The Wisdom of the Prediction Market Creator

Chris F. Masse December 4th, 2006

A short thought.

#1. Jonathan Gewirtz (the owner of Chicago Boyz dot net, a group blog on US politics, history and free-market policies) wants to set up a prediction market on whether the European Union will break up. This is not a completely bad idea. However, if I may suggest something, I would rather see a prediction market on a possible Iraq partition —or whether the so-called “coalition forces” will leave Iraq soon. Seems more important and more urgent.

#2. Commodity prices have been up. And uranium price, too —7 bucks a pound in 2000; 60 bucks today. I think that, a long time ago, prediction exchange managers should have created prediction markets helping us forecasting our energy future.

—

My Point: We spend time debating the accuracy of the political prediction markets. Good. Interesting. Productive. However, in my view, we should ALSO spend time discussing what makes a good prediction market creator. I mean by “PM creator”, the prediction exchange manager who structures the contract. (I would leave the word “design” for anything related to the market mechanism specifics, like CDA or MSR.)

I see seriousness and professionalism at HedgeStreet —but I don’t see many traders there. I see many traders at BetFair and TradeSports —but I don’t see many socially relevant prediction markets there.

At this point, I’m a bit pessimistic. Commercial prediction exchanges are focusing on sports and politics prediction markets, because these contracts are easy to structure and judge —and because they are profitable.

At the contrary, the socially relevant prediction markets are EXTREMELY difficult to craft —and each time that TradeSports makes an attempt, it gets burnt at the third degree.

Socially relevant prediction markets requires special ability —their creators should have general knowledge of our global civilization, vertical skills about thinly traded markets, and internet marketing skills. Scarce skills, alas.

Maybe Robin Hanson’s MSR and the concept of user-created PMs could help —”maybe”, I said. Do you see another concept that could help?