Here’s how NewsFutures states what is the outcome regarding whether Harry Potter is still alive at the end of The Deathly Hallows, and how it has expired this Harry Potter event derivative:

Market Closed
Harry Potter is alive and well at the end of the book. All HPLIVESY contracts in players’ portfolios have been converted to X$100 each.

This expiry judgment is too elliptic. Where are the supporting evidence? The NewsFutures expiry manager has probably read the end of the book, but he/she should make the effort to state the details.

QUESTION: What would have been the NewsFutures expiry judgment if J.K. Rowling had written in the epilogue that Harry Potter dies as a happy man at an old age? In my view, she would have been able to write a sequel (since Harry is still a young man at this time), and thus Harry Potter would have been “alive” in my view. And, in this hypothesis, NewsFutures would have had an expiry problem on its hands since the contract statement is very vague.

All this shows to me that the field of prediction markets is run by amateurs not up to the task.

Previous: THE FATE OF HARRY POTTER IN J.K. ROWLING’S 7TH BOOK, THE DEATHLY HALLOWS: prediction market vs. bookmaker

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ADDENDUM: Michael Giberson’s comment on my previous blog post…

1. I endorsed the view expressed by Wolfers and Leigh, that “the presence of highly informed insiders will tend to drive out the partly-informed public.” I anticipated that this influence would hamper attempts at creating real-money markets, but didn’t think separately about the relationship to play-money exchanges at the time. Now, having thought about that angle, I don’t think that this force would be such a problem for play-money markets. I can’t see an “insider” risking much for the chance to clean up big in a play-money market.

2. “These fictional worlds do not produce widely dispersed bits of information that can be usefully aggregated by a market.” I think I was wrong on this point. Clearly not any assemblage of words could stand in as the 7th book in that series, but rather Rowling would likely feel constrained in many ways because of what she had written in the past. (The book would be about a character named Harry, he’d be a 17-year old wizard, etc.) While I remain pretty sure that we don’t have a good sense of, say, the relevant probability distributions necessary to make good estimates, that point doesn’t mean that a market can’t aggregate widely dispersed bits of information.

3. “But if you are an investor trying to maximize long term returns and have no inside information, this is a case where Kelly’s criterion for betting comes into play.” Still true. Well, maybe I’d say “have no edge” rather than “have no inside information.” Having backed up a bit in point 2, I suppose I should allow that a skilled reader could have an edge not tied to inside information. But if you are not a skilled reader of fantasy, and don’t have some other edge, then you are better off in the long run in such situations if you keep your wallet in your pocket.

By the way, Chris, I was briefly “invested” in a Harry Potter market at the play-money Inkling market. I only dropped out, a few days before the book release, because I didn’t want to inadvertently receive a spoiler in the form of a “market closed” email. Clearly, in a play money exchange, I am not acting as “an investor trying to maximize long term returns.” Instead, I’m just trying to have fun (and learn a few things about prediction markets).

UPDATE: Emile Servan-Schreiber of NewsFutures…

The closing statement is not elliptic at all, it is straight to the point. The supporting evidence is public information as revealed to anyone with access to a copy of the book (and that’s too obvious to merit a mention). If, based on that evidence, anyone disagrees with the closing statement, they are free to bring it up for our review. But in this particular case, there is just no room whatsoever for disagreement, and therefore no need to elaborate on a very clean outcome.

NEXT: The NewsFutures expiry judgment statements should not be elliptic.