BetFair:

Betfair Robot on Exchange Games

Betfair Customer Services 13 Dec 16:51

From December 2007 Betfair has started employing its own software or “robots” to provide liquidity into the exchange games markets. It has been evident for some time that the activity of 3rd Party bots is essential to ensure that there is enough liquidity in the markets to provide an attractive customer proposition. For commercial reasons we have decided that rather than rely solely on 3rd party bots, Betfair will itself provide liquidity.

Our robot has no advantages over any other in price terms. That is, if anyone (whether electronically or manually) offers a better price, the Betfair robot will not try to better that price; and we are not market-making on the back of being able to see what everyone else is doing. Customers will be equally likely to be matched by a 3rd party as by the Betfair bot.

Our robots cannot cheat, they place bets through the same channel as other robots, have no access to privileged information and cannot influence the result. The architecture of the system has been passed by our regulator and approved.

BetFair Games

Once again, we see that BetFair are ethical and disclose… whereas InTrade-TradeSports are not and do not.

Previously: An automated market maker subisdizes Robin Hanson’s presidential decision-aid markets on Intrade

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 Wall Street Journal is running a political futures market where you can “trade” on candidates’ future performance or see how others assess their chances.

An important remark is that the WSJ Political Market is, number one, a play-money prediction exchange (unlike the real-money prediction exchanges that are studied closely by the economists such as Eric Zitzewitz, and which are the topic of the rest of the WSJ Op-Ed), and, number two, that the WSJ’s play-money prediction exchange is driven by an automated market maker linking InTrade’s real-money prediction markets and a set of play-money prediction exchanges powered by the InTrade-TradeSports software (Play-Money InTrade, FT Predict, WSJ Political Market, National Journal Ex., Rasmussen Ex., Real Clear Politics Ex., etc.).

I am all for:

1. play-money prediction exchanges;
2. automated market makers helping liquidity in play-money prediction markets (e.g., Inkling);
3. the InTrade-TradeSports software used for play-money prediction markets;
4. InTrade-TradeSports selling its software to the big media (and, later, to Fortune-500 corporations, I suppose).

My only remark is that, if the InTrade-powered sub-exchanges do indeed use a new kind of automated market marker, it should be disclosed and detailed. That’s all what I’m saying. I’m just asking for the truth.

—

WSJ Political Market:

Welcome to the WSJ Political Market
November 29, 2007

The WSJ Political Market is an exchange marketplace [???], like a stock market [no... like a derivative exchange], except the “stocks” traded are political candidates and the currency you’ll use is fantasy [and except that some "stocks" expire to zero... thus they cannot be qualified of "stocks"]. Users can trade contracts that are tied to the outcome of future political events, from individual state primaries to the general election.

Each participant is given ten thousand fictional WSJ dollars (WSJ$10,000) upon registration. You can use this fictional money to buy and sell contracts – buy if you think the outcome is likely, and sell if you don’t. The price of a contract reflects the market’s assessment of how likely its is to happen. Your performance will be tracked and the best traders will be ranked on our Leaderboard page[.]

Futures markets such as this one have been gaining attention for their powerful predictive capabilities. The prices on the WSJ Political Market reflect trading from millions of users via our partner InTrade. [Mysterious Irish sentence!!!!!] Sift through the data to gain unique insights into the 2008 Presidential race.

FAQ

Q: I am new – how do I get started?
A: Once you open an account then go to “Trading and Quotes” tab and select the market you are interested in then you are ready to start making predictions.

Q: I think an outcome isn’t going to happen, but you don’t have the opposite result, what do I do?
A: That’s the beauty of a Political Stock Exchange, to predict against an outcome you simply sell the contract.

Q: But I don’t own any contracts, how can I sell something I don’t own?
A: When you sell a contract you’re actually making the opposite prediction to buying the contract[.]

Q: Am I guaranteed the quoted price when I place an order?
A: We execute all orders automatically. When your order is entered it competes with others in a queue based on the best price and then the time the order was received by the Exchange. Orders at the same price joining the queue before yours have priority. Therefore we cannot guarantee the price until your order reaches the exchange and is executed at your quoted price or better.

Q: I have forgotten my login information
A: In the case of a forgotten password, click on the Login In link in the main login area, then select the Forgotten Password option. Enter the information requested and a new password will be emailed to you. In the interest of security, employees do not have access to your password but they can assist you with the Login Help section.

Q: Where do I find the Rules for expiring contracts?
A: The Contract Rules section can be found by clicking on the Rules link at the bottom of every page. This outlines how we list and expire contracts and includes circumstances such as games being postponed or players withdrawing etc. For Special contracts we may publish additional expiry rules in the Exchange News section (available from the Home Page).

Q: What is your role?
A: We match the orders of our predictions of our participants[.] [Do they view a bot as a "participant"? ]

Q: How do I contact You?
A: Email: predictions@wsj.com

Dead:

