Monthly Archives: February 2008

OSCARS 2008: The Hollywood Stock Exchange has been more accurate than InTrade.

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&#8230- dixit James Surowiecki (commenting on Felix Salmon&#8217-s post):

Interesting. The Hollywood Stock Exchange, not surprisingly, did better [than InTrade]. Cotillard was, as at Intrade, a comfortable second favorite. But so too was Swinton &#8212- in fact, she was even more of a second favorite, as her price was very close to Blanchett&#8217-s when the market closed. In fact, if you look at her chart:
http://movies.hsx.com/servlet/SecurityDetail?symbol=A8TSW

it&#8217-s hard not to conclude that the market was really incorporating new information in the week leading up to the ceremony.

I didn&#8217-t follow the Hollywood Stock Exchange [*] (or even BetFair) closely for the Oscars 2008, but here are InTrade&#8217-s expired event derivatives (event futures):

Best Picture

Best Director

Best Actor

Best Actress

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[*] UPDATE: HSX claims a 75% success rate.

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Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that traders bring when they agree on prices. Prediction markets are meta forecasting tools that feed on the advanced indicators (i.e., the primary sources of information). Garbage in, garbage out&#8230- Intelligence in, intelligence out&#8230-

A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays $100 only if candidate X wins the election, and $0 otherwise. When the market price of an X contract is $60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative can be interpreted as the objective probability of the future outcome (i.e., its most statistically accurate forecast). A 60% probability means that, in a series of events each with a 60% probability, then 6 times out of 10, the favored outcome will occur- and 4 times out of 10, the unfavored outcome will occur.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism.

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Linear Programming – Combined Value Trading – Parimutuel Call Market – Combinatorial Call Markets

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David Pennock:

[…] Each order is associated with a decision variable x that ranges between 0 and 1, encoding the fraction of the order that the auctioneer can accept. There is one constraint per outcome that ensures that the auctioneer never loses money across all outcomes. The choice of objective function depends on the auctioneer’s goals, but something like maximizing the fill fraction makes sense.

Once the program is set up, the auctioneer solves for the x variables to determine which orders to accept in full (x=1), which to accept partially (0&lt-x&lt-1), and which to reject (x=0). The program can be solved either in batch mode, after waiting to collect a number of orders, or in continuous mode immediately as new orders arrive. Batch mode corresponds to a call market. Continuous mode corresponds to a continuous auction, a generalization of the continuous double auction mechanism of the stock market.

Each order consists of a price, a quantity, and an outcome bundle. Traders can just as easily bet on single outcomes, negations of outcomes, or sets of outcomes (e.g., all Western Conference NBA teams). Every order goes into the same pool of liquidity no matter how it is phrased.

Price quotes are queries to the linear program of the form “at what price p will this order be accepted in full?” (I believe that bounds on the dual variables of the LP can be interpreted as bid and ask price quotes.) […]

Go reading all the post. There is a bunch of good comments&#8230- the best was submitted by Mike Giberson&#8230-

The concept of probabilistic prediction explained to the journalists and bloggers

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HubDub:

How to quote Hubdub

As well as being a fun place for people to make their own predictions, Hubdub also provides real value to anyone looking for numerical forecasts of the way a news story will turn out. At its core, Hubdub is a prediction market, which means the probabilities given for any of the hundreds of news stories we track are a combination of the thousands of pieces of information brought to bear on each question by our users. While Hubdub is still a young service building a track record of the accuracy of its forecasts, similar prediction markets (both play and real money) have found a very strong relationship between the forecast chances and reality. When quoting one of our forecasts, the correct terminology is to describe the percentage as a &#8220-percent chance&#8221- or &#8220-probability&#8221-, not what a percentage of our users think, as this is not what is measured. For example, &#8220-Hubdub is forecasting that Obama has a 67% chance of getting the nomination&#8221- is correct, whereas &#8220-67% of Hubdub users forecast that Obama will win the nomination&#8221- is incorrect. If in doubt please contact us.

Freakonomics did not quiz Bo Cowgills boss, Hal Varian, on prediction markets -triple alas.

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No GravatarHal Varian, Google’s Chief Economist

Freakonomics interview. (I did ask, but they didn&#8217-t listen.)

Hal Varian&#8217-s post.

Read the previous blog posts by Chris F. Masse:

  • OutReach
  • If Warren Buffett can’t figure out derivatives, can anybody?
  • Many people twitter on prediction markets.
  • Folks, when you have something important to say, write up a full post, not a comment.
  • Prediction Market Journalism
  • TechCrunch is 221 times bigger than Midas Oracle.
  • Earthquake measuring 9.0 or more on Richter scale to occur anywhere on or before December 31, 2008

2009 tax futures yielding 1.5%

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The &#8220-&gt-34&#8243- contracts are being offered at 96. If you discount the possibility of the marginal tax rate for that year being below 34%, this is an annual yield of about 1.5%, after transaction fees. The 2010 &#8220-&gt-34&#8243-s are paying around 1.35% and the 2011s, 1.2%. Buying any of those allows you to sell higher contracts on the ladder at reduced margin, as described before.

