Platform Metrics (More Soon)
Platform operational: Since 2001
Total Predictions: 619,141,899
Average Daily Predictions: 169,589

This is just a preposterous misrepresentation of the volume of activity on the site.

The average number of contracts traded per day for the year to date is 9k, with a median of 8k. Those numbers are way up from 2010, before the change from high transaction fees to a small, flat monthly fee.

Since there is someone on both sides of each trade, it’s could be fair to say that each trade represents two predictions so you can double the trading volume if you are counting “predictions” instead. But counting predictions raises another problem.

If I think Sarah Palin will run and I place an order to buy 100 contracts, I have not made 100 predictions. I have made one prediction. (Even if I place an order today, and another order tomorrow, unless I am buying or selling at a very different price from the first order it’s a stretch to say that I’m making new predictions with every order.)

So there are at least two problems:

One is that it’s silly to call every contract a separate prediction when a single person, acting on a single point of view (e.g., Palin has a 25-30% chance of running) can buy or sell many individual contracts (buying at 24, selling at 31, for instance, without changing their “prediction” at all). And of course these trades often happen in blocks of 10 or 100 or 1000 contracts anyway.

Two is that whether you are counting, trades, contracts traded, or “predictions” you don’t get anywhere near the 170k daily “somethings” that Intrade is claiming. Unless…

Perhaps they are not only counting each contract as a separate “prediction,” even if a single order is for many contracts. Perhaps they are also counting every order, whether it is executed or not. That is, I put in an order to buy 100 contracts of Palin at 24, and they count 100 “predictions.” Then I put in an order to buy 500 at 10, and another for 1000 at 1, and another for 5000 at .1, and a sell for 1000 at 99… and by Intrade’s math I’ve just made nearly eight thousand predictions. and when I change the order for 100 at 24 to 100 at 24.1, that’s another 100 predictions. And when some bozo puts in an order to buy 5000 shares of something for a penny after the event has already happened, that’s 5k more “predictions.”

The urge to publish big, impressive numbers about activity on Intrade is understandable. Venturing into fantasyland to get there is just embarrassing.

Speaking of math, my very rough estimate is that Intrade is collecting twice as much per month in fees via the $5/month charge than they would have been based on the pre-2011 transaction fees.

This is good for Intrade, good for active traders, and horrid for smaller accounts. It’s also a short-term situation with a bad ending. Once the small accounts are mostly closed out or leeched down to a zero balance, then what? How many mid- or large-sized, reasonably active accounts are there? Within 2-3 years can one really expect there to be more than a few thousand accounts left? Some new big players may come into the mix if they see the good deal, but each one is only worth $60/year.

Even if you think Intrade will have 15k active accounts in a few years (which I don’t), that’s still less than a million dollars of top line revenue. Larger traders will probably tolerate an increase in fees at some point, but still I do not see how Intrade gets from the current situation to a future as a solid, profitable, growing company that is more than a flea compared to BetFair.

During the October 2009 Supreme Court term, the 5,000 members made over 11,000 predictions for all 81 cases decided. Based on this data, FantasySCOTUS accurately predicted a majority of the cases, and the top-ranked experts predicted over 75% of the cases correctly. With this combined knowledge, we can now have a method to determine with a degree of certainty how the Justices will decide cases before they do. . . . During the October 2002 Term, the [FantasySCOTUS] Project’s model predicted 75% of the cases correctly, which was more accurate than the [Supreme Court] Forecasting Project’s experts, who only predicted 59.1% of the cases correctly. The FantasySCOTUS experts predicted 64.7% of the cases correctly, surpassing the Forecasting Project’s Experts, though the difference was not statistically significant. The Gold, Silver, and Bronze medalists in FantasySCOTUS scored staggering accuracy rates of 80%, 75% and 72% respectively (an average of 75.7%). The FantasySCOTUS top three experts not only outperformed the Forecasting Project’s experts, but they also slightly outperformed the Project’s model – 75.7% compared with 75%.

You can download a copy of the draft paper here.

[Crossposted at Agoraphilia, Midas Oracle, and MoneyLaw.]

2010 was a warm year, despite record snow and ice in highly populated areas. Here is the message I provided on the expiry:

The NASA GISS GLOBAL Land-Ocean Temperature Index for 2010 averaged out to 0.6325 Celsius above baseline. The winning prediction is ‘greater than 0.6 Celsius (>0.6)’. Congrats to the winners, and to all participants for nudging closer to the truth.

I will list the 2011 question shortly.  Many thanks to Inkling Markets for their generous hospitality.

Cross posted from Caveat Bettor.

I side with Joe Terranova contra Dennis Gartman and Tim Seymour for the next $50 in gold (12:20), but it’s not like I’m net short across all personal accounts or anything.

