10 comments (including our Mike Linksvayer )

Iowa Electronic Markets (IEM) is a bad US monopoly on political event derivatives / prediction markets.
http://www.midasoracle.org/2007/04/24/iowa-electronic-markets-iem-is-a-bad-us-monopoly-on-political-event-derivatives-prediction-markets/

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Jason Ruspini and Bo Cowgill’s takes are pertinent.

Bo Cowgill’s comment:
http://www.midasoracle.org/2007/05/07/statement-on-prediction-markets/#comment-15556

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I would favor a “Creative Commons” license for this kind of petition, next time.

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Economists Speak Out on Prediction Markets
by Steven D. Levitt on 08 May 2007
http://www.freakonomics.com/blog/2007/05/08/economists-speak-out-on-prediction-markets/

Steve Levitt of Freakonomics: I WON’T SIGN YOUR PETITION, BOB.
http://www.midasoracle.org/2007/05/08/steve-levitt-of-freakonomics-i-wont-sign-your-petition-bob/

Chris Masse’s comment on the Freakonomics blog post about the legality of US prediction markets
http://www.midasoracle.org/2007/05/08/chris-masses-comment-on-the-freakonomics-blog-post-about-the-legality-of-us-prediction-markets/

PREDICTION MARKET PETITION: Robin Hanson vs. Steve Levitt
http://www.midasoracle.org/2007/05/09/prediction-market-petition-robin-hanson-vs-steve-levitt/

The limitations of logic (and the need for passion)
http://www.midasoracle.org/2007/05/10/the-limitations-of-logic-and-the-need-for-passion/

Safe Harbor Letter too Timid – by Chris Hibbert
http://www.midasoracle.org/2007/05/10/i-can-see-why-they-limited-their-goals-as-they-did-and-i-agree-that-everything-they-advocated-should-be-legal-but-i-think-they-may-have-limited-their-objectives-just-enough-to-prevent-any-big-wins/

Bob Hahn turns the PETITION into a CONSENSUS.
http://www.midasoracle.org/2007/05/11/bob-hahn-turns-the-petition-into-a-consensus/

Squawk on Prediction Markets – by Tom W. Bell
http://www.midasoracle.org/2007/05/16/squawk-on-prediction-markets/

Should AEI-Brookings have allowed Midas Oracle to re-publish the text of the economists’ petition on prediction markets?
http://www.midasoracle.org/2007/08/02/should-aei-brookings-have-allowed-midas-oracle-to-re-publish-the-text-of-the-economists-petition-on-prediction-markets/

But if I thought IEM was worth my time, I could have finagled my way into it, probably. It’s easier to end-run around the whole bureaucratic morass and go to a sensibly liberalized exchange. I think you will see a lot of little “not for profit” prediction markets that will asphyxiate due to stifling of personal and managerial incentives.

Making a case to a bunch of self-important regulators is hard enough without having to justify prior failures.

The statement does not seem to be directed at the CFTC since they are already familar with the arguments and have already ruled-out a no-action decision, though it might re-open a conversation.

As you said, this is a start, in their views.

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I agree with you on the public prediction markets, but not on the corporate prediction markets.

We have already talked about why that doesn’t work. Internal PMs are fashion statements by companies that want to look edgy and on the bleeding edge, but they never amount to much, because a company ALREADY functions as a prediction market by its existence: it aggregates information from participants and pays them for it. Unless the company is a colossus with huge separation between management and employees (in other words, inefficient), internal PMs are redundant 90% of the time.

The point of a public PM is that an individual company knows it’s not omniscient, so it entices anonymous _outsiders_ to bring their information to the table, as well. Aggregating information is the *job* of the company’s employees.

But why “not for profit”???

Liquidity is an economy of scale. It requires a lot of investment before it begins to show results. You don’t encourage people to put in that kind of work without the possibility of handsome rewards. Nobody is going to toil away, building market infrastructure, providing tech support, advertising their market to expand their trader base and so on, when profit is basically banned.

This is the entire problem with IEM. Their noble little “small stakes, not for profit” enterprise has crappy predictive power compared to BF and Intrade, whose liquidity still sucks, but at least the for-profits have enough pooled money to add SOME value.

Again: prediction markets are good at aggregating complex, diffuse information. But no individual is going to go through the work of aggregating complex, diffuse information unless s/he’s rewarded for that work. IEM’s ivory-tower, profit-is-bad approach basically slams the door to aggregating any information worth more than the size of the deposit.

The IEM approach is not workable. It will give birth to a lot of tiny pools of capital which will not reward information discovery. Then, the next group of people that wants to expand the scope of prediction markets will have to justify the subperformance of the IEM model, on top of all the other idiotic “protect the dumb little guy, to hell with innovation” excuses that have strangled PMs in the United States thus far.

I “guess” this is better than nothing, but it’s infuriating nonetheless.