Comments on: Economies of scale in event markets? http://www.midasoracle.org/2006/11/27/economies-of-scale-in-event-markets/ Prediction Markets, etc. Thu, 02 Feb 2012 23:13:18 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Alex Forshaw http://www.midasoracle.org/2006/11/27/economies-of-scale-in-event-markets/#comment-270 Alex Forshaw Tue, 28 Nov 2006 05:46:30 +0000 http://www.midasoracle.org/2006/11/27/economies-of-scale-in-event-markets/#comment-270 Information relevant to an election = measurements of the crowd's aggregated preferences. Much of that data is unavailable to the public until days after it has been released to much better-informed private individuals, and even a poli junkie on steroids who subscribes to a bunch of private pollsters can't have access to nearly all the data, unless he's a staffer on a national campaign committee. I have no clue what the KO-PEP spread is, but metrics for elections are so diffuse for the vast majority of people (and often even for the top dogs on the campaign committees, too) that when a trader faces unexpected, large market movement, there is no way for him to disprove the "proof" that his position is quickly weakening. (Disproving the "proof" is what is psychologically required for a trader to add onto a losing position.) The less symmetric data is, the more diffuse it is--aren't we saying the same thing? Insider trading laws are stupid because they are trying to counter an inevitable flow of information. They are also pretty toothless--I have long viewed them as an extorting mechanism much more than an effective enforcer of any societal value. Information relevant to an election = measurements of the crowd’s aggregated preferences. Much of that data is unavailable to the public until days after it has been released to much better-informed private individuals, and even a poli junkie on steroids who subscribes to a bunch of private pollsters can’t have access to nearly all the data, unless he’s a staffer on a national campaign committee.

I have no clue what the KO-PEP spread is, but metrics for elections are so diffuse for the vast majority of people (and often even for the top dogs on the campaign committees, too) that when a trader faces unexpected, large market movement, there is no way for him to disprove the “proof” that his position is quickly weakening. (Disproving the “proof” is what is psychologically required for a trader to add onto a losing position.)

The less symmetric data is, the more diffuse it is–aren’t we saying the same thing?

Insider trading laws are stupid because they are trying to counter an inevitable flow of information. They are also pretty toothless–I have long viewed them as an extorting mechanism much more than an effective enforcer of any societal value.

]]> By: Jason Ruspini http://www.midasoracle.org/2006/11/27/economies-of-scale-in-event-markets/#comment-269 Jason Ruspini Tue, 28 Nov 2006 05:00:56 +0000 http://www.midasoracle.org/2006/11/27/economies-of-scale-in-event-markets/#comment-269 Insider trading laws are one reason why information aggregation in equities will be worse than in prediction market "securities". The manipulative attack scenario is more likely with the possibility of <i>concentrated</i> information, whereas insider trading laws aim for instant diffusion. I am also not sure why we would say that the information relevant to an election (ultimately, individuals' preferences) would be more diffuse than that relevant to the KO-PEP spread, for instance. Is the potential for manipulation best described by "diffusion" of information — or by potential asymmetry of information that encourages looking to price as one's best source of information? Insider trading laws are one reason why information aggregation in equities will be worse than in prediction market “securities”. The manipulative attack scenario is more likely with the possibility of concentrated information, whereas insider trading laws aim for instant diffusion.

I am also not sure why we would say that the information relevant to an election (ultimately, individuals’ preferences) would be more diffuse than that relevant to the KO-PEP spread, for instance. Is the potential for manipulation best described by “diffusion” of information — or by potential asymmetry of information that encourages looking to price as one’s best source of information?

]]> By: Alex Forshaw http://www.midasoracle.org/2006/11/27/economies-of-scale-in-event-markets/#comment-268 Alex Forshaw Tue, 28 Nov 2006 02:16:57 +0000 http://www.midasoracle.org/2006/11/27/economies-of-scale-in-event-markets/#comment-268 Of course, but the point is that equities fundamentals which traders are trading on are pretty well aggregated, so it's rather difficult for one security to simply run amok away from a baseline. These securities are an attempt to aggregate lots more diffuse information, and the aggregation of that information isn't well organized at all (the closest we have is the mainstream media, the least competitive industry in the United States). The more diffuse the information, the more powerful (in theory) price is as an indicator of market conditions, as opposed to fundamentals. That, at least, is my theory. Of course, but the point is that equities fundamentals which traders are trading on are pretty well aggregated, so it’s rather difficult for one security to simply run amok away from a baseline. These securities are an attempt to aggregate lots more diffuse information, and the aggregation of that information isn’t well organized at all (the closest we have is the mainstream media, the least competitive industry in the United States).

The more diffuse the information, the more powerful (in theory) price is as an indicator of market conditions, as opposed to fundamentals. That, at least, is my theory.

]]> By: Jason Ruspini http://www.midasoracle.org/2006/11/27/economies-of-scale-in-event-markets/#comment-267 Jason Ruspini Mon, 27 Nov 2006 23:05:20 +0000 http://www.midasoracle.org/2006/11/27/economies-of-scale-in-event-markets/#comment-267 And when traders are unlikely to themselves have any (marginal) information, the price becomes their best signal of future prices. This is known in mature markets as "technical analysis" (more-or-less). I don't think the experiments that Robin Hanson and others did included scenarios where price fed back into traders' clues. This happens pervasively in established markets, although in those cases the meaning of the price isn't as explicit as one tied to small number of outcomes. Anyway, the price is back down to 57ish, which is only a point or two higher than where it recently spent two weeks. And when traders are unlikely to themselves have any (marginal) information, the price becomes their best signal of future prices. This is known in mature markets as “technical analysis” (more-or-less). I don’t think the experiments that Robin Hanson and others did included scenarios where price fed back into traders’ clues. This happens pervasively in established markets, although in those cases the meaning of the price isn’t as explicit as one tied to small number of outcomes.

Anyway, the price is back down to 57ish, which is only a point or two higher than where it recently spent two weeks.

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