BetFair’s Global Warming Prediction Markets — CFM’s Views

Chris F. Masse November 29th, 2007

GOOD NEWS: BetFair-TradeFair are minding the prediction markets.

BAD NEWS: There is a bunch of chaps at BetFair who are monkeying around with the concept of prediction markets.

—

THEIR INTENT IS NOBLE.

Mark Davies, Betfair’s Managing Director Corporate Affairs, said:

Whilst these climate markets are experimental, they demonstrate a commitment to use our assets to innovate and make a difference.

If sincere (as I take it), then their statement may have been inspired by the mission statement of the original starship Enterprise.

Space, the final frontier. These are the voyages of the starship Enterprise. Its five-year mission: To explore strange new worlds. To seek out new life and new civilizations. To boldly go where no man has gone before.

—

IMPACT OF THEIR PRESS RELEASE

So far, 8 days after their P.R. output, only 2 web publications took the bait. [UPDATE: 7.] Does not strike me as an intergalactic success.

—

ANALYSIS OF THEIR GLOBAL WARMING PREDICTION MARKETS

#1. Their choice of the term “decision markets” is not appropriate, here.

Decision markets are conditional prediction markets intended (by some idealists) to be used as a decision-making tool replacing human decision makers.
Decision-aid markets are conditional prediction markets intended to be used as a decision-aid tool advising human decision makers.
Prediction markets are markets for contracts that yield payments based on the outcome of a partially uncertain future event. That’s what those BetFair climate markets are, actually.

#2. Their intended clientèle is imaginary. Their press release said:

This is the ideal place for experts, academics, businesses and interested parties to put money behind their views on long-range forecasts.

The thinking that socially valuable prediction markets (long-term, or not) are for the deep thinkers and the decision-makers is the most common mistake I see among the wannabes in our field. The prospects for any event derivatives are always of the same two species: the casual bettors and the sophisticated traders. (Beware of the economists who propose those markets; they don’t trade, wrote Steve Levitt of Freakonomics.)

#3. Out of their 3 event derivatives on global warming (HSBC Investable Climate Change Index, ECX CFI Futures Contract, and Highest and Lowest UK Temperature), the first two, at least, are flawed products.

Absence of advanced indicators that the market makers can follow to inform their trades;
Absence of polarizing subjectivity prompting the casual bettors and lite traders to perform uninformed transactions.

No wonder that the HSBC and ECX prediction markets have seen no trade, so far. (As for the temperature prediction markets, only 33 US bucks have been put in there.)

#4. My prediction is that the first two BetFair Global Warming prediction markets (HSBC Investable Climate Change Index and ECX CFI Futures Contract) will fail miserably.

#5. MY CONCLUSIONS:

From the above, it seems that BetFair are aware, internally, that they should aim at the elites who value the prediction markets.
They did not hire the best, or did not assign the best to this problematic.
There is a wall between BetFair’s betting exchange approach and our prediction market approach (adopted by InTrade). This wall should be torn down —for the good of both parties.
BetFair shall complement their traditional marketing with our prediction market branding. The only way is to focus on the prediction market science and the people who produce it —our good friends the US-based economists (like Eric Zitzewitz et al.).

—

APPENDIX

HSBC Investable Climate Change Index - PDF file

European Climate Exchange

BetFair’s Global Warming prediction markets: HSBC Investable Climate Change Index, ECX CFI Futures Contract, and Highest and Lowest UK Temperature.

—

NEXT: PIECE OF EVIDENCE #2 THAT BETFAIR-TRADEFAIR ARE MINDING THE PREDICTION MARKETS.

NEXT: InTrade’s global warming prediction markets are more socially interesting than BetFair’s ones.

Tags: BetFair, climate change, global warming