More from Paul Hewitt:
I can hardly wait for the prediction market calibration proponents to claim that these were not market failures. On the contrary, these outcomes show, precisely, that prediction markets do, in fact, work.
Of course, they may be right. I doubt that I will live another 50 years or so to test the calibration accuracy of similar prediction markets. It is rather interesting that not one, but two, 50 – 1 longshots claimed the prize. There is no calibration accuracy in these types of markets, and there is no consistency across a variety of similar prediction markets (and there should be, if these types of prediction markets really do work).
The web traffic to Midas Oracle over the week-end shows a huge interest in Nobel predictions (still going on as I speak):
Previously: Nobel Prize for Economics 2009 Predictions
Well, as a “prediction market calibration proponent” in the IOC/Olympics discussion, let me chime in expressing agreement that the Nobel prize markets reveal very little in the way of useful information. It is useful and interesting to explore why Nobel prize prediction markets don’t work and the IOC markets did work (to a degree).
In the Olympic case, the committee is large – over 100 members – and publicly known. The campaign to be selected is openly conducted, the finalists are selected and publicly announced, and the criteria for selection is at least somewhat known. The Nobel Prize selection committees (and the committee for the economics prize in honor of Alfred Nobel) are smaller and more secretive. The possible range of persons to be awarded a Nobel Prize in economics is extraordinarily wide, including this year as in year’s past people not normally considered as economists (political scientist Ostrom and psychologist Kahnemann).
Under such situations it seems reasonable to think the markets would not aggregate information well. Nonetheless the markets persist for their entertainment value, and because they generate fees for the brokers.
“Nonetheless the markets persist for their entertainment value…” says it all. These are the “Britain’s Got Talent” prediction markets. Totally devoid of any useful value, yet at the same time, trying to appear to be useful mechanisms for aggregating accurate information. Prediction markets, such as these, do more harm than good. They denigrate the potential usefulness of prediction markets. Sad.
We need to understand why some markets work and why others do not. Much of this work can be done without leaving the classroom. First principles. Logic. Common sense. Then, you undertake a variety of practical prediction markets. Where are the academics?
Mike,
“the IOC markets did work (to a degree)”
I disagree. The Chicago probability should have been lower than what the prediction markets handed out.
“In the Olympic case, the committee is large – over 100 members – and publicly known. The campaign to be selected is openly conducted, the finalists are selected and publicly announced, and the criteria for selection is at least somewhat known.”
- The IOC co-opt members from within the aristocracy and other high circles. It is not an open group.
- The IOC does not judge on merits but on politics. Paris had the best dossier for 2012, and London got it in the end because Tony Blair lobbied the IOC the right way. (Which prompted the US Olympic committee to ask Obama to go lobbying the IOC.)
You are wrong, Mike. I have told you that many times. You are assuming that the IOC is an open org. It is *NOT*.