[Download this post to watch the embedded video, if your feed reader does not show it to you.]

Editor’s Addendum: A related video….

I haven’t had time to put something rigorous together on this, but if you look at the diffusion of major innovations in the US, it’s hard to avoid seeing a curve that basically leveled off by the 1970s, about which time the rate of productivity growth also fell off. Adoption of PCs and the internet boosted productivity in the ’90s, but the hottest new companies today are not, for the most part, oriented towards increased productivity. Much salient innovation since the 1970s has been of the consumer product variety, and serves to fill time rather than compress it. Technologies that effectively compress time (e.g. the train, the telegraph, the assembly line, the computer) and make processes more efficient (cold fusion) are more favorable to asset returns.

All of this has happened while globalization is also beginning to level off, developed world population has leveled off, and the ratio of non-workers to workers worsens in the developed world. None of these developments would reasonably seem to be favorable for returns, though nominal rates may rise of course.

These questions have great political import in their relevance to prospective cash flows for public entities with balance sheets at varying levels of long-term impairment. Various public pension trustees are arguably caught in a naive empiricism that does not sufficiently recognize these factors. On the other hand, these causes are difficult to show historically and significantly. Someone on the left might claim that Thiel and other libertarians are overrating these factors out of convenience to their overall political and economic narrative.

A perverse tragedy here is the lack of investment enthusiasm for biotech and healthcare. What could be more important? Where do we need more supply and lower prices? Apart from the question of longer lifespans on public debt, why can’t this technology translate into higher asset returns?

Now, Dr. Krugman could argue at least two points:

First, even if you assume Japanese-style growth, Social Security would still account for less than 10% of GDP. This however leaves aside the state and municipal versions of the pension problem, that might eventually take the form of demands at the federal level, and in any case are relevant to state taxpayers. It looks like he is telling half the story, and then with only half the numbers. Not to mention Medicare, which perhaps is only a different issue in a pedantic sense, if not in terms of urgency.

Second, if further stimulus were applied as Krugman recommends, we might have a chance of achieving those GDP targets. If however income is now structurally impaired by demographics or other factors, as some argue, those numbers are out of reach pending some new technology. Maybe you can double down on a bad balance sheet if your cash flow assumptions are good, but in this case they seem to be a product of naive empiricism. This is the same sort of empiricism that got pension funds that had assumed 8% annual returns in trouble. Those numbers seem to be picked from the same fictional future world as the GDP projections that Krugman endorsed, and as usual there is a willful blind spot to reasons why the past might not reflect the future.

To be clear, although it would be largely in my self interest, I am not some right-winger bent on ending social security. In my view, the minimum age must be raised. Dr. Krugman rightly points out that this would put a disproportionate burden on low-income workers, which is why I counter that any age hike must be coupled with means testing, which I prefer to higher taxes. Those on the left that argue that means testing would undermine the popularity of the program are absurd partisans. What is the metaphor? That would be like wearing the wrong color shirt to the wrong neighborhood, getting shot and then freaking out that your shirt is ruined, but not going to the hospital. Neither the right nor left would be thrilled with with an age hike / means testing deal, but that’s what makes a good compromise.

Deferral, abetted by private and public conflicts of interest, is the essence of the problem and is at the root of both the corporate and sovereign credit crises. Now, it’s one thing when you have an impaired balance sheet propped up by good cash flow, but there are reasons to believe that prospective growth and public income will also be lacking relative to the 20th century. These reasons of course are swept under the rug by at least one liberal economist. Paul Krugman chides someone for rambling on about demographics one day, and tells us we are turning Japanese the next. Why are we turning Japanese? Krugman sees this, but thinks we must defer that issue to deal with unemployment and deflation. To what extent, however, are unemployment, deflation, and the series of booms and busts over the last 30 years symptoms of demographics? If that’s the case, if pension rate of return assumptions are off for this or other reasons, things could get late early.

Anyway, to paraphrase Jon Stewart, this isn’t a game. Try to keep “garbage words” out of your titles if you aren’t going to have any real discussion. If everything is quoted, the quotes lose their meaning and everything is implicitly endorsed.

The basic points:

Gold does well when real rates of return are low. Real rates describe the price of gold much better than inflation alone. This is because real rates reflect the opportunity cost of holding a relatively useless asset. Part of the reason gold seems irrational is that this extrinsic pricing is unintuitive and largely unappreciated.

Gold does well when liquidity, measured for example by LIBOR, is not especially tight.

Sentiment can be predictive with gold.

The “extrinsic” way of thinking is natural in the fx world where all trades are two‐sided, and the idealized one‐sided currency , e.g. Dollar Index, is a weighted average of two‐sided rates. Other examples: the Fed Model and Dividend Discount models explicitly tie together the pricing of equities and interest rates. The housing bubble was to some extent already a mispricing of money in the form of interest rates. What was the “right” price for housing given the price of money?

