Prior to the Wikipedia community vote on adopting CC BY-SA it crossed my mind to set up several play money prediction market contracts concerning the above outcomes conditioned on Wikipedia adopting CC BY-SA by August 1, 2009, for which I did set up a contract. It is just as well that I didn’t — or rather if I had, I would have had to heavily promote all of the contracts in order to stimulate any play trading — the basic adoption contract at this point hasn’t budged from 56% since the vote results were announced, which means nobody is paying attention to the contract on Hubdub.

Blame yourself, Mike. I blogged 10 times about the concept of “X group” —the symbiosis between a set of prediction markets and a set of bloggers.

Predictify is unveiling a two-way interaction between their prediction platform and the blogs out there.

1. FROM THE BLOGS TO PREDICTIFY: Number one, there is now a customized prediction widget that bloggers can embed in their blog posts so that their readers can vote within each blog post —without leaving the blog.
2. FROM PREDICTIFY TO THE BLOGS: Number two, there is now a trackback widget that bloggers can embed in their blog posts so that the blog readers can click and be connected to relevant questions on Predictify, based on the content in that particular post. As soon as one of the blog readers clicks a highlighted question, that question will have (on the Predicitif webpage) a trackback to the blog post —theoretically pulling traffic from Predictify to that blog. The first problem with this second feature is that only the most popular trackback will be published on the particular Predictify webpage, as I understand it. I don’t see how bloggers could be interested if there is no guarantee that their trackback will actually appear. The second problem is that we don’t know whether Predictify abides by the “do follow” policy, which is a way for a website to injects Google PageRank juice to the website it links to. (The opposite policy is called “no follow”.) Only the “do follow” approach would get bloggers interested in that scheme. Predictify should clarify that.
3. UPDATE: All the trackbacks will appear. They will be sorted by popularity. And, yes, Predictify has a “do follow” policy.

#2: Social Networking

I’m told that Predictify will soon unveil a FaceBook application. We will see whether it’s Predictify working on FaceBook or Predictify woking with FaceBook. See the difference? (YooPick works on FaceBook, not with FaceBook.)

Interesting new prediction market at HubDub.

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What I have just realized is that the most sociable of the HubDub traders (like the one who created the question above) can drive many of their “friends” to their newly created prediction market(s). I used to think that only a blogger would do that —I was wrong. HubDub has a performing social networking system that works in symbiosis with its prediction exchange. Very efficient.

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The more I dive into HubDub the more I find it smart and well structured.

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Freakonomics:

July 22nd,
2008
4:47 pm

I am producing the Freakonomics documentary, so I am particularly interested to read the comments to Prof. Strumpf’s guest post.

Koleman properly identified the likely reasons for FRKON’s summer swoon on the Hollywood Stock Exchange. While I cannot provide a definitive explanation for precisely which of those reasons was most influential, I can offer insight into what is actually transpiring (as distinguished from its virtual performance on HSX).

1. Theory: Changes in the likelihood of the movie being made. Reality: The film will be made; it is already “green lit”. I am an independent producer, subject to no studio. The likelihood of the film getting made has not wavered since I originally optioned the cinematic rights to Freakonomics. The only variables have been the scheduling vagaries and other challenges related to using multiple directors.

2. Theory: Changes in the perceived quality of the movie. Koleman posits a couple of possibilities: “funding shortfalls” and “conflicts among the five sets of directors”. Reality: There are no funding shortfalls (I am financing the film myself). None would have emerged yet, anyway. We haven’t even begun shooting the film. The directors will not be working together, so conflicts seem extraordinarily unlikely. To date, they have universally praised each other.

3. Theory: Out of sight, out of mind. Reality: This theory is true. We announced the project in December 2007 and earned a lot of press. Things have quieted significantly since then. We will get another wave of publicity this fall when we have presentable footage. We have another announcement that should generate attention, too (I address that below). Finally, there will be the inevitable surge of publicity when we announce our festival screenings in spring of 2009.

4. Theory: Get the movie mothballed. Reality: Although I am fascinated by conspiracy theories, they don’t apply here. There are no other investors. The Freakonomics documentary is as unconventional as the book. We hope it will be as iconic, too.

My theory: When we moved the shooting schedule from March to September, in order to better accommodate everyone’s schedules, I suspect the HSX investor community got restless. Moreover, FRKON is traded on an extraordinarily small base. Just a few purchases have a profound impact. It only took a few sellers to send the price hurtling downward. Put simply, now seems like a very opportune time to buy FRKON. The graph used shows its low mark on July 13th – it is up approximately 27% since last week and should continue to climb, just based on this blog post.