A possible trade that stands out on the board is to sell the 2010 &#8220-&gt-36&#8243-s in the high 70s and buy the 2010 &#8220-&gt-38&#8243-s for 50. I don&#8217-t see how a spread of 30 is warranted there, as any legislation that accelerates the Bush tax cuts sunset will likely put the highest marginal rate at 39.6%, higher than 38% at least. That is, I think the market&#8217-s implied probability of the rate ending-up in the 36-38 bin is too high. This trade would make roughly a 39% return on frozen margin, which could be improved to 50% by additionally buying the &#8220-&gt-34&#8243-s at 95. (unannualized)

Comments are now completely open on Midas Oracle.

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No GravatarI have been fighting comment spammers for weeks, and I think I&#8217-ve finally found the right combo:

  1. I don&#8217-t use &#8220-Askimet&#8221- anymore (it constantly sent my own comments in the spam area!!!)-
  2. I use &#8220-Bad Behavior&#8221- (it protects this blog from naughty spambots)-
  3. I use &#8220-Peter&#8217-s Math Anti-Spam Image&#8221- (it makes sure the commenter is a human being and not a spambot)-
  4. I use &#8220-WP AJAX Edit Comments&#8221- (it allows commenters to edit their comments, post publication)-
  5. I use &#8220-Subscribe To Comments&#8221- (it allows commenters to receive e-mail notifications of new comments to a post)-
  6. I use &#8220-NoFollow Free&#8221- (it allows the commenters&#8217- links to be computed by the Google PageRank system)-
  7. I use &#8220-TinyMCEComments&#8221- (it puts a visual editor in the comment area)-
  8. I use &#8220-WordPress Gravatars&#8221- (it shows off the face pictures of our blog users).

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Read the previous blog posts by Chris F. Masse:

  • GLOBAL COOLING
  • Sikorsky X2 = coaxial main rotors + rear-facing tail rotor
  • Linear Programming – Combined Value Trading – Parimutuel Call Market – Combinatorial Call Markets
  • Cash Rewards for Innovations
  • Let’s blog and dig about the Future.
  • OSCARS 2008: The Hollywood Stock Exchange has been more accurate than InTrade.
  • Right-click on the image below, open the link in another browser tab, and click on “OK”… to subscribe to InTrade’s iGoogle widget.

Midas Oracle is incontestably [*] the best vertical portal to prediction markets.

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Jeremy:

This site has more than you need to know about futures markets and the subtle point that they don’t predict but rather capture what people think will happen. Clear?

My dual strategy is paying off.

  1. Presenting a prediction market chart associated with an explainer about prediction markets on the blog frontpage &#8212-on top of the daily posts, making the reading of this introductory material compulsory for our visitors.
  2. Publishing, again, the explainer on prediction markets on top of the page grouping the current prediction market charts. This &#8220-predictions&#8221- page has been the more popular material on Midas Oracle, these last 30 days.

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[*] Overcoming Bias and Freakonomics are not prediction market blogs. And they didn&#8217-t take my challenge to comment on the BetFair Starting Prices.

Quake Markets

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Markets offer us a potentially useful tool for predicting earthquakes. Imagine the San Andreas fault divided into segments, each of which carries a price based on the present discounted disvalue of a future quake. That price would reflect both a quake&#8217-s place in time and its place on the Richter scale. Such a market in quake claims would probably generate some useful&#8211-even lifesaving&#8211-data. If sufficiently thick, it might offer hedging, too.

I&#8217-ve not yet found that sort of quake market. Has any of you? If none exists, at least one should! Plenty of people and institutions would love to know more about earthquakes. Some of them would gladly support an earthquake market, I&#8217-d bet. There remain some legal risks, granted, but I think I&#8217-ve got a good hack for those. (Long story short: independent contractor researchers paid a base salary for making trades and winning bonuses for correct predictions.)

One nice thing about a quake market: Done right, it would generate powerfully positive externalities, benefiting even those who do not trade on the market. Imagine a map of the San Andreas fault, the price of each tradable segment illustrated by color coding or line thickness. One glance at that picture, and you would know whether it was time to relax, double-check your emergency kit, or head for the hills.

[Crossposted to Agoraphilia.]

Lords Of Odds

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Lords Of Odds

Lords Of Odds

How Game Works

How To Trade

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Siddhartha Saha (from India) is the co-founder of www.LordsOfOdds.com. They are currently offering sports and entertainment predictions and will add current affair predictions soon. Siddhartha Saha founded this company with a couple of close pals. They will get into corporate forecasting, later.