Via Adam Siegel of Inkling Markets,
John McQuaid of Wired.
- It’-s incoherent to start a rant against prediction markets by this upbeat line, “-Prediction markets can be spookily accurate.”-
- He blames the New Hampshire upset on poor liquidity. Where is the scientific evidence of that? Total invention by our good friend Barry Ritholtz. The New Hampshire prediction markets were wrong because the advanced, primary indicators (the polls) were wrong. As simple as that. [For why the polls were wrong, see: The New York Times, Zogby, Rasmussen, Gallup…]
- Prediction markets “-have a lot of political junkies but few real insiders or outsiders, so they’-re not very good at catching something the polls might miss.”- Hummm…- Most of the “-real insiders”- don’-t keep scoops for themselves (if and when they have some), they are too happy to act as a source for some thirsty journalists or bloggers, so as to have their name printed somewhere. Hence, the political junkies would be able to aggregate any kind of extraordinary information —-if that were to happen.
- How could the prediction markets “-get out ahead of conventional wisdom”-? It’-s impossible, other than by reversing our psychological arrow of time (remembering the future, instead of the past). At the contrary, the job of the prediction markets is to quantify exactly that so-called “-conventional wisdom”-. They won’-t go further, and we’-re happy to run with that, because, that way, we are not prisoner of the bias of a handful of experts. Plus, prediction markets give us an objective probability of event outcome —-a thing that individual experts can’-t give us.
The excerpt below is good enough, though:
[…] But forecasting also needs more so-called noise traders, who do business with almost no information. Noise traders boost accuracy by increasing volume and the potential profits of informed traders. Diversity helps, too. If you can get different types of people to play, experts say, not only do you get a bigger pool and more information, but differing random guesses will cancel each other out, leaving real signals to rise above the noise. Plus, if you have a critical mass of investors with a variety of backgrounds, locations, and interests, they are less likely to move as a herd. […]
Previous blog posts by Chris F. Masse:
- A second look at HedgeStreet’s comment to the CFTC about “event markets”
- Since YooPick opened their door, Midas Oracle has been getting, daily, 2 or 3 dozens referrals from FaceBook.
- US presidential hopeful John McCain hates the Midas Oracle bloggers.
- If you have tried to contact Chris Masse thru the Midas Oracle Contact Form, I’m terribly sorry to inform you that your message was not delivered to the recipient.
- THE CFTC’s SECRET AGENDA —UNVEILED.
- “Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S & P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”
- Meet professor Thomas W. Malone (on the right), from the MIT’s Center for Collective Intelligence.