As a historical reference, I was an investor and Executive Producer for the critical darling, Paris je T’aime, another film that utilized the talents of several directors. It took several years to get made. Historically, omnibus projects just tend to take a little longer to make.

Sam, I appreciate the spirit of your post. I am a devoted fan of Freakonomics first and a producer second. Like you, I would like to involve as many people as possible in this project. Fortunately, we are poised to announce an innovative way to involve the entire Freakonomics community and attract rogue filmmakers. I’ll speak with Stephen and Steven about it, and we’ll announce it here first!

I am pleased to personally answer any questions the readers have about the Freakonomics documentary.

— Posted by Chad Troutwine

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Our previous post

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January 29th, 2008 at 7:25 am

Another important difference with NewsFutures (where people have been “trading news” in 2000) is that hubdub doesn’t give away any prizes to performers. That, perhaps, is a direct consequence of the false good idea of letting people create their own markets. This not only creates many opportunities for fraud (if, for instance, the creator of the market also controls the outcome), but it also encourages incoherent outcome definitions, unverifiable outcomes, and duplicate or junkyard markets. Same problems that Inkling’s public markets suffer from.

Also, the mere idea of a Web 2.0 makeover of prediction markets is laughable. To paraphrase a good ol’ song from the 90’s, prediction markets were web 2.0 before web 2.0 was cool.

Emile Servan-Schreiber’s criticism is pertinent. However, his conclusion (‘no’ to self-management of event derivatives) is too radical. Without Inkling Markets, we wouldn’t have had Michael Giberson, who loves experimenting with play-money prediction markets. Somebody will come up, one day, with the right technology (e.g., a reputation system) patching the flaws that EJSS addresses. One day, in the future, we will be able to enjoy both worlds, because they will have merged into one: the libertarian prediction exchanges and the disciplined prediction exchanges.

My good doctor Emile, remember JFK, who pushed his country to do things “not only because they are easy, but because they are hard“, …and succeeded. Just because event derivative management by traders is problematic does not mean that we should give up right now. Kudos to Inkling Markets and HubDub for trying, and acknowledging criticism from veterans.

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UPDATE: Emile Servan-Schreiber comments…

No one has a monopoly on user-driven content. Every exchange out there lets people propose their own ideas for markets that might be of interest to themselves and others. For instance, on NewsFutures, a lot of the general forum discussion is back-and-forth between the users and the admins about which markets to create next. Where NF differs from FX, Inkling and Hubdub is that the NF admins (which, by the way, are recruited from the user-base itself) have the final control on wording as well as settlement. That’s what guarantees the coherence of the exchange, which in turn means we are able to offer prizes, whereas the likes of FX, Inkling and Hubdub likely cannot because they give too much control away to unknown entities to guarantee the fairness of the contest.

I like NewsFutures, and I get all that. But I’m saying that, nowadays, on the Web, people want DIY tools. That’s why HubDub and Inkling Markets are appealing to them. They don’t have to discuss “back-and-forth”. They create the event derivative they want. Straight from the producer to the trader.

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Ken Kittlitz (the head of the Foresight Exchange) to me:

You’re correct, the owner of an FX claim must find a different FX player to act as the judge. This is largely to ensure that at least more than one person thinks the claim is worth having.

With Inkling Markets and HubDub, at the contrary, the creator of a prediction market can be the same person who (judges and) expires it.

Automated Market Maker for certain Intrade contracts

I have implemented subsidies to encourage trading of some conditional prediction market contracts that may provide useful information about the consequences of the 2008 presidential election, via a simple automated market maker (using an algorithm described near the end of http://hanson.gmu.edu/ifextropy.html). The subsidized market maker ought to provide incentives for traders to devote more thought to these contracts than they would if the liquidity was less predictable.

Intrade has agreed not to charge any trading or expiry fees on these contracts.

Some places to look for extensive description of the motivations behind these subsidies are here and here.

