Monthly Archives: March 2008

Robin Hanson wants to rule the world -just as CEOs and heads of states do for a living.

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Our Master Of All Universes moans that the Free World&#8217-s private and public decision makers rarely or never ask him for advice &#8212-even though he sits on many &#8220-Boards Of Advisors&#8221- (like NewsFutures&#8216- one), which are, by definition, set up to provide advice &#8212-or so he thought, at inception. How come CEOs and heads of states are not imploring him for advice to help them run the word, he asks. He blogs that advisers are probably paid primarily for the prestige value that they lend to the company.

Which leads me to realize that I pay zero French franc for having economist Michael Giberson on our Scientific Advisory Board, which is quite about what his prestige is worth in the field of prediction markets, as of today. :-D That might change in the future, though &#8212-especially if I continue to flatter him publicly in posts like this present one. He might suffer from ego inflation and charge me for using his so-called &#8220-prestige value&#8221-. All economists, be damned. They are as greedy as the people they study.

Nassim Nicholas Taleb likens modern-day financial markets to medicine in the 1800s, when going to a hospital in London or Paris multiplied your risk of death by four times, he says. Similarly, quants increase risk by deploying flawed financial tools designed to reduce it, he argues.

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Via Stan Jonas, Nassim Nicholas Taleb cited in a Bloomberg article (Taleb Outsells Greenspan as Black Swan Gives Worst Turbulence):

Stress tests are inherently risky because they ignore rare but potentially devastating events. […] .. [“stress test” = Wall Street lingo for examining how a market rout will play out]

Past shortfall doesn&#8217-t predict future shortfall. […]

Bayesian is necessary but not sufficient. […]

If you are in banking and lending, surprise outcomes are likely to be negative for you. Put yourself in situations where favorable consequences are much larger than unfavorable ones. […]

Go to parties! If you&#8217-re a scientist, you will chance upon a remark that might spark new research. […]

Also, see Stan Jonas&#8217- 2 takes on FOMC.

Info Value = the added accuracy the markets provide relative to other mechanisms, times the value that accuracy can give in improved decisions, minus the cost of maintaining the markets, relative to the cost of other mechanisms.

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Robin Hanson:

A highly accurate market has little value if other mechanisms can provide similar accuracy at a lower cost, or if few substantial decisions are influenced by accurate forecasts on its topic.

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[Here&#8217-s Robin Hanson&#8217-s website. For your information (if you are a newbie), Robin Hanson is the most advanced researcher in the field of prediction markets. He co-invented the modern-day prediction markets, the concept of decision markets, and a new marked design, the Market Scoring Rule.]

Previous blog posts by Chris F. Masse:

  • Collective Error = Average Individual Error – Prediction Diversity
  • When gambling meets Wall Street — Proposal for a brand-new kind of finance-based lottery
  • The definitive proof that it’s presently impossible to practice prediction market journalism with BetFair.
  • The Absence of Teams In Production of Blog Journalism
  • Publish a comment on the BetFair forum, get arrested.
  • If I had to guess, I would say about 50 percent of the “name pros” you see on television on a regular basis have a negative net worth. Frightening, I know.
  • You can’t measure the usefulness of a system by how many resources it consumes.

A highly accurate prediction market has little value if other mechanisms can provide similar accuracy at a lower cost, or if few substantial decisions are influenced by accurate forecasts on its topic.

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No GravatarRobin Hanson

Robin Hanson – Overcoming Bias –

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Robin Hanson

Robin Hanson at LinkedIn

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Robin Hanson:

Info Value = the added accuracy the markets provide relative to other mechanisms, times the value that accuracy can give in improved decisions, minus the cost of maintaining the markets, relative to the cost of other mechanisms.

A highly accurate market has little value if other mechanisms can provide similar accuracy at a lower cost, or if few substantial decisions are influenced by accurate forecasts on its topic.