• CME Economic Derivatives — Auction format
• Economic Derivatives – (U.S.A.) — CME + ICAP + Longitude (previously with Goldman Sachs) — These financial instruments are traded through a Universal Dutch Auction format —an automated parimutuel technique. — OTC market (which limits participants to eligible contract participants) excluded from regulation by the CFTC.
• U.S. Idea Futures Exchange – (USIFEX) – (U.S.A.) — a defunct play-money prediction exchange
• Innovation Futures – (Massachusetts, U.S.A.) — by MIT’s Technology Review — a defunct play-money prediction exchange
• Global Imbalances – (U.S.A.) — Macro-economic prediction markets — By invitation only. Powered by NewsFutures. — CDA trading, it seems.
• Crowd IQ – (N.Y.C., N.Y., U.S.A.) — URL: CrowdIQ — Launched in 2006 by Chris Sun and Frank Conway — It has bellied up.
• BetBug – (Jersey) — Bills itself as “the Kazaa of betting”. — It has bellied up.
• LCD TV Futures — Not an exchange, no trading. — The LCD TV Futures game is open to the public. — Scoring Rules: players’ predictions are scored on 3 criteria: accuracy, duration, and certainty. — Discontinued.
• Penn State Idea Futures Market – (Penn State U., Pennsylvania, U.S.A.) — For use by human resource professionals — In collaboration with the Human Resource Institute — Launched in February 2006 by David L. Passmore and Rose M. Baker — Powered by NewsFutures
• UNC Chapel Hill Futures Trading Application – (U. of North Carolina, North Carolina, U.S.A.)
• Soccer Exchange – (Rotterdam, Holland, E.U.) — Soccer
• NobelPreisBörse – (Germany, E.U.) — Nobel Prize predictions — Seems defunct.
• WallStreet Sports – (Ireland, E.U.) — Defunct play-money prediction exchange of the Trade Exchange Network.
• BetX – (Germany, E.U.) — in German?

—

Almost Dead:

Biz Predict – (U.S.A.??) — Uses Consensus Point technology — Uses Robin Hanson’s Market Scoring Rules (a mix between CDA and Scoring Rules), in one dimension — Uses an automated market maker (AMM)

—

In Reconstruction

My Currency – (U.S.A.) — Powered by Consensus Point’s Foresight Server

See Jed Christiansen’s comment just below.

[...] From what I understand they’re in alpha and getting funding to expand the site to major cities nation- (and world-) wide.

—

- Complete listing of the real-money and play-money prediction exchanges at CFM

About FT Predict â„¢:

FT Predictâ„¢ is more than just a game. Predictive [*] markets collect the wisdom of the crowd* in a single dynamic price unit that can be far more sensitive to changes in the market than standard survey-based research. And a growing number of today’s leading companies embrace predictive market models in order to harness the wisdom of their own crowds to improve decision-making. Still, the fun part is playing the game and keeping up on what’s important to you at the same time. And if you like to play, we’ll keep playing.
We hope FT Predict interests you. Tell us what you think!
Looking for more information on Predictive Markets? Wikipedia’s entry is a good place to start.
* James Surroweicki’s book, The Wisdom of Crowds, offers insights into the dynamics behind predictive markets and why they work…and why sometimes they don’t.

[*] not “predictive markets”: prediction markets, please. (ALL markets are predictive.)

#1. Why not the full range of play-money contracts organized by TradeSports-InTrade (including the sports)?

#2. InTrade should unveil the purpose of its automated market maker. Here’s why. If there’s a linkage between the real-money contract prices and the play-money contract “prices”, then it might not be fun to trade on FT Predict with the hope of using the real-money InTrade prediction markets as advanced indicators. If the machine gives the right prices right away, then what would be the motivation to correct the prices?

Any comment, folks?

Addendum: What about the deal between Reuters and InTrade, as alleged by Deep Throat? Is that still on the front burner?

Addendum #2: I got Will Speck (FT’s R&D director for the Americas) on the phone real quick…

a) FT Predict is a play-money prediction exchange (betting exchange) that will reward its best traders. Time period of the contest: April to June 2007. Current top prize is a cruise trip for two persons.

b) The aim of The Financial Times is really to go global with this play-money prediction exchange (betting exchange). Currently, FT Predict is only for US residents, over 21, and physically present in the U.S. They will propose the game to other countries later on.

c) There’s indeed a link between FT Predict and the real-money Intrade prices, in the form of an automated market maker. Its purpose is only to start off the exchange; the aim is to have 100% organic volume as soon as possible.

Addendum #3: Other info I found on the Official Rules page…

[...] You will receive an account with a starting balance of 10,000 FT$ to use to make trades. [...] You may choose as many or as few of the approximately 250 contracts to trade each week using the available FT$ in your account. To simulate actual futures trading, a transaction fee of 0.05 FT$ per share will be charged for each trade you make. [...]

To “simulate”??? To get play-money traders accustomed to the configurations of a real-money prediction exchange, rather. The idea here, maybe, is to offer a free version of a betting exchange in the hope of converting prospects into real-money traders, later on.

Addendum #4: One last thought. FT Predict gives weight to CDA in its battle against MSR.

We use an automated market maker, an algorithm to set the price of the stock based on demand. Using that kind of mechanism, it’s easier to get activity with even a few people in the market. A traditional stock markets use a continuous double auction. In that approach, you need more people to get any activity going, but our system takes fewer people to get the market going.

Why is it that Inkling never mentions MSR or Hanson, in interviews or on its website, other than when I ask them? It would make Inkling look good. I’m baffled. Does Robin Hanson stink? Same question to David Perry of the Washington Stock Exchange (another play-money prediction exchange using MSR, and which has won the support of many scholars, for a mysterious reason).

PostScript: In an earlier posting on Inkling, I took a skeptical stance on them, for that same reason. I was wrong; here’s why. Yes, Inkling CEO Adam Siegel’s discourse is simplistic. The NewsFutures guy has more experience and many more toolkits. Inkling‘s simplicity is its best arm, actually. It allows it to establish minshare in segments of the general population that traditional prediction market operators don’t reach. For the Silicon Valley reporters, Inkling is a “Web 2.0″ firm (i.e., “cool” and “advanced”). Let’s hope that all this media coverage will attract many techies to the field of prediction markets.