- George R. Neumann
- Forrest Nelson
- Robert Forsythe
- IEM
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Photo Credit: Doug Benton – FishEye – for Scientific American magazine – Abstract
Meet the 3 Iowa Electronic Markets co-founders: George Neumann, Forrest Nelson and Robert Forsythe.
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Tag Archives: prediction markets
When Markets Beat The Polls – Scientific American Magazine
Via Mat Fogarty of Xpree (an innovative firm providing software for enterprise prediction markets), the Scientific American magazine on prediction markets –-”-When Markets Beat the Polls”-.
Ask me by e-mail to get a copy of the PDF file.
Abstract:
When Markets Beat the Polls– March 2008- Scientific American Magazine- by Gary Stix- 8 Page(s)
In late March 1988 three economists from the University of Iowa were nursing beers at a local hangout in Iowa City, when conversation turned to the news of the day. Jesse Jackson had captured 55 percent of the votes in the Michigan Democratic caucuses, an outcome that the polls had failed to intimate. The ensuing grumbling about the unreliability of polls sparked the germ of an idea. At the time, experimental economics–-in which economic theory is tested by observing the behavior of groups, usually in a classroom setting–-had just come into vogue, which prompted the three drinking partners to deliberate about whether a market might do better than the polls.
A market in political candidates would serve as a novel way to test an economic theory asserting that all information about a security is reflected in its price. For a stock or other financial security, the price summarizes, among other things, what traders know about the factors influencing whether a company will achieve its profit goals in the coming quarter or whether sales may plummet. Instead of recruiting students to imitate buyers or sellers of goods and services, as in other economics experiments, participants in this election market would trade contracts that would provide payoffs depending on what percentage of the vote George H. W. Bush, Michael Dukakis or other candidates received.
Robin Hanson had more.
Midas Oracle is incontestably [*] the best vertical portal to prediction markets.
Jeremy:
This site has more than you need to know about futures markets and the subtle point that they don’t predict but rather capture what people think will happen. Clear?
My dual strategy is paying off.
- Presenting a prediction market chart associated with an explainer about prediction markets on the blog frontpage —-on top of the daily posts, making the reading of this introductory material compulsory for our visitors.
- Publishing, again, the explainer on prediction markets on top of the page grouping the current prediction market charts. This “-predictions”- page has been the more popular material on Midas Oracle, these last 30 days.
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[*] Overcoming Bias and Freakonomics are not prediction market blogs. And they didn’-t take my challenge to comment on the BetFair Starting Prices.
Quake Markets
Markets offer us a potentially useful tool for predicting earthquakes. Imagine the San Andreas fault divided into segments, each of which carries a price based on the present discounted disvalue of a future quake. That price would reflect both a quake’-s place in time and its place on the Richter scale. Such a market in quake claims would probably generate some useful–-even lifesaving–-data. If sufficiently thick, it might offer hedging, too.
I’-ve not yet found that sort of quake market. Has any of you? If none exists, at least one should! Plenty of people and institutions would love to know more about earthquakes. Some of them would gladly support an earthquake market, I’-d bet. There remain some legal risks, granted, but I think I’-ve got a good hack for those. (Long story short: independent contractor researchers paid a base salary for making trades and winning bonuses for correct predictions.)
One nice thing about a quake market: Done right, it would generate powerfully positive externalities, benefiting even those who do not trade on the market. Imagine a map of the San Andreas fault, the price of each tradable segment illustrated by color coding or line thickness. One glance at that picture, and you would know whether it was time to relax, double-check your emergency kit, or head for the hills.
[Crossposted to Agoraphilia.]
The Betting King – The ATP Tour was his NASDAQ.
I am much more aligned with InTrade than you are, Chris.
That came from a margin trader [*] and prediction market blogger.
Well, if you practice (amateur or professional) journalism (which blogging is), then I don’-t see how you can be interesting to your audience if you are “-aligned”- with one prediction exchange in particular —-whether it’-s InTrade-TradeSports or BetFair-TradeFair. Journalism should be independent. Caveat Bettor, who is a great amateur prediction market journalist, and who overall supports InTrade-TradeSports, is not “-aligned”- with them. He makes up his own mind, and would occasionally disapproves an InTrade or TradeSports policy he can’-t stand. As a reader, I trust Cav. Mike Smithson is not “-aligned”- with BetFair. I trust Mike Smithson. In general, I trust any web editor and publisher who has an independent editorial line. (And if that blogger can foster diversity of opinion on his/her blog, that’-s better.) “-Aligned”-??? A blogger should be out of line.
[*] Margin traders and prediction market researchers are very much dependent from their prediction exchange, just like heroin addicts are from their dope dealer. They are at the mercy of the executive running the exchange. No trading data = no academic career in the field of prediction markets. Don’-t expect the full truth from addicts. And when a scandal breaks out, those academics plunge under their bed. (Robin Hanson is one of the rare exceptions, because he does not specialize in meta analysis. He is more a new-institution designer, and thus less dependent from the InTrade trading data than the other researchers. That doesn’-t make him a courageous white knight, though.)
Previous blog posts by Chris F. Masse:
- Robin Hanson wants to rule the world —just as CEOs and heads of states do for a living.