The contracts are:

• DEM.PRES-OIL.FUTURES: Oil Futures and PRESIDENT.DEM2008 prices will move in same direction on Election Day
  This will use the change in the December 2011 Light Sweet Crude Oil futures contract from the close before the election (Monday) to the close after the election (Wednesday). PRESIDENT.DEM2008 refers to the Intrade contract for “Democratic Party Candidate to Win 2008 Presidential Election”.
• DEM.PRES-T.BONDS: Treasury bond interest rate futures and PRESIDENT.DEM2008 prices will move in same direction on Election Day
  This will use the change in the December 2008 30-year US Treasury Bond futures contract from the close before the election (Monday) to the close after the election (Wednesday).
• DEM.PRES-TROOPS.IRAQ: Number of US troops in Iraq on 30 June 2010 if a Democrat is elected president in 2008
• NONDEM.PRES-TROOPS.IRAQ: Number of US troops in Iraq on 30 June 2010 if a non-Democrat is elected president in 2008
  These are scaled claims whose value will range from 0 if the troop levels are zero to 100 if the troop levels are 200,000 (or more).
• DEM.PRES-GOVT.DEBT: Increase in US Government debt if Democrat elected president in 2008
• NONDEM.PRES-GOVT.DEBT: Increase in US Government debt if non-Democrat is elected president in 2008
  Note that the change in debt is usually quite different from what is reported as the budget deficit. The debt numbers will be taken from a source such as the St. Louis Fed Series GFDEBTN, Federal Government Debt
  These are scaled claims whose value will range from 0 if the debt does not increase to 100 if the debt increases by $1 trillion (or more).

Please read the detailed specifications at Intrade before trading them, as one-line descriptions are not sufficient for you to fully understand them.For the first two of those contracts, the market maker will enter bids and asks of 38 contracts, and can lose a maximum of $5187.76 on each contract. For the other four contracts, the market maker will enter bids and asks of 115 contracts, and can lose a maximum of $7906.25 on each contract. The orders may not always show as many contracts as the market maker enters because it doesn’t update orders in response to partial executions. The market maker is designed to maintain a spread of about 2.5 points or less between the bid and ask (unless the price would drop below 0.1 or rise above 99.9, in which case it only maintains an ask or a bid, not both), and it should place new orders within a second or two after one of its orders is completely executed.

Here is a list of the prices at which the market maker might place orders for the 4 contracts where its order size is 115. It will start at a bid of 48.80 and an ask of 51.20. If a bid is completely executed, it will change its orders to a pair of prices one line lower on this list, and if an ask is completely executed it will change its orders to a pair of prices one line higher on this list. For the two contracts where the order size is 38, the spread between the bid and ask will be half the size shown in that list in most cases.

If it appears not to be working this way, please notify me at pcm –at– rahul.net.

Log of trades (updated 4 times a day, times are GMT)

source code (in Python).

Robin Hanson:

Presidential Decision Markets

We have had many prediction markets on who will be elected, but almost none on who should be elected. So far, the only exceptions I know are decision markets on which nominees would most help their party gain the U.S. presidency.

Today, I’m pleased to announce that Peter McCluskey has funded the creation of six now-live InTrade markets that should tell us how a Democratic versus Republican U.S. President will differently effect oil prices, long term interest rates, US government debt, and US troops in Iraq! If enough people trade these assets, then for voters who know which direction they want these parameters to move, InTrade market prices could advise them on how to vote!

Two different approaches will be tried on these four parameters. Two parameters will use a binary shock response futures approach, with one asset each paying based on whether, over the course of election day, oil prices or T-bond interest rates move in the same direction as the probability of a Democrat winner. For example, if you think (speculators think) that a Democrat is more likely to raise oil prices than a non-Democrat, you should be willing to pay more than 50 for the asset that pays 100 if these two move in the same direction. You can cash in these assets a few days after the election.

For the two other parameters, four assets will support simple conditional estimates. Each parameter will have Democrat, Non-Democrat asset pairs. The Democrat asset in the pair pays only if a Democrat is the next president, while the other asset only pays otherwise. Bundling each pair together gives assets whose prices estimate:

• The probability US Govt debt will rise from FY 2010 to 2011 (assets: D, ND).
• The number of US troops in Iraq mid 2010 (assets: D, ND).

Dividing the price of each individual asset by market chances of a Democrat president (or not) produces estimates of these parameters conditional on a Democrat president (or not). The difference between the Democrat and the other conditional estimates say how much of a difference speculators expect a Democrat to make on that parameter. You’ll have to wait up to four years to cash in these assets.

I see four key open questions:

1. Can we get precise enough prices to see a Democrat versus not difference?
2. Can we convince voters that such prices give reliable non-partisan estimates?
3. Can we convince voters these prices show causal effects of the party in power?
4. Can enough voters tell which way they’d like these parameters to move for prices to be useful? (I’m not sure which ways I want.)

