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Did the use of enterprise prediction markets by HP impress you?
This entry was posted in Analysis (Meta), Cases, Exchanges & Markets, Forecasting (Science & Practice) and tagged enterprise prediction markets, HP, Paul Hewitt, prediction markets. Bookmark the permalink.
8 Responses to Did the use of enterprise prediction markets by HP impress you?
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I’ve had time to go through the paper on HP’s trials and have posted my comments here:
http://torontopm.wordpress.com/2009/04/12/an-analysis-of-hps-real-prediction-markets/
I still believe the concept of prediction markets is sound, it is the execution that is deficient. We need more published analyses of real prediction markets, so we can see what works best and why.
Comments?
Bentley,
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a quick response.
I haven’t read the HP paper but I’ve read your comments. Lots of good points and issues to reflect on.
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What incentive was provided to the “respondents” ?
Don’t forget about market maturity.
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My background is three years of experience with betfair. I debated lots of stuff with other people during this time. I did my own analysis (pretty extensive) and built my own bot, for fun.
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What I found is that markets get “better” (more accurate) with time. It is widely known that almost every new player loses money in their first year. They learn, adapt, do more research etc. following that because it isn’t fun losing money. It’s a highly competitive environment and there is much respect to be gained when you are succesful. This is a real money exchange.
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Also, quickly, market efficiency from a business perspective means that markets have to be accurate – this way everyone loses money at the same rate.
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Carry on.
The truth about (enterprise) prediction markets
http://www.midasoracle.org/2009/04/13/the-truth-about-enterprise-prediction-markets/
>> “Prediction markets have value in specific cases where it could be demonstrated that an information aggregation mechanism is the appropriate method that should be put at work in those cases (and not in others). ”
Chris,
I can agree with you on the hype thing and the backlash that it has caused, but I’m having a hard time figuring out how you can come to this conclusion when it is evident, as pointed out by Bentley and myself, that scientific research is lacking.
Chris,
I see possibilities, not restrictions. Maybe your experience with some of these people have caused you to be restrictive? In which case we’re on the same level.
I still believe there is nothing to gain by saying that accuracy is not one of the virtues of prediction markets. They are damn accurate, given the right conditions.
What needs to be pointed out is why thy hypers are wrong, and why we are right. We need extensive research for that.
Most people on betfair who make money, make money by trading, by exploiting the volatility. There are those who make money by exploiting deficiencies in the way markets are offered. I suppose there are some insiders as well, lol.
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I know of only guy (for certain) who makes money by betting, by being a positional player. And he has been doing this for 20 years by betting on horses, which offers a far higher profit margin (given the quotes) than most other markets.
He said to me “the name of the people making money the ethical way you can write on an ants nut”. Or something to that effect.
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In order to beat the markets (and conquer commission rates) you have to be extremely innovative. You might as well go for the Nobel prize.
In my experience, it is ten times easier to make money in the stock market. Most people I spoke to would disagree, but I refer them to the first paragraph of this post.
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I know of one poster complaining who had spent 2 years of his life trying everything humanly possible, but was not able to make any money. He did it all, it was an impressive list he provided, including all the research and analysis he’d done (as many have). Myself, I did find an edge here and there, but after 2000 or so (automated) bets it turned out I wasn’t able to beat commission and turn my activities into a net profit. The last thing I wanted was to work for “them”, so I seized my activities at that time.
It is THAT hard to beat the market. They are THAT accurate. Given the right conditions…. Don’t let anyone fool you and tell you otherwise.
Hi Medemi…
In the HP trials, the participants were given cash and an allotment of shares at the start. I assume the payoff was in cash. So, that was the incentive. I do agree with the concept of allotting shares at the outset, because it would encourage traders to get out of positions they don’t believe in. However, in a CDA system without a market maker, there is no guarantee that they would be able to sell off unwanted positions. This may account for some of the wide dispersion of investments.
Also, the “odds” will be distorted at the beginning of the market (caused by the allocation of shares), creating opportunities to profit. In this case, these profit opportunities are unrelated to the purpose of the prediction market. The issue is how to “populate” the market with shares at the beginning of the market, without distorting trading behaviour. Maybe they should have done so using a normal distribution centred around the HP official forecast. But this, too, may have biased trading activity. To see how this works, look at a few of the stock market prediction markets on hubdub.
I believe it is true that markets will get better with experience. However, in HP’s trials, there is no evidence of this. The errors in the latter trials were not better than in the earlier ones. There appears to be no trend toward better predictions (i.e. smaller errors). It could be the fundamental weaknesses in the design of the markets (as discussed in my paper) that caused this.
Thank you for your comments.
I think this works better if people (have to) put their own money on the line. It hurts to lose money for most people. It hurts to be wrong for a longer period of time.
By handing people money it becomes a no-lose situation. Quite enjoyable for them but we need to see them suffer.
A lot of focus should be on competitiveness, IMO.