One bit of criticism about my pamphlet (The Truth About Prediction Markets) goes like this: Velocity without accuracy is dumb.
That is not true.
Let’s imagine, for the sake of the exercise, that Barack Obama does not pick up Kathleen Sebelius to head HHS. The velocity argument remains valid: Fed by the vertical media (in this case, Yahoo News republishing the Associated Press), the prediction markets integrated expectations (informed by facts and expertise) much faster than the mass media did.
Any argument about the velocity of the prediction markets cannot be contradicted. No way.
I think you can put your thought succinctly as shifting the description of PMs from relative accuracy to relative efficiency in producing accuracy.
That relative efficiency is interesting even in inaccurate predictions.
Can we use the term “efficiency” instead of “velocity”? The term “market efficiency” is well understood and established.
Yes. Well understood by the economists, but not by the main street people.
The common definition does not contradict the more technical one. Velocity sounds pseudo-scientific.
>> “That relative efficiency is interesting even in inaccurate predictions.”
Chris,
there is no such thing as “inaccurate predictions”, as markets express a probability, not a prediction. Degree of accuracy is what you’re looking for and it is a statistical phenomenon.
One can’t make any conclusions based on 1 or 2 markets, 1 election even, no matter how motivated people are. All it tells us, is something about these people judging prediction markets – their motivation, their lack of knowledge.
Market efficiency and accuracy are closely linked/intertwined.
Chris,
we should call them probability markets. You will not be the first.
http://groups.google.com/group/Prediction-Markets/browse_thread/thread/26e6b76b4537cce9/3514dbddf76636f6?pli=1
“Still, the predictions markets did forecast a Republican Senate. Should
we dismiss them for getting that one so wrong?
If you think so, then you’re probably forgetting the principles of
probability. Prediction markets do not make absolute predictions about
electoral outcomes, economic developments, product success, or anything
else. Instead, their predictions are mere probabilities. That’s one
reason why the markets expected the Senate to stay in Republican hands,
even though so many Democratic candidates were favored. Senator-elect
Jim Webb had roughly a 60 percent probability of success, and
Senator-elect Bob Casey Jr. had roughly a 70 percent chance of success;
but these numbers do not suggest that both candidates were likely to
win simultaneously.”
—
“Perhaps we should add ‘probability markets’ to the taxonomy… “
Medemi, I get you.
“The common definition” is better understood by main street people. That said, I will make an effort.