the prediction market scholars, the bloggers and the journalists never mention this fact.

#11. Contrary to BetFair, both TradeSports and InTrade are not members of the Independent Betting Arbitration Service. It is thus impossible for the screwed-up traders to appeal to a higher authority. You will notice that the prediction market scholars, the bloggers and the journalists never mention this fact.

#12. Contrary to BetFair, both TradeSports and InTrade have a track record of screwing up traders. You will notice that the prediction market scholars and the journalists never mention this fact.

• TradeSports — SportsBook Review rating: C+ (Scale: A+ to F-) — Bookmakers Review rating: 3.5 / 5 —
• InTrade — SportsBook Review rating: C+ (Scale: A+ to F-) — Bookmakers Review rating: 3 / 5 —

#13. You will notice that when a big trader vents his frustration with TradeSports-InTrade (A Big Trader’s Open Letter to TradeSports-InTrade), the prediction market scholars, the bloggers and the journalists don&#8217-t follow up.

#14. You will also notice that when TradeSports-InTrade obviously screws up a prediction market (InTrade-TradeSports – Next Major Sportsbook to Withdraw from US), the prediction market scholars, the bloggers and the journalists don&#8217-t utter a word.

#15. Contrary to BetFair, both TradeSports and InTrade do not have a responsible gambling program. You will notice that the prediction market scholars, the bloggers and the journalists never mention this fact.

&#8212-

CFM and Midas Oracle tell the full truth on the prediction markets: the bright side AND the dark side. THANKS FOR YOUR SUPPORT.

Currency: FT$
Session lo/hi: 63.0 – 99.0
Life lo/hi: 47.0 – 99.0
Previous Close: 64.0
Open Price: 63.0
Last Price: 99.0
Last trade Time: 08:22 PM, IST
Today&#8217-s Volume: 532
Total Volume: 692

UPDATE: MIDAS ORACLE PROCLAIMS REPUBLICAN NICOLAS SARKOZY AS THE FRENCH PRESIDENT-ELECT.