They were both lambasted by a famous, controversial and bombastic prediction market blogger… and they both failed in spectacular fashion.
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Here’s what I wrote in October 2008:
InTrade are going to open prediction markets on the future price of art. These innovative prediction markets will fail miserably.
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The InTrade prediction market on the Mei Moses Fine Art Index has attracted only 6 trades, so far.
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In November 2007, I said that the BetFair prediction markets on global warming (HSBC Investable Climate Change Index & ECX CFI Futures Contract) were “flawed products”. A few weeks later, they disappeared. Even the BetFair prediction markets on the highest and lowest UK temperature (which I was a bit more positive about) have now disappeared —and the “Climate” sub-category (under their “Special Bets” category) has totally disappeared in cyberspace.
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In both cases, I explained to my readers why those prediction markets would fail. Read my archives if you are curious.
NO PRIMARY INDICATORS = NO PREDICTION MARKETS
I even made the suggestion, one day, that the creator of any prediction market should be compelled to list the related primary indicators and their URLs —as a barrier to prevent futile prediction markets to be put on the Web.
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Regardless of their commission generation anytime soon, weather and art index markets actually do have advanced indicators. But in the case of Mei-Moses, Beautiful Asset Advisors seems to keep the index constituents secret. If these were available, there would be more clear catalysts for trading. BAA also seems unresponsive to queries about their subscription service.
Art prices are not completely uncorrelated with other assets either.
“do have advanced indicators.”
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I should have written a bit differently:
“primary indicators that are amply covered by some media”
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“in the case of Mei-Moses, Beautiful Asset Advisors seems to keep the index constituents secret.”
Openness and transparency was John Delaney’s keywords, recently, though.
“do have advanced indicators. ”
Do list them, then.
URLs, please.
Mr. Masse I think it would be helpful for you to define ‘primary indicator.’
The primary sources of information (like the polls, for instance) that traders read to get informed on one particular topic.
Could be anything: information in the mass media, information grabbed outside the media, whatever bits of information (either objective or subjective) that traders use to make their opinions.
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Have you seen my PM definition, here:
http://www.midasoracle.org/predictions/
Any remarks or suggestions are welcome.
By that standard there certainly are abundant primary indicators for the art index futures. Christies’s and Sotheby’s both publish full auction results online, so any sale result that contributes to the Mei Moses index value for that year is public domain. There are also pre-auction estimates, which, though broad, are extremely useful in this regard. And then there are all the information sources that the houses use to set the estimate ranges in the first place. As you said, subjective outside the media stuff will still get picked up on. Last, the index they are using looks at all auction results for previous year, so by the time the fall auction season is finished, in early December, an astute trader should be able to price the index almost perfectly. And yes, as Mr. Ruspini says, there are countless indicators that correlate with art auction sale values. This is a lot like the housing price futures, which trade on CME, not only in terms of how the index is created, but the type and nature of primary indicators.
With stocks, you have plenty of sources of raw information (like companies’ quarterly reports). But, very importantly, you have financial analysts and financial journalists who, not only report on financial news, but give their opinions on stocks —buy, hold, sell. (The do that for stock indices, too.)
I don’t think there are many “art analysts” out there who publish on the Web on whether the Mei Moses Fine Art Index will fall or rise. I am talking about serious and accountable professionals.
The traders want raw information and, more crucially, expert opinions, and expert prognostications. You have plenty of all that in politics and financial markets, but in matters of the business of art (a very arcane industry), I am skeptical. I could be wrong, and would listen to anybody contradicting me. Is there out there the equivalent of Jim Cramer for the art business?
Don’t expect the InTrade traders to analyze the raw bits of information. They want the analysis from renowned experts (like Nate Silver). Is there the equivalent of Nate Silver for the business of art? I am talking about reliable, independent experts whose analysis are posted for free on the Web.
I agree with Chris here, in that markets in art right now were likely doomed to fail. (Though I’m glad they at least tried and found out for sure.)
But I also agree with Jason that in the long term there is the potential for developing a market here, but only if traders know what really makes up the index. Traders are pretty smart at aggregating raw data (from auctions, etc.), but they need to know the measuring stick they’re up against.
Perhaps the biggest problem is in the scale of the opportunity. How many people will choose to hedge the value of their art collection? (Or how many hedge funds will see it as an opportunity?) I’m pessimistic on this…
“I am talking about reliable, independent experts whose analysis are posted for free on the Web.”
You really are a funny guy, sometimes.
Yes, there are certainly fewer clear catalysts for trading fine art which is why I said “regardless of commission generation” for exchanges. Part of the reason for that is that no-one in the industry has an incentive for prices to go down.
13 trades, now.
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Medemi, Nate Silver is an example of those.
Chris,
I agree that the availability of raw data and other pieces of information is crucial for prediction markets. But we don’t need expert opinions IMO (it goes very much against the wisdom of the crowd principle anyway). It’s the information and subjective value of that information that matters to people. They prefer to make up their own mind based on the information available, and they should.
Information sharing is also crucial (on forums for instance) but it can be the ordinary guy in the street who supplies it, so others can debate/reflect on it. This happens a lot – the facts are posted, not so much the expert opinions.
The only reason why people share information is because they are unable to determine it’s value, and that includes the information provided by your experts. Because believe me, when it’s value can be determined beyond any reasonable doubt, it won’t be made public (in real money exchanges). Systems that work don’t get sold, ever !
Which brings me to another, smaller group of people, who do their own homework, analysis and God knows what else. There are some big players in this group with a significant impact on liquidity and market prices.
The reason why “your” very own blog is so succesful is because it offers a wide range of information. There’s something in here for everyone. People generally are not interested in your opinion Chris, or mine for that matter. But you already knew that.
So, it’s kind of funny that you would point out the importance of expert opinions, because you are a prediction market expert yourself, whether you like it or not.
I can see a lot of dangers ahead for prediction markets when people over-sell the importance of expert opinions. I really don’t need to get into this, just take a look around and do your homework.
Prediction markets are offered by the people for the people. Never forget that.
“Prediction markets are offered by the people for the people.” I don’t disagree with that. Let me see you longer comment, now.
Medemi, I disagree with your long comment. Event derivative traders want to see BOTH raw information AND ready-to-wear analysis and recommendations from experts.
Thanks for your comment.