- Predictify got funded… Great for those who will be hired… But is it a good thing, overall?
- Nassim Nicholas Taleb likens modern-day financial markets to medicine in the 1800s, when going to a hospital in London or Paris multiplied your risk of death by four times, he says. Similarly, quants increase risk by deploying flawed financial tools designed to reduce it, he argues.
- TradeSports-InTrade — Check Deposits
- BetFair Australia fought for free trade across Australian state boundaries… and won.
Talking tax futures on BNN, Canadas business channel
Except for that stupid smirk, not terrible for my first t.v. appearance.
It’-s 23:45 minutes in, here.
Afterwards, I met some of the guys from CNBC’-s Fast Money, who were great. I wouldn’-t mind doing it again.
Taxes are the largest class of risk people dont hedge. Our Jason Ruspini (allied with InTrade) wants to change that.
Jason Ruspini, interviewed by Bloomberg:
Taxes “-are the largest class of risk people don’-t hedge,”- said Jason Ruspini, a New York hedge fund analyst who established the market, which began trading last week. “-Hopefully this year, with this election, there will be kind of an increased interest in this kind of thing.”- […] “-If Democrats are perceived as having a greater chance to get in the White House these tax contracts will go up,”- said Ruspini, who declined to identify his employer because the market he created isn’-t related to it. “-If McCain is elected they won’-t go up as much.”- […] Right now, the market exists only for the top marginal income tax rate. Ruspini said he plans to have secondary markets based on Social Security taxes and whether Congress can restrain the alternative minimum tax from raising levies on tens of millions of households. […] “-This is such a young field at this point,”- Ruspini said. “-Ten years from now, it’-s going to be a huge market. Whenever you have a contract where there’-s a lot of hedging utility, that tends to be a successful contract in the long run.”- […]
Congrats to Jason.
Go read the whole piece.
Previously: Tax Futures, “In Real Life” – by Jason Ruspini
Nokias Enterprise Prediction Markets = Competitive Advantage
Thus, the Nokia executives are pretty secretive about it. Bad luck for them, there’-s a group blog on the Web that specializes on prediction markets and that digs deep. 
So, here’-s an inkling into Nokia’-s enterprise prediction markets. The material was gathered from the World-Wide Web.
Maximilian Kammerer (Nokia’-s Vice President CMO Global Customer Care) – (PDF file):
What technologies did you need for real-time information feedback among people working in 120 different countries?
KAMMERER: One sample element within the whole system is the Nokia Care Information Market. Like a stock exchange with a Web-based platform, people deal with information derivatives. They wager on the success of new strategies, innovations, solutions and projects. If their estimates change—the prices change. The price index creates an enormous transparency. The effectiveness of information markets relies on the fact that the collective intelligence is higher then every individual intelligence—even than that at management levels. Having understood that, our strategic decision-making is no longer purely based on historical data or expert opinions but on the intelligence of all concerned.
Translation: Nokia is embracing James Surowiscki’-s wisdom of crowds. It’-s my understanding that it’-s the first time that that is said publicly by Nokia.
Now, let’-s dig a bit. This interview was posted on the website of “-1492“-, a consulting firm from Austria. Now, the good question is…- Which prediction market firm does supply “-1492″- with software and advice (which are resold to Nokia)? Suspense, suspense.
ANSWER: GEXID
Congrats to them.
As everybody knows in the field, prediction market firms very often have to sign NDAs before undertaking clients, which means that the public gets to know the names of those firms only when their clients allow this information to be published.
APPENDIX: Nokia is also listed as a client on Consensus Point’-s website.
Tax Futures, In Real Life
I am very pleased to announce the world’-s first tax futures on Intrade. I thank John Delaney and everyone there for their help and enthusiasm in getting these off the ground.
The contracts will forecast the highest marginal single-filer federal tax rates for 2009, 2010 &- 2011. I expect trade to be concentrated in the 2011 contracts, as Bush’-s 2001 tax cuts are scheduled to expire that year, reverting the rate in question from 35% to 39.6%, while the lower bracket rates each increase by 3%. While it is less likely, Congress may also alter the Bush tax cuts for tax years before 2011, but such changes would probably impact 2011 as well.
If reasonable liquidity can be sustained in these markets, I hope that contracts will be added to predict corporate taxes, and other factors that contribute to individual effective tax rates, like the Alternative Minimum Tax and the social security cap. Given the tremendous hedging utility of such markets, maintaining a liquid two-way market might be tricky, although there are some obvious ways for any market-makers to hedge what might become a position more short of taxes than usual.
Please read the last post on “-Policy Event Derivatives”- for some background on the potential benefits of such markets. I should add that while I am confident in their long-term value of making better group decisions and sharing risk, I am sensitive to some foreseeable pathologies, and don’-t want to give the impression of being too cavalier at this point. There are potential problems and side-effects stemming from the use of such markets that will be addressed later.
[Cross-posted from Risk Markets And Politics]
Previous blog posts by Jason Ruspini:
- My response to the CFTC on event contracts
- The CFTC safe-harbor option for event markets
- CFTC regulation and election contracts
- Asymmetry in Obama nomination market
- Prediction Markets: Powerful enough to be dangerous?
- 2009 tax futures yielding 1.5%
- Intrade, with carry