Tag Archives: prediction markets

Business Overconfidence as seen thru Googles Enterprise Prediction Markets

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Bo Cowgill:

At OVERCOMING BIAS, Robin Hanson blogs about the overconfidence of CEOs, CFOs and software managers. Our paper also measured overconfidence in the workplace. We found that our marketplace was overconfident as a whole, although the market&#8217-s optimistic bias subsided as time passed. We also pointed out the particular overconfidence exhibited by new employees &#8212- but prediction markets can be used to measure overconfidence and other biases for any part of an organization. Note that our study was about overconfidence regarding their employers&#8217- prospects on a variety of fronts. In a future draft, we hope to measure overconfidence for by looking at how people bet in markets related to their day-to-day jobs. In Table 9 of our paper, you can see some other information about what parts of the company produced the biases (although admittedly not in the most readable format).

Here&#8217-s the table 9. Right-click on the thumbnail to open it in another of your browser tabs.

Table9

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Related Links:

Using Prediction Markets to Track Information Flows: Evidence From Google – (PDF file – PDF file) – by Bo Cowgill (Google economic analyst), Justin Wolfers (University of Pennsylvania) and Eric Zitzewitz (Dartmouth College)

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

Fundamentals of Prediction Markets: Probabilities, Prediction Timescale, and Absolute & Relative Accuracy

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Jed Christiansen outputs the best explainer on prediction markets I&#8217-ve seen in years. Go read it.

– Fundamentals of Prediction Markets
– Different types of Prediction Markets
– Problem #1 – Understanding Probabilities
– Problem #2 – Prediction timescale
– Problem #3 – Assessing accuracy
– Problem #4 – Compared to what?
– Summary – How have the political prediction markets really performed?

No more anonymized trading data, please. State your source(s).

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I think that&#8217-s the takeaway from the BetFair blog fiasco.

My questions are still unanswered this morning. What data was used to concoct that dithyrambic write-up about the predictive power of the &#8220-betting markets&#8221- on the 2008 US primaries and caucuses (and in particular the Michigan race)? BetFair? If so, please, send me the expired charts. InTrade? Another source? A cocktail of sources? Please, cite everything, so we can check.

I will blog about this issue, every day, till it is resolved &#8212-one way or another. I&#8217-m resilient.

I&#8217-ll blog about this BetFair blog fiasco for the whole year of 2008, and more, &#8220-to infinity and beyond&#8221- (as said Buzz LightYear in Toy Story), if that&#8217-s what it takes to get answers from Hammersmith and Nottingham. Those folks are as voluble as yellow canaries, usually, when it comes to touting their wares. Cat got their tongue? What data did they use for their dithyrambic blog post? Is that so confidential?

Did the BetFair blog use trading data from InTrade to hint at BetFairs accuracy??

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Latest update on the BetFair blog fiasco

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I am alerted today that the BetFair blog has updated its infamous Michigan story with a new compound chart bearing a clearer label. It reads now:

Republican nomination – The race so far

I&#8217-ll have some comments, below the chart, but first a technical note. The new chart posted is a 527-KB BMP image. I have replaced it with a 32-KB JPG image. The BetFair blog is not run professionally. Any web publisher knows that images should be reduced to the max. That&#8217-s the ABC of web publishing. (And to add insult to injury, I noted previously the technical bizarrery that the two professor Leighton Vaughan-Williams&#8217-s stories never appeared in the BetFair blog feed.)

For you information, I have updated all my previous blog posts on the topic with an addendum re-publishing this new chart.

Compound chart - BetFair blog fiasco

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UPDATED ANALYSIS OF THE BETFAIR BLOG FIASCO:

  1. Professor Leighton Vaughan-Williams should have defined what he means by &#8220-betting markets&#8221-, in his story. In the past (see the addendum of that story), prof Leighton Vaughan-Williams used two types of cocktail &#8212-one including all betting markets (traditional bookmaker odds and exchange odds), one including only the BetFair odds. He should publish an addendum to his story defining exactly what he means by &#8220-betting markets&#8221-, this time.
  2. The BetFair blog editor should not have pasted a BetFair compound chart behind the writer&#8217-s back. It&#8217-s a big no-no in editing. Again, another proof (in a long list) that the Betfair blog is not run professionally.
  3. If a chart were to be inserted on top of LVW&#8217-s story (with his consent, we hope), it should have been the expired chart(s) of the Michigan primary, since that&#8217-s the heart of LVW&#8217-s story.
  4. The fact that the BetFair blog editor pasted (behind LVW&#8217-s back) a BetFair chart lead the readers (like Niall Or&#8217-Connor and me) to conclude that professor Leighton Vaughan-Williams means &#8220-the BetFair betting markets&#8221- when he writes about &#8220-the betting markets&#8221-. This is probably not the case, but nobody knows for sure &#8212-see my point #1 for the need of an explainer on this.
  5. Now, if professor Leighton Vaughan-Williams means &#8220-the BetFair betting market&#8221- (I assign a low probability on this scenario), then the story looks bad. The story is bullish on the fact that the Mitt Romney event derivative (for the Michigan primary) was predictive. The election-day chart that I published yesterday evening (and republished below) shows Mitt Romney being the favorite starting at 3:00 PM EST on election day&#8230- Kind of a stretch to claim victory for the BetFair betting markets. I&#8217-m still waiting for BetFair to send me the full, historical chart on the Michigan primary.
  6. BetFair should publish all expired charts &#8212-just like InTrade-TradeSports are doing. See my new page, re-publishing some important expired prediction market charts. That way, any controversy could be settled more quickly.
  7. With all due respect to him, it looks bad on professor Leighton Vaughan-Williams for giving his writings to a corporate blog where the publisher and editor&#8217-s names are not listed anywhere, and whose overall content quality is feeble &#8212-to say the least. Especially since we read the testimony of a furious Betair blog writer, who described the BetFair blog editor as anonymous, incompetent and tyrannical.
  8. Besides Niall O&#8217-Connor&#8217-s critical comments, professor Leighton Vaughan-Williams&#8217-s story on the BetFair blog has attracted a negative comment, calling his argument &#8220-questionable to say the least&#8220-, and asking (as I am doing on this current post) for more data to be published in an addendum.
  9. It looks bad on the BetFair management for publishing completely crappy stories like that. It damages the BetFair brand. I should tell my readers, though, that the BetFair-TradeFair managers (like Michel Robb, Tony Clare, Mark Davies, David Jack, Robin Marks, etc.) are highly professional, efficient, law-abiding, forward-looking, helpful, ethical, polite, and respectful. It is a real pity that the BetFair blog tarnishes BetFair&#8217-s reputation.
  10. Betair should focus on being a prediction market resource for journalists and bloggers. As of today, they still don&#8217-t provide on their website dynamic charts and expired charts.
  11. As I repeated many times on Midas Oracle, prediction market journalism is hard, complex and costly. It can&#8217-t be done by any living organism (hermaphrodite or not :-D ) simply equipped with a computer and an Internet connection.

