The Big Picture on prediction markets:
These market mechanisms are hardly the Oracles of Delphi their supporters make them out to be.
Barry Ritholtz is entitled to his opinion —cherry-picking the prediction market failures and forgetting the successes. I prefer listening to Justin Wolfers, Eric Zitzewitz, Robin Hanson, Paul Tetlock, Koleman Strumpf, David Pennock, etc. They are great economists who have been studying the accuracy of prediction markets for years, and their opinion of them is largely positive.
Addendum: Event though I disagree with Barry Ritholtz on that one, I want to point out to my readers that I view him as a very correct man and a great blogger.
Addendum #2: Excerpt of the Justin Wolfers comment…
[...] Yes, markets are fallible. But I still prefer the least fallible forecasting institution. And in many domains, that appears to be prediction markets.
Addendum #3: If you want more of Barry Ritholtz…
It’s all about Chris Masse.
A quick response:
Ritholtz’s post attempts to create controversy, where frankly, there is none. Take Ritholtz’s comment seriously:
This is precisely the point! If markets do worse than the alternative then I choose the market. And sure, some things are hard to forecast, but I still would prefer the thing that does better.
And that is one of the main implications of recent research on prediction markets. Ritholtz ends up echoing precisely the findings he claims to be countering.
Yes, markets are fallible. But I still prefer the least fallible forecasting institution. And in many domains, that appears to be prediction markets.
Heh heh …
Saying that something “is hardly the Oracle of Delphi that so and so says it is” isn’t that uncommon. I doubt he was referring to MO.
Anyway, I think Ritholtz is exactly right. Although in the current regulatory environment, if the rest of society wants to think prediction markets are the Holy Grail, delineate between PMs and “gambling,” and thus make PMs completely above board, I have no problem with that.
It’s all about Justin Wolfers.
Chris: There’s actually an entire company taking aim at you, too. I saw their billboard on highway 101 the other day. I did some digging around — they’re called Oracle (obvious reference), lead by some wannabe named Larry Ellison. Stock quote here. Crazy how so many people are taking aim at you these days. Someone needs to tell this this “Larry Ellison” carpetbagger that he’ll never match your greatness.