Predictions

Contents

Explainer On Prediction Markets
Dynamic, Objective Probabilistic Predictions = Charts Of Prediction Markets
Post-Mortem
Exchanges Running Prediction Markets
Software For Prediction Markets
Other External Resources On Prediction Markets
Experts On Prediction Markets

#1. Explainer On Prediction Markets

The prediction market technology is not a disruptive technology, and the social utility of the prediction markets is marginal. Number one, the aggregated information has value only for the totally uninformed people (a group that comprises those who overly obsess with prediction markets and have a narrow cultural universe). Number two, the added accuracy (if any) is minute, and, anyway, doesn’t fill up the gap between expectations and omniscience (which is how people judge forecasters). In our view, the social utility of the prediction markets lays in efficiency, not in accuracy. In complicated situations, the prediction markets integrate expectations (informed by facts and expertise) much faster than the mass media do. Their accuracy/efficiency is their uniqueness. It is their velocity that we should put to work.

A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays $100 only if candidate X wins the election, and $0 otherwise. When the market price of an X contract is $60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative represents the imputed perceived likelihood of the partially uncertain future outcome (i.e., its aggregated expected probability). A 60% probability means that, in a series of events each with a 60% probability, the favored outcome is expected to occur 60 times out of 100, and the unfavored outcome is expected to occur 40 times out of 100.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism —with or without an automated market maker.

Prediction markets enable us to attain collective intelligence. Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that the traders bring when they agree on prices. The event derivative traders are informed by the primary indicators (i.e., the primary sources of information), like the polls, for instance. These informed speculators then execute their transactions based on their anticipations about the future —anticipations that will be either confirmed or infirmed.

The value of a set of prediction markets consists in the added accuracy that these prediction markets provide relative to the other meta predictive mechanisms, times the value of accuracy in improved decisions, minus the cost of maintaining these prediction markets, relative to the cost of the other meta predictive mechanisms. A highly accurate set of prediction markets has little value if some other meta predictive mechanism(s) can provide similar accuracy at a lower cost, or if very few substantial decisions are influenced by accurate predictions on its topic.

More Info:

- The Midas Oracle Explainers On Prediction Markets

- All The Midas Oracle Explainers On Prediction Markets

Gartner ranked the benefits given by software for enterprise prediction markets as “moderate” (look up the 3rd line of the 3rd column):

Gartner – Hype Cycle for Social Software, 2008 – (PDF file):

California Institute of Technology economist Charles Plott:

What you’re doing is collecting bits and pieces of information and aggregating it so we can watch it and understand what people know. People picked this up and called it the “wisdom of crowds” and other things, but a lot of that is just hype.

#2. Dynamic, Objective Probabilistic Predictions = Charts Of Prediction Markets

2010 US Elections

UK Elections

Next General Election – Most Seats

Next UK Prime Minister

Winner of Next UK Election – Political Party

UK Conservatives

UK Labour

3. Post-Mortem

- I will put some famous post-mortem, here, later on.

- Charts Of Expired Prediction Markets

4. Exchanges Running Prediction Markets

Prediction Exchanges (a.k.a. Event Derivative Exchanges, Bet Exchanges, Betting Exchanges)

#1. Real-Money Prediction Exchanges

- InTrade – (CDA)

- TradeSports – (CDA) – Terminated

- Nadex – HedgeStreet – (CDA)

- Iowa Electronic Markets – (CDA)

- BetFair – (CDA)

#2. Play-Money Prediction Exchanges

- HudDub – (MSR + AMM)

- NewsFutures – (CDA)

- Inkling Markets – CNN Political Market – (MSR + AMM)

- InTrade .NET – InTrade (play money) – WSJ Political Market – FT Predict – (CDA + AMM)

- BetFair (play money) – (CDA)

- Hollywood Stock Exchange – (Virtual Specialist + AMM)

- Th complete list of the main real-money and play-money prediction exchanges (betting exchanges) at Midas Oracle

- Another list of the real-money and play-money prediction exchanges (betting exchanges) at Midas Oracle

5. Software For Prediction Markets

Software For Prediction Markets

- Inkling Markets – (MSR + AMM)

