Comments on: Prediction markets are forecasting tools of convenience that feed on advanced indicators. http://www.midasoracle.org/2008/01/09/prediction-markets-are-forecasting-tools-of-convenience-that-feed-on-advanced-indicators/ Prediction Markets For All Mon, 01 Dec 2008 21:15:34 +0000 http://wordpress.org/?v=2.6.5 By: Are the polls accurate? — Electoral college map prediction for the 2008 US presidential election | Midas Oracle .ORG http://www.midasoracle.org/2008/01/09/prediction-markets-are-forecasting-tools-of-convenience-that-feed-on-advanced-indicators/#comment-22321 Are the polls accurate? — Electoral college map prediction for the 2008 US presidential election | Midas Oracle .ORG Mon, 27 Oct 2008 22:21:37 +0000 http://www.midasoracle.org/2008/01/09/prediction-markets-are-forecasting-tools-of-convenience-that-feed-on-advanced-indicators/#comment-22321 [...] In passing, do spot, at the left bottom of the chart above, that the polls made during the Democratic primary race in New Hampshire were among those that over-predicted Barack Obama. You might remember that the prediction markets (whose traders feed on the polls) wrongly predicted the defeat of Hillary Cli.... [...] [...] In passing, do spot, at the left bottom of the chart above, that the polls made during the Democratic primary race in New Hampshire were among those that over-predicted Barack Obama. You might remember that the prediction markets (whose traders feed on the polls) wrongly predicted the defeat of Hillary Cli…. [...]

]]> By: Should we trust the polls? — Electoral college map prediction for the 2008 US presidential election | Midas Oracle .COM http://www.midasoracle.org/2008/01/09/prediction-markets-are-forecasting-tools-of-convenience-that-feed-on-advanced-indicators/#comment-22316 Should we trust the polls? — Electoral college map prediction for the 2008 US presidential election | Midas Oracle .COM Mon, 27 Oct 2008 22:17:31 +0000 http://www.midasoracle.org/2008/01/09/prediction-markets-are-forecasting-tools-of-convenience-that-feed-on-advanced-indicators/#comment-22316 [...] In passing, do spot, at the left bottom of the chart above, that the polls made during the Democratic primary race in New Hampshire were among those that over-predicted Barack Obama. You might remember that the prediction markets (whose traders feed on the polls) wrongly predicted the defeat of Hillary Cli.... [...] [...] In passing, do spot, at the left bottom of the chart above, that the polls made during the Democratic primary race in New Hampshire were among those that over-predicted Barack Obama. You might remember that the prediction markets (whose traders feed on the polls) wrongly predicted the defeat of Hillary Cli…. [...]

]]> By: Jason Ruspini http://www.midasoracle.org/2008/01/09/prediction-markets-are-forecasting-tools-of-convenience-that-feed-on-advanced-indicators/#comment-16639 Jason Ruspini Wed, 09 Jan 2008 14:48:10 +0000 http://www.midasoracle.org/2008/01/09/prediction-markets-are-forecasting-tools-of-convenience-that-feed-on-advanced-indicators/#comment-16639 In general, futures markets are "less futures markets than immediate-past markets". It is hard to evaluate the markets fairly given how difficult it is for someone in New Hampshire to participate in them. Naturally then, the markets more easily come to reflect the polls and national media - which were wrong in this case. (Here, the left-leaning media fell in love with Obama, while the right-leaning media happily went about trying to bury the Clinton "dynasty". Consider the tremendously misleading FOX NEWS clip that PoliticalBetting.com linked to over the weekend.) The legal situation also damages liquidity to the point where these markets are usually manipulated at the margin, as traders with momentum sense a rout and begin to engage in predatory trading, i.e. pushing prices to extremes to force capitulation and/or margin blow-ups. Dr. Servan-Shrieber's comment suggests that these market errors might persist even in modern regulatory regimes like Holland, and corroborates the excellent Erikson/Wlezien paper. Leaving aside the question of significance, Erikson and Wlezien have apparently found a market inefficiency, but since markets can take this into account (they are a "meta forecasting tool"), we should expect it to dissipate over time. In general, futures markets are “less futures markets than immediate-past markets”.

It is hard to evaluate the markets fairly given how difficult it is for someone in New Hampshire to participate in them. Naturally then, the markets more easily come to reflect the polls and national media - which were wrong in this case. (Here, the left-leaning media fell in love with Obama, while the right-leaning media happily went about trying to bury the Clinton “dynasty”. Consider the tremendously misleading FOX NEWS clip that PoliticalBetting.com linked to over the weekend.)

The legal situation also damages liquidity to the point where these markets are usually manipulated at the margin, as traders with momentum sense a rout and begin to engage in predatory trading, i.e. pushing prices to extremes to force capitulation and/or margin blow-ups.

Dr. Servan-Shrieber’s comment suggests that these market errors might persist even in modern regulatory regimes like Holland, and corroborates the excellent Erikson/Wlezien paper. Leaving aside the question of significance, Erikson and Wlezien have apparently found a market inefficiency, but since markets can take this into account (they are a “meta forecasting tool”), we should expect it to dissipate over time.

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