Dion Hinchcliffe on applying the concept of “-Enterprise 2″-:
I’ve witnessed prediction markets in particular become enormously popular in the last year or so as enterprises seek to better tap into the cumulative wisdom of their workers.
If only 5% of the Fortune-500 firms are currently experimenting with an internal prediction exchange (betting exchange), then you shouldn’-t use the words…- “-enormously popular”-…- yet.
Wikipedia:
A network effect is a characteristic that causes a good or service to have a value to a potential customer which depends on the number of other customers who own the good or are users of the service. In other words, the number of prior adopters is a term in the value available to the next adopter.
One consequence of a network effect is that the purchase of a good by one individual indirectly benefits others who own the good — for example by purchasing a telephone a person makes other telephones more useful. This type of side-effect in a transaction is known as an externality in economics, and externalities arising from network effects are known as network externalities. The resulting bandwagon effect is an example of a positive feedback loop. […]
Network effect business examples
Financial exchanges
Stock exchanges and derivatives exchanges feature a network effect. Market liquidity is a major determinant of transaction cost in the sale or purchase of a security, as a bid-ask spread exists between the price at which a purchase can be done versus the price at which the sale of the same security can be done. [*] As the number of buyers and sellers on an exchange increases, liquidity increases, and transaction costs decrease. This then attracts a larger number of buyers and sellers to the exchange.
The network advantage of financial exchanges is apparent in the difficulty that startup exchanges have in dislodging a dominant exchange. For example, the Chicago Board of Trade has retained overwhelming dominance of trading in US Treasury Bond futures despite the startup of Eurex US trading of identical futures contracts. Similarly, the Chicago Mercantile Exchange has maintained a dominance in trading of Eurobond interest rate futures despite a challenge from Euronext.Liffe. […]
[*] Niall O’-Connor should report on bid-ask spreads, not just on dollar value of matched bets, when comparing BetFair with its competitors.
I think so*, although it could be a matter for states to decide, and not so much the federal government. In that scenario, my thought is that some liberal (in the classic sense) states will allow experimentation with prediction markets, and the informational value (at least over surveys and polls) will eventually sweep the nation. But that could take decades.
I was thinking about the constitutionality of prediction markets when reading Gary McDowell’-s “-The War For the Constitution”-:
Warren Burger summed it up for many when he described Mr. Bork as simply the best qualified nominee in the former chief justice’-s own professional lifetime —- a span of years that included the appointments of such judicial luminaries as Benjamin Cardozo, Hugo Black and Felix Frankfurter. Such praise was no empty exaggeration.
A former Yale law professor and U.S. Solicitor General, Mr. Bork was, at the time of his nomination, a judge on the United States Court of Appeals for the District of Columbia Circuit. When he was a circuit court judge, Mr. Bork’-s opinions not only were never overruled on appeal, but on several occasions his dissents were adopted by the Supreme Court as its majority view.
In an earlier day such an appointment would have been celebrated as adding breadth, depth and luster to the highest bench. Instead, the nominee faced a mauling by those who set out not only to destroy him personally but to discredit all that he stood for as a jurist.
It was immediately clear that the unprecedented vote of 58-42 against his confirmation reflected something far more historic and fundamental than an ordinary partisan standoff. The confrontation in fact had been one of the most cataclysmic and divisive events in American domestic politics during the second half of the 20th century. The reason was that Mr. Bork’-s opponents succeeded in making the fight over his nomination into a contest over the future of the Constitution.
* * *
Time has shown that Mr. Bork’-s theory of constitutional interpretation remains very much alive- he was defeated but his central idea was never discredited. That theory of interpretation and its implicit belief in restrained judging should continue to guide anyone who believes that the inherent arbitrariness of government by judiciary is not the same thing as the rule of law.
One thing that is more scary than irrational voters is whimsical judges. And I know a few, personally.
*Off the top of my head, free speech and peaceful assembly seem to enable our rights to prediction markets.
UPDATE: Chris Masse linked prediction markets to the right to privacy here last year. I’-m not sure that is as relevant as speech and assembly–-the whole point being prices from prediction markets is a public good (even as I concede that the anonymity of traders improves prices). But what do I know–-I’-m not an attorney or judge, just someone who knows a lot of them.
UPDATE: Tom Bell, on the Constitution’-s call for progress in science and arts.
UPDATE: Alvin Roth, on the repugnance of markets (including prediction markets in terror). This reframes my point–-constitutional repugnance is good, fleeting cultural repugnance is irrelevant. Just as slavery markets were not repugnant yesterday (but unconstitutional), so prediction markets are repugnant today (but constitutional)!
Cross posted from Caveat Bettor.
Read the previous blog posts by Caveat Bettor: