Emile Servan-Schreiber’s claim:
In the comparative chart below, it appears that NewsFutures play-money traders called the Democratic-House outcome earlier and more decisively than Tradesports’ real-money traders. (This snapshot was taken on the morning of Nov 6, on the eve of election day.)
Look, the notion of placing ‘play money’ on the same plane as real money in a market is laughable. There’s no penalty for bad forecasts. Just look at the irrational collapse in NF prices in mid July–if that had been based on genuine news, that person would have made money on it in real markets.
Servan-Schreiber’s claim is equivalent to arguing that “play-money poker is better poker than real poker.” It’s absurd on its face.
Dear Alex,
If you can’t argue with data, try laughing at it… Is that what they teach you at Notre Dame? Hopefully, by the time you graduate, one of your professors will have taught you better. In the meantime, my personal advice would be to start reading some of the prediction market science & practice litterature before using another irrelevant poker metaphore in a public space.
–Emile
Mr Servan-Schreiber:
If your play-money traders had such better information access, or were such better aggregators of public information than the TS market, why didn’t they reward themselves by arbitraging down the inflated TS price? Why didn’t you?
–Alex
If the play-money was linked to the player’s reputation, then loss or gain of reputation would be enough penalty/reward to incentivise players against recklessness and towards better quality estimates. That said, there is scope for sacrifice of sock puppet shills, but then there are probably monetary equivalents anyway (notwithstanding regulation against insider trading, etc.).
I would have it set up such that new players started off with a balance of zero – perhaps this is already the case?
I would also enable players to offer a brokerage service – perhaps they already can?
Yeah…I don’t know about NF’s rewards to people who get it right, but if you don’t have a punishment for wrong decisions, you’re going to get more wrong decisions. A simple betting exchange a la TS is the optimal balance between rewarding good behavior and punishing bad behavior.
And notwithstanding my presumed unfamiliarity with prediction markets literature, if Mr Servan-Schreiber were as confident about his exchange’s information integrity as his marketing suggests, he wouldn’t have passed up the obvious arbitrage potential shown by that graph. He could have made hundreds of thousands, potentially millions of dollars in very little time, just on Tradesports. (Not to mention options and derivatives of companies and sectors that profit from Republican subsidies, vs. those that profit from Dem subsidies.)
Or maybe he thinks there might be other explanations (such as a more pro-Democratic group of traders) that have greater explanatory power.