Comments on: The Accuracy Of Prediction Markets http://www.midasoracle.org/2009/06/12/the-accuracy-of-prediction-markets/ Prediction Markets + Market Predictions = Collective Forecasting That Pays Off Mon, 22 Mar 2010 11:07:54 -0400 hourly 1 By: Niall O'Connor http://www.midasoracle.org/2009/06/12/the-accuracy-of-prediction-markets/#comment-24252 Niall O'Connor Mon, 15 Jun 2009 17:25:27 +0000 http://www.midasoracle.org/?p=14639#comment-24252 Panos Here, Here. I do not for one moment anticpate that Chris will relinguish his useage of the term "Prediction Markets." Nonetheless, I feel that overtime, he may come to finally appreciate that the term actually serves to do more harm than good. Panos

Here, Here.

I do not for one moment anticpate that Chris will relinguish his useage of the term
“Prediction Markets.” Nonetheless, I feel that overtime, he may come to finally appreciate that the term actually serves to do more harm than good.

]]> By: Panos Ipeirotis http://www.midasoracle.org/2009/06/12/the-accuracy-of-prediction-markets/#comment-24249 Panos Ipeirotis Mon, 15 Jun 2009 11:51:19 +0000 http://www.midasoracle.org/?p=14639#comment-24249 Niall, I see your point, in general. For example, outcomes of TV shows, or sports games, are indeed pure betting markets and should be called that. There are contracts though that can be useful (future price of oil, future interest rates, etc) that can serve a useful purpose, as explained above. Can they be used for gambling? Of course. The whole housing market mess and the role of the credit default swaps is widely documented, no need for me to add anything. But I would still be hesitant to call them gambling. Now, do we need to call them *prediction* markets? I would agree that there is no real reason for that... All markets have information aggregation characteristics and sometimes it is annoying to see how much we reinvent the wheel when studying "prediction" markets, pretending that they are fundamentally new beasts. (The "we" includes myself.) If we called them simply markets, I think we would have made significantly faster progress... Niall, I see your point, in general. For example, outcomes of TV shows, or sports games, are indeed pure betting markets and should be called that.

There are contracts though that can be useful (future price of oil, future interest rates, etc) that can serve a useful purpose, as explained above. Can they be used for gambling? Of course. The whole housing market mess and the role of the credit default swaps is widely documented, no need for me to add anything. But I would still be hesitant to call them gambling.

Now, do we need to call them *prediction* markets? I would agree that there is no real reason for that… All markets have information aggregation characteristics and sometimes it is annoying to see how much we reinvent the wheel when studying “prediction” markets, pretending that they are fundamentally new beasts. (The “we” includes myself.)

If we called them simply markets, I think we would have made significantly faster progress…

]]> By: Chris F. Masse http://www.midasoracle.org/2009/06/12/the-accuracy-of-prediction-markets/#comment-24242 Chris F. Masse Mon, 15 Jun 2009 09:46:27 +0000 http://www.midasoracle.org/?p=14639#comment-24242 Good Irish humor... but a bit over the board. Good Irish humor… but a bit over the board.

]]> By: Niall O'Connor http://www.midasoracle.org/2009/06/12/the-accuracy-of-prediction-markets/#comment-24241 Niall O'Connor Mon, 15 Jun 2009 08:25:43 +0000 http://www.midasoracle.org/?p=14639#comment-24241 Target the brainless ...call it prediction markets... Target the brainless …call it prediction markets…

]]> By: Panos Ipeirotis http://www.midasoracle.org/2009/06/12/the-accuracy-of-prediction-markets/#comment-24239 Panos Ipeirotis Mon, 15 Jun 2009 02:25:27 +0000 http://www.midasoracle.org/?p=14639#comment-24239 "these discrete outcome markets are not very good for use in decision-making" I would actually argue strongly against this. What if you have an event that is indeed binary? (Say, GM will file for bankruptcy.) Credit default swaps are fundamentally such contracts and they serve a useful purpose for hedging, if used properly. For example, prices of such contracts can be used to evaluate the riskiness of a portfolio, without waiting for the rating agencies to re-evaluate the trustworthiness of a country, city, company, etc. Niall, the name for the market is customized according to the intended audience. Target the "mass"? Call it a betting/gambling market. Target investors? Call it a futures market. Target conservative households? Call it insurance... “these discrete outcome markets are not very good for use in decision-making”

I would actually argue strongly against this. What if you have an event that is indeed binary? (Say, GM will file for bankruptcy.) Credit default swaps are fundamentally such contracts and they serve a useful purpose for hedging, if used properly. For example, prices of such contracts can be used to evaluate the riskiness of a portfolio, without waiting for the rating agencies to re-evaluate the trustworthiness of a country, city, company, etc.

