Over on Oddhead Blog, I give a lengthy pitch for linear programming as the “-right”- way to implement a multi-outcome prediction market.
I argue that the simplest and most common approach —- to treat a multi-outcome market as a bunch of independent single-outcome markets —- is wrong, even though it’-s the approach taken by most prediction markets, bookmakers, and financial exchanges.
I also argue that
- IEM’-s implementation is one of the worst
- Intrade’-s is slightly better but not much
- Newsfutures’-s and Chris Hibbert’-s phantom bids approach is even better
- A host of people* hit on the best approach, many well before I did, advocating linear programming as a natural matching engine for multi-outcome markets
|  - | *Including Baron, Bossaerts, Chen, Economides, Fine, Fortnow, Kilian, Lange, Ledyard, Nikolova, Pennock, Peters, So, Wellman, and Ye. |