Do people who claim that assets exhibit “irrational” moves have a clear idea of what level of volatility would be “rational”, especially given such cross‐influences? I do not endorse the Dividend Discount Model, but no-one can deny that it is a fundamental model, and it predicts higher volatility when rates are low. Given current levels, a 10% one day drop of the market is by no means absurd. The stock market should also have more idiosyncratic volatility when it is driven by “top-down” policy, rather than averaging many “bottom-ups.”

There is perhaps a “long-termism” fallacy. Even if prices change glacially, if you want to maintain a portfolio limited to 30 stocks out of a universe of 6000, it is easy to see how a sensible person might change the “best ideas” list with some frequency. The more prices change, the more frequent portfolio changes would be in order from a valuation standpoint. Again, asset prices are not hermetically sealed, one‐sided meanings and values. There is always some discount factor or relative valuation at play.

The easiest way to achieve a shock “20 standard deviation” move is to just not mark (or mis‐mark) for a while. Deferral of pricing is much more likely than active trading to originate an explosion large enough to affect the underlying economy. Deferral of pricing, not active trading, played a large role in the corporate credit crisis. Social Security and entitlement programs are also “off balance sheet” debt. At least banks failed to predict the future. Governments failed to predict the past. The basic demographic and longevity trend has been apparent since at least the 1960s.

Demographic trends suggest lower real returns than those seen in the 20th century. Do economists have a demographic blind spot?

What’s the difference between predict a lot y Bolsa de predicciones? they have the same things or at least very similar. ?Are you the same? They have predictions, groups, events etc. the only difference is the language; BP is in spanish.

This is my answer.

The main difference is that on bolsadepredicciones (and other prediction markets like crowdcast, inklingmarkets, intrade, newsfutures, hubdub RIP, and WorldCupX.com — a new site with a nice/fresh look and good social hooks) every prediction is independent (separate) and there are at most a few thousand.

In predictalot, all predictions are interrelated (predicting Spain to win automatically increases Spain’s odds of reaching the knockout round) and there are millions and millions of predictions possible, far more than other sites.

We also think our interface is easier to use than others, but you be the judge.

Predictions are flowing in about every three minutes. Here are some from the last half hour:

Chile will finish second in their group. Current odds: 33.50%.
Spain will finish first in their group. Current odds: 52.48%.
Spain will play Portugal in the knockout stage. Current odds: 48.77%.
Roger joined the group ‘inetco’
Spain will advance further than Greece. Current odds: 76.93%.
Spain will not advance to the Knockout Stage. Current odds: 23.13%.
Spain will advance to the Knockout Stage. Current odds: 77.86%.
Both United States and Uruguay will advance to Quaterfinals. Current odds: 60.04%.

Finally, here are instructions for playing predictalot on your iPad:

1. Click Safari
2. Go to predictalot.yahoo.com

In its approval of Trend Exchange and preceding statements, the CFTC has confirmed a very broad definition of “commodity” that includes “event” contracts. The old debate about whether or not the CFTC has jurisdiction over “prediction markets” has been decided for now. Yet, there is considerable dissent within the Commission. Commissioners Chilton and Sommers have expressed disapproval that the Commission did not first address the general questions raised in the 2008 Concept Release. To this point, given the very broad definition of “commodity,” it now seems that Intrade and online sports exchanges could be in violation of the Commodity Exchange Act. The Commission does not consider an “economic purpose test” in the contract review process, and there is no statutory basis for such a test being used in jurisdictional determinations. Perhaps as a matter of practice, in accordance with the spirit of the Act, the Commission is considering such a test for jurisdicitional questions as I suggested in my Concept Release comments (surprisingly cited by the MPAA group). Otherwise, it seems inconsistent that exchange-traded sports bets, for example, would not also be considered commodities and be subject to the Act.

As a whole, the Commission has apparently decided to defer such questions and focus on specific techniques for ensuring that the new contracts fulfill the Act from the standpoints of manipulation and fair trading. To these ends, the CFTC will require, “entities and individuals who control a film’s marketing budget, release date or opening screen number to provide the Exchange with information regarding such decisions whenever that entity or individual holds a position of 1,000 or more contracts.” Additionally, the Commission will require a “firewall” within studios and distributors, and has restricted certain employees from trading altogether. These are procedures that I had recommended for event contracts, but they are relatively novel mechanisms in the commodities world. Whether or not the CFTC would agree to support special trading restrictions was the pivotal question in whether the contracts would be approved. I applaud the principled, politically independent thinking of the Commission and the can-do attitude of the Market Oversight Division — though some headline risk has been assumed here if something should eventually fall through the cracks.