Niall, the name for the market is customized according to the intended audience. Target the “mass”? Call it a betting/gambling market. Target investors? Call it a futures market. Target conservative households? Call it insurance…

]]> By: Medemi http://www.midasoracle.org/2009/06/12/the-accuracy-of-prediction-markets/#comment-24237 Medemi Sun, 14 Jun 2009 21:15:12 +0000 http://www.midasoracle.org/?p=14639#comment-24237 The Dutch and Swiss governments have decided there's an urgent need to protect it's citizens form gambling sites like betfair. Betfair is also the first company mentioned when you look up "prediction markets" on wikipedia. The Dutch and Swiss governments have decided there’s an urgent need to protect it’s citizens form gambling sites like betfair. Betfair is also the first company mentioned when you look up “prediction markets” on wikipedia.

]]> By: Chris F. Masse http://www.midasoracle.org/2009/06/12/the-accuracy-of-prediction-markets/#comment-24234 Chris F. Masse Sun, 14 Jun 2009 20:07:38 +0000 http://www.midasoracle.org/?p=14639#comment-24234 I stand by the 2 ideas I published there. But what was (in your mind) the relationship between that post and the present post? I stand by the 2 ideas I published there. But what was (in your mind) the relationship between that post and the present post?

]]> By: Niall O'Connor http://www.midasoracle.org/2009/06/12/the-accuracy-of-prediction-markets/#comment-24231 Niall O'Connor Sun, 14 Jun 2009 18:47:52 +0000 http://www.midasoracle.org/?p=14639#comment-24231 Perhaps worth revisiting this chat? http://www.midasoracle.org/2008/08/08/betfair-model-outdated/ Perhaps worth revisiting this chat?

http://www.midasoracle.org/2008/08/08/betfair-model-outdated/

]]> By: Chris F. Masse http://www.midasoracle.org/2009/06/12/the-accuracy-of-prediction-markets/#comment-24214 Chris F. Masse Fri, 12 Jun 2009 22:53:30 +0000 http://www.midasoracle.org/?p=14639#comment-24214 Primary purpose... secondary purpose... All this is B.S. distinction. Primary purpose… secondary purpose… All this is B.S. distinction.

]]> By: Medemi http://www.midasoracle.org/2009/06/12/the-accuracy-of-prediction-markets/#comment-24210 Medemi Fri, 12 Jun 2009 21:11:35 +0000 http://www.midasoracle.org/?p=14639#comment-24210 You could also argue that EPM's only have value for a couple of thousand people on certain occasions while betfair markets could easily add value for 100 million people. Betfair is rightly criticized for not exploiting the social utility of prediction markets. A pity, because they have the right stuff - customer base, liquidity, trader diversity and proper incentive. It was my underlying motivation for criticizing them for so long. Likewise, I suppose we can criticize EPM's for being so stubborn, asif one can demand accuracy simply because there is a wish for it. It's not that simple. I witnessed a carpenter with a broken back transform into a professional gambler. When you see things like this happen you know you're getting somewhere with respect to accuracy. You could also argue that EPM’s only have value for a couple of thousand people on certain occasions while betfair markets could easily add value for 100 million people.
Betfair is rightly criticized for not exploiting the social utility of prediction markets. A pity, because they have the right stuff – customer base, liquidity, trader diversity and proper incentive. It was my underlying motivation for criticizing them for so long. Likewise, I suppose we can criticize EPM’s for being so stubborn, asif one can demand accuracy simply because there is a wish for it. It’s not that simple. I witnessed a carpenter with a broken back transform into a professional gambler. When you see things like this happen you know you’re getting somewhere with respect to accuracy.

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