Daily Archives: November 25, 2008

Still, as noted, it was a good election for [the] prediction markets and another piece of evidence of their superiority over the pundit[s] (and at least parity with the poll).

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Dixit Nigel Eccles in a comment.

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at least parity with the poll

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I agree with the above.

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their superiority over the pundits

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What documented evidence do you have about that, mister the cocky entrepreneurial Scotsman?

John Tierney linked to that Huffington Post that listed the pundits&#8217- predictions about the total number of electoral votes that each presidential candidate would take. But I disagree with that way of predicting the electoral college and assessing these predictions. With this completely flawed method, if you are damn wrong on a state and damn wrong (in the opposite way) about another state that has the exact same number of electoral votes, then you are a bright genius worth the Nobel prize of forecasting. Gimme a break. Enough with that voodoo way of assessing predictions about the electoral college. Do the assessment state by state.

InTrade and HubDub got lucky that their 2 mistakes (so to speak, in a non-probabilistic way) on Missouri and Indiana (both with 11 electoral votes) canceled themselves perfectly. IT WAS PURE LUCK. If their 2 mistakes had been made in the same direction (say, betting on Obama with the outcome going eventually to McCain), and/or their 2 mistakes had been done on 2 very dissimilar states (say, one with 6 electoral votes and the other one with 27 electoral votes), then we would have had reporters and bloggers bashing the prediction markets for the whole month of November.

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Dont pump up the features of the prediction markets -instead, put the emphasis on their benefits.

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John Tierney and Jed Christiansen are making the same mistake: they think that people and experts should be impressed by the information aggregation functionality of the prediction markets. They are not &#8212-people still prefer reading Nate Silver and Electoral-Vote.com over InTrade, and the political experts have not added InTrade in their toolbox. (On this last point, do read the very last sentence of that interview.)

You won&#8217-t be impacting if you publish enthusiastically about the features of the prediction markets &#8212-yes, they do incorporate the latest news quickly, they quantify reasonable anticipations, they output probabilities, and they are relatively unbiased. You will be impacting the day you are able to demonstrate the benefits of the prediction markets &#8212-for people, on one hand, and for the experts, on the other hand.

This would require a new focus, and a much bigger effort.

The social utility of most prediction markets is minimal &#8212-busy people (who don&#8217-t have time to read extensively the news) get relatively objective probabilities, real quick. But very few companies are using enterprise prediction markets, as of today. If these new IAM tools were magical (as some sur-excited free-market proponents think they are), all the Fortune-500 companies without any exception of any kind would be using them today.

If you want to discover the true benefits of the prediction markets, you should first be able to rank them by degree of utility. Which ones are more useful than others? Why? To answer this last question, you have to lay out the panorama of all the information sources that people and expert have access to, these days. What were the specific instances where the prediction markets were a tie breaker between the experts and the mass media, or between the decision makers and the experts, or between 2 opposite groups of experts? You should build an airtight, documented case. I haven&#8217-t seen such a case, yet. If some of my readers are interested in such a project, let&#8217-s talk.

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