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Robin Hanson:

[&#8230-] I meant trying to field the highest value applications. That is naturally measured in accounting terms – value minus cost. Measures of popularity or familiarity would not at all be the same thing.

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Robin Hanson:

[One should] try to offer a cost-benefit calculation. You could count how many employees had ever gone to a TQM meeting, but that wouldn&#8217-t tell you if TQM is valuable or not.

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[Here&#8217-s Robin Hanson&#8217-s website. For your information (if you are a newbie), Robin Hanson is the most advanced researcher in the field of prediction markets. He co-invented the modern-day prediction markets, the concept of decision markets, and a new marked design, the Market Scoring Rule.]

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Related Info:

Using Prediction Markets to Track Information Flows: Evidence from Google – (PDF file – PDF file) – by Bo Cowgill, Justin Wolfers, and Eric Zitwewitz – 2008-01-06

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Previous blog posts by Chris F. Masse:

  • Last year’s best April Fool’s Day Joke had something to do with the Wisdom Of Crowds.
  • Will HedgeStreet USA, the hypothetical InTrade USA, and the hypothetical TradeFair USA, be regulated in the future by a merged SEC+CFTC regulatory structure?
  • WORST THAN ELIOT SPITZER (if it were possible): Formula One boss, Max Mosley, had sado-masochist sex with 5 prostitutes, for 5 hours (!!), reenacting a concentration camp scene (!!) in which he played the role of both Nazi guard and inmate.
  • Is BetFair Poker a booby trap for the gullible novices? Does The Sporting Exchange (the operator of the BetFair brands) help gangs plucking down innocent recreational poker players?? To get an inkling, don’t read The Guardian, seeded by the BetFair spin doctor- read Midas Oracle.
  • The video that the technologically retarded BetFair spin doctor should watch.

Googles Bo Cowgill takes a swipe at the prediction market software vendors.

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Using Prediction Markets to Track Information Flows: Evidence from Google – (PDF file – PDF file) – by Bo Cowgill, Justin Wolfers, and Eric Zitwewitz – 2008-01-06

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Bo Cowgill:

[&#8230-] Trade-by-trade data can reveal characteristics of specific working groups: What they know, how they feel, how they process and share information and how all of that changes over time. I didn&#8217-t try to put any of this in the paper because the conclusions would be sensitive, and I thought this application was pretty obvious to anybody who understood our methodology. [&#8230-]

Bo Cowgill:

I&#8217-ve also heard that other companies would find it impossible to analyze the interaction between their market and the organization. Why? Lack of data. [&#8230-]

Bo Cowgill:

Some more remarks about applications that combine prediction markets and organizational data (org charts, social networks, seating locations). The obstacle to these applications is not a lack of data. Jed mentions privacy concerns &#8212- and if he thinks this is a big obstacle then I&#8217-d be interested in discussing his thoughts.

A bigger problem is that that current prediction market vendors and consultants cannot support these applications. At heart, these vendors are software engineers and salespeople at heart, not statisticians or data miners. They want to write one system that can support lots of clients. At conferences, one hears PM vendors complain about having to do &#8220-customization&#8221- work for clients.

This approach would not work for the applications I describe for two reasons:

  1. The inputs for different clients won&#8217-t be the same. Each client&#8217-s organizational data will likely take a different structure. This makes it difficult for prediction market vendors to architect a single system that can served many clients (yet another challenge with integrating markets with other corporate IT services).
  2. The outputs for different clients won&#8217-t be the same. The business relevance and statistical power of each analysis will differ with each client&#8217-s data.

Prediction market vendors may also need to familiarize themselves with the statistical learning methods necessary to fully utilize these rich datasets. So what&#8217-s the solution? First, move to a software-and-consulting model. By &#8216-consulting,&#8217- I don&#8217-t mean &#8216-consulting on how to implement the market.&#8217- I&#8217-m talking about helping the client solve its problem using a variety of data, including prediction market data.

