The British press on the disaster.

Via Mark Davies.

How do we know the Intrade price was not accurate? Well, the raid wasn’t just executed on a whim. It had been planned for quite some time. Therefore, the true likelihood must have been much higher than the four or five percent chance the market was telling us.

Many people knew of the plans, albeit they were very high ranking, sworn-to-secrecy types. Since the market did not reflect the potential success of the planned raid, either the market was inefficient or the market, in an aggregate sense, did not possess enough information to make a reasonably informed prediction. In this case, I have to believe the market participants (every last one of them) knew next to nothing about the outcome being predicted.

The Intrade market prediction was nothing more than an aggregation of guesses. This is very different from an accurate prediction (based on calibration) that turns out to be wrong.

Markets such as these have no use, whatsoever, in decision-making. The useful information was that gathered by the SEALs and other secret services, and that was the information provided to the real decision-maker, The President. I would argue that these types of markets have no place as betting markets either. There is no way to test the calibration, so we don’t know whether they are “fair” markets (unlike the accurate calibration of horse races and casino games).

In other words, stop wasting our time operating and analyzing these markets. They are never going to be useful.

How do we know, now, that Intrade’s market price was not an accurate estimate of the probability bin Laden was killed or captured by September 2011? Is an prior estimate of 50 percent likelihood that a tossed coin will come up heads wrong if the coin comes up as “100 percent” heads (and not half-heads and half-tails)?

I’m not buying Chris’s implied definition of success and failure.

However, one might ask Robin Hanson about what the Intrade market’s performance implies about the usefulness of his Policy Analysis Market idea.

Note that I was contrasting the InTrade-Bin-Laden failure with the high expectations set by Robin Hanson, Justin Wolfers and James Surowiecki.

Also, other than statisticians, most people don’t have a probabilistic approach of InTrade’s predictions. That’s the big misunderstanding, which is one part of the big fail of the prediction markets.

In the Fukushima case, Intrade was worse than a random generator. Outside the TepCo operators, nobody knew anything.

#fail

In my view, InTrade’s contracts on “current events” are over-cited in the economics literature and the business media.

UPDATE: Upgrade to Level 6, here.

Next: The Japanese professor who predicted the nuclear disaster — [PREDICTION POST-MORTEM]

NEXT: InTrade was not able to predict anything regarding the Fukushima nuclear energy plant. — [PREDICTION POST-MORTEM]

After a big fail, one can never be too prudent.

Previously: InTrade CEO John Delaney apologizes for the ‘Mubarak Departure’ prediction market scandal. — {Mubarak Market Unwound} — [VICTORY]

John, I am calling on you to fix this problem before the story spreads outside of this forum [*] and takes on a life of its own.

[*] Last week, Midas Oracle offered a tribune to the disgruntled InTrade traders.

InTrade CEO John Delaney (today, February 8, 2011):

Mubarak Market Unwound

Tuesday, Feb 8, 2011

Dear Members,

RE: Hosni Mubarak to depart his current position as Pres. of Egypt.

I have considered this issue at length and have just authorized the unwinding of all trades relating to the settled Mubarak departure markets.

While this was done in compliance with Exchange and Contract Rules, it was motivated by my assessment that a significant disconnect between the intention of the market as assumed by the vast majority of you our members (and unbiased independent comments) and the clarified contract rules as published has occurred.
I am sincerely sorry for this and any inconvenience caused.

Without attempting to justify the above disconnect, it is an unfortunate reality that due to the often unique nature of the markets we list conflicts of assumed intent and ‘small print’ arise very occasionally.
We try really hard to make sure such eventualities never occur but alas they do and will so long as offer new markets.
We have listed almost 1,000,000 markets over the last decade and thankfully issues of this nature have been exceptionally rare.

Again I personally apologize for this matter but nonetheless assure you of my own determination and that of my Intrade colleagues to give you the very best service at the very best price.

Sincerely,

John Delaney
CEO
www.intrade.com

Let’s see how the affected traders appreciate this fortunate turnaround.

In the meantime, I ask for the resignation (or the firing) of Carl Wolfenden.

Well, I have come to the end of my wits here.

This is very sad. The reputation of a business such as Intrade is the lifeblood of this type of operation. This sort of arbitrary expiry does not build confidence and faith with potential and existing customers… I don’t believe anybody here except Blaze can follow the reasoning that was applied. Nor will people outside understand why a contract entitled “Will Hosni Mubarak depart as President of Egypt? Hosni Mubarak to depart his current position as Pres. of Egypt before midnight ET 28 Feb 2011″ has been expired…

Intrade has been arguing that this was the intention of the contract. How can this be? Just read the title. Nor can it be argued that this contract was settled in strict interpretation of the rules. The rule that “the contract will expire when the resignation or retirement is announced, regardless of when it takes effect” is effectively meaningless because it can be used to enforce expiry at any time on anyone. Moreover, it is in contradiction with the stated intention of the contract and as Carl has acknowledged it is in violation of another clarification on the same type of contract… This is obvious to everyone except Carl and John.

Anyway, I am not going to speculate further on what the reasons for the expiry were… Perhaps, JR got it right? Maybe Domer’s line of reasoning applies?

What I have done is to explore the legal avenues open to me. I have consulted an Irish lawyer who said that he sympathized with me but that it would be very difficult to pursue a case in Ireland because Irish courts generally decline to accept gambling-related litigation. The reason for this is that gambling (and this would be interpreted as gambling) is considered to be socially undesirable. He said suing Intrade would be considered tantamount to taking a prostitute to court for failing to perform the service that was purchased.

The only chance I would have in court in Ireland was if I could prove that Intrade was not only in breach of contract but actually committed fraud by engaging in insider trading. This obviously would not be very easy to prove in court…

So is that the end of the story then? For most customers it would appear that this would probably be the end of the road… No chance to litigate in Ireland because Intrade is unregulated and Irish courts do not accept gambling-related cases.

This lawyer advised me to settle the dispute in Germany. I entered into the contract in Germany which is part of the EU. As a consumer, I am entitled to address my grievances with an Irish company through the German court system. My German lawyer has started working on the case…

I have been left with no other choice here.

More.

Previously: InTrade has just settled their ‘Mubarak Departure’ contracts (even though the Egyptian dictator is still at the helm of the country, at publication time). — [CHARTS]

UPDATE: InTrade opens up a new set of ‘Mubarak Departure’ prediction markets.

FINAL UPDATE: InTrade CEO John Delaney apologizes for the ‘Mubarak Departure’ prediction market scandal. – {Mubarak Market Unwound} – [VICTORY]

- “Intrade Market on Mubarak to depart Settled.”

- Al-Jazeera: “Mubarak vows to finish term.”

UPDATE: Please read Mike Linksvayer’s comment, just below. And here’s the link to the InTrade forum. And another thread is here.

MY TAKEAWAY:

All their ‘departure’ contracts say: “A resignation or retirement does not have to result in the individual actually departing from their current position by the date specified in the contract. The contract will expire when the resignation or retirement is announced, regardless of when it takes effect.”

That make them contracts on the announcement of a departure, not about the depart per se.

Makes no sense at all. Stupid.

UPDATE 2: This ends up in court.

UPDATE 3: InTrade opens up a new set of ‘Mubarak Departure’ prediction markets.

FINAL UPDATE: InTrade CEO John Delaney apologizes for the ‘Mubarak Departure’ prediction market scandal. – {Mubarak Market Unwound} – [VICTORY]