- An event is “advanced” when it is before the others on the timeline.
- An event is “retarded” when it is after the others on the timeline.
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- I use the term “advanced, primary indicator” to talk about the leading sources of information that active traders rely on.
- Last time, in the title, I said that the InTrade traders were “retarded”, in the sense that they were late to compute that Israel will not attack Iran in the second semester of 2008. One InTrade trader (I presume he / she is) took strong exception with my wording. Sorry for that, man / woman.
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RANDOM HOUSE UNABRIDGED DICTIONARY:
- retarded = to be delayed
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Here’s the updated version of the story in question:
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- US Military Chief Says Any Attack on Iran Would be Destabilizing.
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Explainer On Prediction Markets
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… Intelligence in, intelligence out…
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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