- NewsFutures – (CDA + optional AMM + SR)

- CrowdCast – (MSR + AMM)

- Zocalo – (CDA + MSR + AMM) – (open-source)

- The complete list of the software packages for prediction markets at Midas Oracle

6. Other External Resources On Prediction Markets

Wikis On Prediction Markets

- Wikipedia – Prediction Markets

Books On Prediction Markets

- Predictocracy: Market Mechanisms For Public And Private Decisionmaking – by Michael Abramowicz – 2008

- Winning On Betfair For Dummies – by Alex Gowar and Jack Houghton – 2006

- Information Markets – A New Way Of Making Decisions – (PDF file) – edited by AEI-Brookings’ Bob Hahn and Paul Tetlock – 2006

- The Wisdom Of Crowds – Why The Many Are Smarter Than The Few And How Collective Wisdom Shapes Business, Economies, Societies and Nations – by James Surowiecki – 2004

Research On Prediction Markets

- Prediction Markets: Trading Uncertainty for Collective Wisdom – (PDF file) – by NewsFutures’ Emile Servan-Schreiber – 2009-04-xx

- Learning in Investment Decisions: Evidence from Prediction Markets and Polls – (PDF file) – David S. Lee and Enrico Moretti – 2008-12-XX

- Gartner – Soon.

- Prediction Markets: Wisdom Of The Crowd Comes To The Enterprise. – (MO mirror) – by Forrester – 2008-07-14

- Using Prediction Markets to Track Information Flows: Evidence from Google – (PDF file – PDF file) – (MO excerpts) – by Bo Cowgill, Justin Wolfers, and Eric Zitwewitz – 2008-01-06

- Are Political Markets Really Superior to Polls as Election Predictors? – (PDF file) – by Chris Wlezien and Robert Erikson – 2007

- Using Forecasting Markets to Manage Demand Risk – by Intel Corporation’s Jay W. Hopman – 2007-05-16

- Prediction Markets – (PDF file) – by Eric Zitzewitz and Justin Wolfers – 2005

- Complete list of academic papers on prediction markets at CFM

- The Journal of Prediction Markets – (JPM)

- Google Scholar on Prediction Markets – Soon

Conferences On Prediction Markets

- Third Workshop on Prediction Markets @ Chicago, Illinois, U.S.A. – 2008-07-09

- Conference on corporate applications of prediction markets – by Koleman Strumpf – 2007-11-01

- Second workshop on prediction markets – 2007-06-12

- Confab Yahoo! on prediction markets – Streaming Video: 100k – 300k – 2006-12-13

News Articles And Opinion Pieces On Prediction Markets

- Betting on Ideas – Advanced computational models are enabling researchers to create increasingly sophisticated prediction markets. – by Communications of the ACM – 2009-03-19

- An uncertain future – A novel way of generating forecasts has yet to take off. – by The Economist – 2009-02-26

- The truth about prediction markets – by Chris Masse – 2009-02-14

- Harrah’s New Twist on Prediction Markets – In a pilot, casino staff will forecast customer spending, which could help boost revenue—and may prompt Harrah’s to form more diverse teams – by Deloitte’s John Hagel and John Seely Brown – 2008-12-22

- How Companies Are Using IT To Spot Innovative Ideas – by Information Week’s David Greenfield – 2008-11-10

- A century ago, Wall Street treated elections like they were pork bellies —and newspaper went along. – by Slate’s Jack Shafer – 2008-09-26

- What’s Holding Back Enterprise Prediction Markets? – by Future Blogger’s Alvis Brigis – 2008-09-15

- How do InTrade’s prediction markets work, and are they really accurate? – by CNBC’s Scott Cohen – 2008-08-25

- Regulation Looms for Prediction Markets. – The Commodity Futures Trading Commission is likely to become involved in regulating event futures—and it just may boost these markets. – by BusinessWeek’s Ricky McRoskey – 2008-07-07

- Software taps into the zeitgeist to predict the future. – by CIO New’s Linda Tucci – 2008-05-27

- Prediction Market prices can point to a sure thing. – by Financial Times’ John Authers – 2008-05-17