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As an addendum, I re-publish here the election-day Michigan chart (on the Republican side). As I said, I&#8217-m still waiting for BetFair to send me the full, historical chart. You can see, on this Republican-side chart, Mitt Romney (in red) as the Comeback Kid &#8212-starting at 3:00PM EST on election day (that&#8217-s 8:00 PM, British time, on the chart).

Rep Michigan BetFair

For your information, here&#8217-s what professor Leighton Vaughan-Williams wrote. As I said, an explainer from him is needed to determine whether he means the &#8220-betting markets&#8221- in general (with, or without, BetFair included?) or the &#8220-BetFair betting markets&#8221-.

Professor Leighton Vaughan-Williams on the official BetFair blog:

[…] 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. […]

As for the InTrade &#8220-betting markets&#8221-, if that&#8217-s what professor Leighton Vaughan-Williams means (solely, or among others), they show a strong support for Mitt Romney in the last 2 days (which includes election day). Kind of a stretch to claim a victory for the &#8220-betting markets&#8221-. Also, it would be funny to have the (anynomized) InTrade data interpreted on the blog of another exchange (BetFair, a competitor of InTrade-TradeSports) to hint about the alleged strength and accuracy of the BetFair &#8220-betting markets&#8221-. That would be the last drop that breaks the water bucket. Another reason why professor Leighton Vaughan-Williams should come forward to explain what he means by &#8220-betting markets&#8221- in his story. Does he mean the &#8220-InTrade betting markets&#8221-???

(FYI, the Mitt Romney event derivative was expired to 100.)

MI Rep Romney

Psstt&#8230- Sounds like a vertical line is lacking on this chart&#8230- Look at the right end&#8230- Bizarre.

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NEXT: No more anonymized trading data, please. State your source(s).

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Prediction market sessions of the OReilly Money-Tech Conference suffer fatally from the absence of the worlds most knowledgeable, most innovative and most trustworthy prediction market expert.

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O&#8217-Reilly Money-Tech Conference – 2008-02-06~07

Predicting the Future of Prediction Markets + Google as Prediction Market

Wharton&#8217-s Justin Wolfers, Google&#8217-s Bo Cowgill, Inkling&#8217-s Adam Siegel, and Sean Park (representing Himself).

No more Robin Hanson. :(

Better to stay home watching a re-play of the December 2006&#8217-s Yahoo! Confab, where Robin Hanson does appear.

– Confab Yahoo! on prediction markets – Streaming Video: 100k – 300k – 2006-12-13

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UPDATE: Robin Hanson comments&#8230-

I was invited, but the date conflicted with a SETI conference I&#8217-ll be speaking at.

NIALL OCONNOR ATTACKS THE INTELLECTUAL HONESTY OF THE PREDICTION MARKET RESEARCHERS.

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Niall O&#8217-Connor (who maybe ate grilled snake for his Sunday morning breakfast :-D ):

The current trend to promote almost illiquid betting markets as being predictive, looks set to backfire bigstyle. In a nutshell, to date the so called &#8220-prediction markets&#8221- have called it wrong in New Hampshire (Democrats), Michigan (Republicans) and South Carolina (Republicans). Prediction market advocates, in many instances weighed down with the baggage of being too closely associated with the prediction market industry, are guilty of churning out subjective, biased research, in an attempt to promote the industry and lure traders into the markets. Unscientific comparisons are continually made between prediction markets and polls, and, moreover, markets are deemed to have been predictive, when all they have actually done is [respond] to the unwinding of the vote count. The publication of such utter garbage does nothing but a big disservice to the fledgling prediction market industry. Moreover, it is unfortunate that prediction market industry watchers, who purport to be independent and subjective, indulge the writers of such nonsense, in the process revealing themselves to be nothing more than placemen and sycophants of unquestioning loyalty. […]

Names, please, Niall.

  1. Who are those corrupted &#8220-prediction market advocates&#8221-?
  2. Who are those rotten &#8220-prediction market industry watchers&#8221-?

By the way&#8230- I will have the charts of the expired BetFair contracts, soon, I hope- and I will publish them here for all to see.

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

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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 Future of the Prediction Markets

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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.

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.

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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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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