Second, the vendors also need to pitch prediction markets as more than a forecasting tool. People in the business world commonly identify as data junkies &#8212- probably more so than they identify with the &#8216-wisdom of crowds&#8217- ethos. It is unclear how much companies really care about accurate forecasting anyway.

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On a related note, there is something that only the prediction market software vendors could do, at this time, for those who are in capacity to do so: setting up inter-industry prediction markets &#8212-or at least, handing over (with everybody&#8217-s agreement) anonymized prediction market data on industry topics to anyone else in the industry who is a client of that PM firm. I don&#8217-t know about NewsFutures or Inkling Markets, but if you look at Consensus Point&#8217-s list of clients, you&#8217-ll see that David Perry&#8217-s firm is strong in the (consumer) electronic industry &#8212-Motorola, Qualcomm, Siemens, Nokia. Use your imagination, or ask David Perry directly, for more&#8230- (I can&#8217-t talk- otherwise, next thing, I&#8217-m a dead blogger.)&#8230-

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Previous blog posts by Chris F. Masse:

  • Last year’s best April Fool’s Day Joke had something to do with the Wisdom Of Crowds.
  • Will HedgeStreet USA, the hypothetical InTrade USA, and the hypothetical TradeFair USA, be regulated in the future by a merged SEC+CFTC regulatory structure?
  • WORST THAN ELIOT SPITZER (if it were possible): Formula One boss, Max Mosley, had sado-masochist sex with 5 prostitutes, for 5 hours (!!), reenacting a concentration camp scene (!!) in which he played the role of both Nazi guard and inmate.
  • Is BetFair Poker a booby trap for the gullible novices? Does The Sporting Exchange (the operator of the BetFair brands) help gangs plucking down innocent recreational poker players?? To get an inkling, don’t read The Guardian, seeded by the BetFair spin doctor- read Midas Oracle.
  • The video that the technologically retarded BetFair spin doctor should watch.

Did you know that Real Clear Politics (a political news aggregator in bed with InTrade) is now owned by Forbes?

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No GravatarI didn&#8217-t know that. (They also own Investopedia.)

And now Forbes are selling ad spaces for Real Clear Politics and 400 other politics blogs, thru their &#8220-Forbes Audience Network&#8221-. They sent me an e-mail, last year, to get us in their network. But a close look at their proposed contract showed that they would offer only 40% for Midas Oracle &#8212-whereas the other ad networks would offer 60%.

By the way, I&#8217-ll tell you later about my master plan to develop Midas Oracle&#8230-

UPDATE: More info from Paid Content and Silicon Alley Insider (Ad Networks Are For Losers)&#8230-

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UPDATE:

http://www.realclearpolitics.com/

http://www.realclearmarkets.com/

http://www.realclearsports.com/

Previous blog posts by Chris F. Masse:

  • Last year’s best April Fool’s Day Joke had something to do with the Wisdom Of Crowds.
  • Will HedgeStreet USA, the hypothetical InTrade USA, and the hypothetical TradeFair USA, be regulated in the future by a merged SEC+CFTC regulatory structure?
  • WORST THAN ELIOT SPITZER (if it were possible): Formula One boss, Max Mosley, had sado-masochist sex with 5 prostitutes, for 5 hours (!!), reenacting a concentration camp scene (!!) in which he played the role of both Nazi guard and inmate.
  • Is BetFair Poker a booby trap for the gullible novices? Does The Sporting Exchange (the operator of the BetFair brands) help gangs plucking down innocent recreational poker players?? To get an inkling, don’t read The Guardian, seeded by the BetFair spin doctor- read Midas Oracle.
  • The video that the technologically retarded BetFair spin doctor should watch.