- BetFair Puts Focus on the Fix in Sports Bets. – by New York Times’ Joe Drape – 2008-05-15

- Prediction Markets: Co-Creating An Organization’s Future – (PDF file) – by Inside Knowledge Magazine’s Victoria Axelrod and Jenny Ambrozek – 2008-05-10

- Foretelling The Future: Online Prediction Markets – (video) – by ABC 20/20’s John Stossel and Maxim Lott – 2008-05-09

- The social utility of the event derivative markets – by professor Vernon Smith – 2008-05-01

- Betting to Improve the Odds – by New York Times’ Steve Lohr – 2008-04-09

- New Understandings in Sports Betting – (PDF file) – by BetFair’s Mark Davies – 2008-04-04

- The Promise Of Prediction Markets – by McKinsey – 2008-04-XX

- Prediction market platform taps the wisdom of employees, partners, customers – by Manufacturing Business Technology’s Karen Dilger – 2008-03-01

- When Markets Beat The Polls – (PDF file) – by Scientific American Magazine’s Gary Stix – 2008-03-XX

- Best Bet for Next President: Prediction Markets – Prediction markets can cut through the clutter of polls and pundits. – by Justin Wolfers in the Wall Street Journal – 2007-12-31

- Mob wisdom means business – So-called ‘crowdsourcing’ lets companies create massive focus groups, garner fresh ideas, and even predict the future. – by InfoWorld’s Lena West – 2007-12-10

- YouBet – The wonders and dangers of online sports wagering. – (page 2) – [BetFair explained to the Americans] – by Slate’s T.D. Thornton – 2007-11-28

- The future of futurology = The prediction markets – by The Economist – 2007-11-xx

- Double or Nothing on the Democrat – [The history of prediction markets] – by The New York Times’ J. David Goodman – 2007-11-04

- Before it’s too late – [enterprise prediction markets] – by Adam Siegel (Inkling Markets CEO) for Forbes – 2007-11-02

- Crowdsourcing The Crystal Ball – by Forbes’s James Surowiecki – 2007-10-15

- Bet on It! – (page two – page three) – by Spectrum’s Steven Cherry – 2007-09-01

- Ask The Market – Companies are leading the way in the use of prediction markets. The public sector may soon follow. – (PDF) – [Put the URL of the PDF file in the address box of your browser (as opposed to clicking on it, or right-clicking on it).] – by Region Focus’ Vanessa Sumo – 2007-07-20

- The Science of Success – The New Yorker’s James Surowiecki – 2007-07-09

- When enough people take a stake in the future, it’s like a crystal ball. – Page two. – Republished. – by The Associated Press’ Matt Crenson – 2007-06-23

- The Science Behind PPX – What’s the most accurate way to forecast the future? Simple: make predictions profitable—just like on the PopSci Predictions Exchange. – by Popular Science magazine’s Michael Moyer – 2007-06-15

- Tech lessons learned from the wisdom of crowds – CNET News’s Declan McCullagh – 2006-12-14

- The Election Investors – Political bettors were in force on trading sites, wagering on red or blue. - [WSJ $$$] – by Wall Street Journal’s E.S. Browning – 2006-11-09

- Why Gambling at the Office Pays. – Prediction markets that let workers place bets on business events help HP, GE and other companies make smarter moves. – by Business 2’s Erick Schonfeld – 2006-10-02

- CEO Guide to Technology – Workers, Place Your Bets – More corporations are setting up their own markets for economic forecasts, hoping to tap into the wisdom of employees. – by BusinessWeek’s Rachael King – 2006-08-03

- Business Solutions – How to Decide? Create a Market. – by Wall Street Journal’s Michael Totty – 2006-06-19

- The Future Divined by the Crowd – page two – (mirror) – by The New York Times’ Joe Nocera – 2006-03-11

- Capital Markets – Betting the Ranch on Your Company – While ”prediction markets” offer a venue to wager on the rise of a politician or the fall of a business executive, they might also provide a basis for useful corporate decision-making. – by CFO magazine’s Helen Shaw – 2006-03-06

- Can markets be used to help people make nonmarket decisions? – by Hal Varian – 2003-05-08

Petitions On Prediction Markets