[...] If I interpret correctly what you suggest, this will be equivalent to a “prediction market on a prediction marketâ€, aka “options on marketsâ€: Guess where the price of a long term market will be at set points in the future, before the expiration of the long-term market. InTrade experimented with such contracts last Fall (the X contracts). I was initially fascinated. However, we soon realized that such markets do not offer much additional information: Current price of the long-term contract and time to expiration are enough to determine the optimal price of the “X†contract.
The solution: Bite the bullet and have a long-term contract, based on a verifiable outcome. If you are interested in having checkpoints along the way, use conditional prediction markets (e.g., see the tax features, conditional of the result of the presidential election). Or think harder of what you are trying to measure and build a contract that has a verifiable outcome early on.
The results being referred to are severely flawed. It doesn’t take much to publish in some of these journals, and even less on one’s own blog.
The blog posting is based on a paper published at EC’09. We tested our model on several contracts from Intrade. Sorry to disappoint you but our model matches reality quite closely. Can we improve the model? Of course: take a look at the “Limitation” section of the EC’09 paper, and you will see the limitations discussed. http://pages.stern.nyu.edu/~panos/publications/ec2009.pdf
You do not believe our results? You consider ACM EC’09 an inferior venue for publishing about prediction markets? Well, then take a look at another, independently produced paper by Majumder et al, named “Price Dynamics in Political Prediction Markets” http://www.pnas.org/content/106/3/679 published at Proceedings on the National Academy of Science (PNAS). The results are strikingly similar.
You can challenge the model. Hard to challenge reality, though.