His co-author is here, telling his side of the story.
#2. There is indeed a lack of high quality statistical research on prediction markets. I have seen published papers doing terrible things like regressing prices from one prediction market on prices in a different prediction market and constructing standard errors for such regression as if prices represent i.i.d. sequences. Our paper was in fact an attempt to show that neither prices nor returns in a prediction market can be treated as i.i.d. sequences.
Go read the rest.
As much as I enjoyed reading Nikolays original comment, I will disagree with the highlighted sentence. Instead of trying to formulate my own response, I will just quote Fernando Pereira (from http://earningmyturns.blogspot.com/2008/02/complexity-illness.html):
“the real value of publication is to contribute to the ongoing dialog of science, and learn from the responses more than we could ever learn by thinking alone in our offices. Dialog is messy, ideas come out half-formed, we hesitate, we track back, we speak over each other, we suffer from esprit d’escalier. Waiting to engage until we have the perfect formulation may reduce the chance of embarrassment, but it would also deaden a lively exchange, and take away delicious rejoinder opportunities for our debating opponents.”
There were 2 highlighted sentences, actually.
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Panos, you disagree with what?
- There are some bad academic papers on prediction markets out there.
- It is crazy to do this: “regressing prices from one prediction market on prices in a different prediction market and constructing standard errors for such regression as if prices represent i.i.d. sequences”.
- Bad papers are bad for the field of prediction markets.
Disagree with “There is indeed a lack of high quality statistical research on prediction markets.”
There are plenty of good papers. But for sure there are no perfect papers. You can always find flaws, in any paper.
There are also some bad papers. But every paper, no matter how bad you think it is, contributes something.
Should we believe Nikolays or Panos on this issue? Who is the most informed on this? Who has the most independent and impartial judgment on this?
One of you, two, guys, is wrong —and the other is right.
you misinterpreted my comment
my point was not that all prediction market papers are bad
my point was that, in general, there is a lack of research papers analyzing statistical properties of prediction market prices, therefore there is no de-facto quality standard in this area
so empirical research that i’ve seen was either ignoring the issue altogether or applying the knowledge from financial markets (like GARCH)
while the second approach is quite reasonable, our paper shows that one can do better
OK, thanks.
I don’t agree with “There is indeed a lack of high quality statistical research on prediction markets.†as well. Like @Panos said, it doesn’t matter how bad the paper is, there is always something good about it. I guess we’re optimists