How Decision Markets Work (with emphasis on InTrade) – by Robin Hanson

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No GravatarVIDEO – (it&#8217-s a Guatemala-based website) – 2007-10-24

I have clicked on the second blue link, on that webpage, and Window Media Player opened, and now I am watching The Master Of All Universes lecturing a group of politics students&#8230-

The main difficulty in developing efficient public policies is misinformation and false beliefs. The traditional information institutions are the media academics, and informal communications. These institutions have limitations in providing reliable, efficient, useful and enough information to make decisions. Speculative markets base their profits on the prediction of price patterns and are proving to be an efficient information institution. Betting markets have been better and faster predictions than experts because manipulators develop more accurate information. Therefore, speculative and betting markets have to become the central institution on political institutions in order to have effective public policies.

Click here to read the chapter &#8220-Decision Markets for Policy Advice&#8221-.

Great. But the second part of the video is more painful to follow. The students&#8217- questions are sometimes inaudible.

Previous blog posts by Chris F. Masse:

  • Mat Fogarty’s Xpree needs a mini Chris Hibbert.
  • Did you know that Real Clear Politics (a political news aggregator in bed with InTrade) is now owned by Forbes?
  • Easter Egg made in Mathematica
  • MIDAS ORACLE POWER: People googling about BetFair’s new bet-matching logic are automatically directed to our group blog. BetFair’s SEO can return to the locker room.
  • David Pennock, a respected expert in prediction markets and market design, discusses some aspects of BetFair’s new bet-matching logic.

Topic: prediction markets – MyBlogLog

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No GravatarTopic: &#8220-prediction markets&#8221- – MyBlogLog

I&#8217-ll monitor that webpage. I&#8217-ll tell you if it happens to be useful.

TECHNICAL PROBLEM: My feed reader says that &#8220-http://www.mybloglog.com/buzz/topics/predictionmarkets/rss.xml&#8221- is an empty feed!!!!

Via the OddHead man.

Previous blog posts by Chris F. Masse:

  • How Decision Markets Work (with emphasis on InTrade) – by Robin Hanson
  • MIDAS ORACLE POWER: People googling about BetFair’s new bet-matching logic are automatically directed to our group blog. BetFair’s SEO can return to the locker room.
  • David Pennock, a respected expert in prediction markets and market design, discusses some aspects of BetFair’s new bet-matching logic.
  • Inkling Markets has automated the making of the contractual agreement with its prospects. So, now, if you don’t want to, you can avoid talking to Adam “The Shark” Siegel.
  • Google’s Bo Cowgill @ 2008 DIG Conference

Xpree, the leader in prediction market forecasting technology for corporations

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No GravatarI like Mat Fogarty and Xpree, I think they bring new and needed forecasting competency to the field of prediction markets, but I think that this statement is untrue and thus its author looks a bit childish. I can&#8217-t believe that Mat Fogarty would output such a statement. To say that Xpree is &#8220-the leader&#8221- in this industry segment is like saying that The Dallas Morning News is the biggest newspaper on Earth.

REPLACE IT WITH: &#8230-&#8221-Xpree, the most innovative [*] supplier of prediction market forecasting technology for corporations&#8221-&#8230- that would be closer to the truth&#8230- and less subject to controversy&#8230- and ridicule.

[*] See rhe comments.

UPDATE: Mat Fogarty changed it for &#8220-Xpree, the most awesome prediction market forecasting technology for corporations&#8221-.

Previous blog posts by Chris F. Masse:

  • How Decision Markets Work (with emphasis on InTrade) – by Robin Hanson
  • MIDAS ORACLE POWER: People googling about BetFair’s new bet-matching logic are automatically directed to our group blog. BetFair’s SEO can return to the locker room.
  • David Pennock, a respected expert in prediction markets and market design, discusses some aspects of BetFair’s new bet-matching logic.
  • Inkling Markets has automated the making of the contractual agreement with its prospects. So, now, if you don’t want to, you can avoid talking to Adam “The Shark” Siegel.
  • Google’s Bo Cowgill @ 2008 DIG Conference