Added: Peter has been told InTrade will waive all trading fees in these markets!

Justin Wolfers:

Congratulations Robin and Peter – I think that this is a fantastic innovation, and I look forward to tracking these markets.

Robin Hanson:

More Presidential Decision Markets!

Wow. Under “politics,” next to the “US Pres. Decisions” section I announced Friday, Intrade.com now has an “Impact of next Pres.” section, with markets for conditional estimates of these four parameters:

* eco growth to be at least 2.5% over the next three years,
* unemployment rate to be less than 5% at end of 2011,
* number of violent crimes in 2010 to be less than in 2007, and
* Democrats to control House of Rep’s after 2010 mid-terms,

given each of these five candidates: Clinton, Edwards, McCain, Giuliani, Huckabee, Romney. Cool! I don’t see any orders in these markets yet though, so it is hard to tell how much liquidity they will have.

Added: This is a research initiative of the University of Westminster.

The explainer below on trader incentives is awesome, by the way. Go reading it, folks.

1. InTrade floats a set of event derivatives on the future rate of US president job approval, and Real Clear Politics publicizes it.
2. Real Clear Politics averages the Bush job approval polls, gives the result to InTrade, which then expires its contracts accordingly.

Of course, this example is a bit primal and a bit boring (and not that successful in terms of induced liquidity), but, if you scratch your little head, you can think of plenty of other ideas where a community can decide the outcome of an event, which can be the basis of a prediction market (which the community will publicize). Sky’s the limit.

Previous: The Freakonomics’ x-group — (about the Jatropha prediction market)

Steve Levitt:

September 5, 2007, 9:33 am
When Dubner Talks, People Listen
By Steven D. Levitt

Well, at least the folks at the PopSci Predictions Exchange listen.

Last week Dubner blogged about Jatropha, a weed that could spearhead a biofuel revolution. At the end of his post, he urged the PopSci Predictions Exchange to launch a contract on Jatropha.

Voila.

So far there are only sellers — people betting against Jatropha — and no buyers.

OK, what we have is the most popular economics blog (now that it is under the umbrella of the New York Times) suggesting an event derivative, successfully, and now promoting its trading to its blog readers. Good. Now, what could happen from there? That’s an interesting area of interest, I believe. In all logic, the Freakonomics blog would publish follow-up stories, once in a while, about the whole Jatropha issue, and that would impact the trading of that event derivative.

Maybe Bo Cowgill could think up some exchange software improvement. For instance, the traders of this Jatropha event derivative may decide not to stay anonymous so as to be known by the event derivative creator (Freakonomics), who may be willing to publish the names of the 5 best traders (on this Jatropha event derivative) in order to boost interest to it. Any other idea? I’m sure there are plenty of ideas. Mike Giberson, any idea?

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MORE ABOUT MY CONCEPT OF X GROUP: Actually, my concept of “X group” can go further than that, if you want to reach the maximum climax possible.

#1. You can have a coalition of many big blogs —not just one. (Well, in a way, now Midas Oracle has joined Freakonomics. But we’re not a “big blog”, really. I seek “big blogs” because I believe that they can bring traders to the prediction market that they promote.)

#2. Now, you can go further than just a privileged relationship between one blog (or a coalition of blogs) and one Jatropha prediction market, whose expiry would be executed on the basis of external news (in this case, the 2008 data on exportations of Jatropha). You can have an event derivative expiry based, not on external news, but on the collective decision of that group of bloggers. Let me give you an example. Let’s say that that there’s a 2008 bet on whether George W. Bush was true to the conservative movement. At the end of the year 2008, a group of bloggers would vote on this question, and the result of their vote would expire the event derivative (which their readers would have traded on) —yes, Bush was true to the conservative movement, or, no, Bush was not true to the conservative movement. Two things to note. Number one, note that the expiry process feed on both both facts and opinions —whereas in the FOMC prediction markets, for instance, the expiry is based on facts only (the opinions being buried in the FOMC minutes). Number two, note that it can be possible, of course, for those expiry jurors to live-blog about their fact gathering and opinion changing. So, to foresee in which direction the event derivative will be settled, the traders should have to pay attention to all the blogs. That would be fun. I’m sure someone like Caveat Bettor would like that —wouldn’t you, Cav?

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Previous: Freakonomics + PopSci PPX = Not yet an X group + FREAKONOMICS HAS SUCCEEDED IN PERSUADING POPSCI PPX TO CREATE A JATROPHA BIOFUEL PREDICTION MARKET.