Checked.

Via Barry Ritholtz (author of Bailout Nation)

The Chicago candidacy, which was favored by the prediction markets (and gullible bettors like Ben Shannon), is the one that fared the worst.

As we have blogged here many times, not every prediction market is created equal. Some are bound to aggregate bits of known information. Some others (e.g., the Olympic city prediction markets) are not able to do that, because no good information is leaking out. The IOC is a close aristocratic group that does not leak out good information. Those who forgot that and bet the farm on Chicago are now licking their wounds. You need an information analyst to assess whether a particular prediction market is pertinent.

- BetFair’s event derivative prices:

- InTrade’s event derivative prices:

- HubDub’s event derivative prices:

Who will recieve the winning bid to host the 2016 Olympics?

- Here’s what happened to the Paris 2012 event derivative:

Previously: Will Chicago get the Olympics? Don’t bet on it. Too risky.

Next: Could we have divined that Chicago was a lemon?

Next: “I have to agree with Chris. The market participants did not possess a sufficient level of information completeness to arrive at the correct prediction.”

http://www.chicagotribune.com/business/yourmoney/chi-0704160447apr17,0,2547860.column?coll=chi-business-hed

Prof, you were 100% wrong.

Prediction markets on which country will host the Olympics have never worked.

- BetFair’s event derivative prices (on the far right of the chart, you can see that the price went down to zero):

- InTrade’s event derivative prices (on the far right of the chart, you can see that the price went down to zero):

- HubDub’s event derivative prices:

Who will recieve the winning bid to host the 2016 Olympics?

- Here’s what happened to the Paris 2012 event derivative:

The Chicago candidacy, which was favored by the prediction markets (and bettors like Ben Shannon), is the one that fared the worst.

I TOLD YOU SO:

- “Will Chicago get the Olympics? Don’t bet on it. Too risky.“

- The prediction markets are not able to forecast which country will get the Olympics. The IOC is a close aristocratic group that does not leak information. Hence, it is not possible to aggregate information.

- Once again, Ben Shannon made a very bad bet. He should read Midas Oracle more often —if he wants to avoid personal bankruptcy.

- Once again, we see that the P.R. agents of InTrade and BetFair (who both bragged about being able to predict Chicago) were overselling.

- BetFair’s event derivative prices (on the far right of the chart, you can see that the price went down to zero):

- InTrade’s event derivative prices (on the far right of the chart, you can see that the price went down to zero):

- HubDub’s event derivative prices:

Who will recieve the winning bid to host the 2016 Olympics?

- Here’s what happened to the Paris 2012 event derivative:

Next: Could we have divined that Chicago was a lemon?

Next: “I have to agree with Chris. The market participants did not possess a sufficient level of information completeness to arrive at the correct prediction.”

Midas Oracle has always been unfavorable to bets on what a close aristocratic group is going to decide. It is impossible to forecast, because there are no leaks —there is no good information to aggregate. Here’s what happened to the Paris 2012 event derivative, baby Shannon:

UPDATE:

Next: Chicago won’t have the Olympics in 2016.

Next: The Chicago candidacy, which was favored by the prediction markets (and gullible bettors like Ben Shannon), is the one that fared the worst.

Next: Why an analyst should assess each newly created prediction market.

- BetFair’s event derivative prices:

- InTrade’s event derivative prices:

- HubDub’s event derivative prices:

Who will recieve the winning bid to host the 2016 Olympics?

-

Next: Could we have divined that Chicago was a lemon?

Next: The market participants did not possess a sufficient level of information completeness to arrive at the correct prediction.

New York Post: GAMBLERS BET ON HILL & MITT FOR VEEP.

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On 10 October 2006, Interactive Gaming Holdings announced that it has entered into an agreement with Betfair, the world’s leading online betting exchange, to integrate its exchange into IGH’s back end betting systems. IGH then operated the online betting sites Premier Bet and Heathorns.

At the time of the deal, IGH said that the deal, the first of its kind would expand the Group’s comprehensive offering and deliver additional benefits to customers such as improved betting odds.

Under the terms of the deal, IGH received an automatic feed from Betfair of events, markets, selections and prices allowing the Group to offer its customers a wide range of markets, including in-running betting. The deal also offered IGH the scope to set prices in relation to Betfair’s current market prices and to hedge either automatically or manually on Betfair, depending upon its current liabilities.

In addition, IGH was to receive an automatic arbitrage alert should its prices offer arbitrage opportunities.

IGH declared that semi and fully automatic modes would allow it to continue to take bets from marked customers regardless of their risk; “With sufficient liquidity in the exchange, bets can be taken with no limit.”

At the time of the deal, Steve Burns, CEO of Betfair, commented: ‘We are delighted to have entered into this agreement with Interactive Gaming Holdings. The partnership will offer clear operational synergies to both companies and broaden the markets currently targeted.’

Commenting on the agreement, John Heaton, the then CEO, of Interactive Gaming Holdings, said: ‘The alliance with Betfair provides Premier Bet and Heathorns with theexciting opportunity of offering customers access to a wider range of bettingmarkets with the additional convenience of being able to access these from a single account.’

It has been alleged that IGH went to the wall owing Betfair the sum of 250K. Were this true, it seriously calls into question the nature of Betfair’s relationships with its market makers and strategic partners. At the very least, one would expect to see further clarification of the matter in Betfair’s forthcoming results. Red faces all round.

Niall O’Connor

But if that is the case, then why all the gambling/prediction market interest in the fates of two fictional characters – Harry Potter and Tony Soprano – and their equally fictional associates?

These fictional worlds do not produce widely dispersed bits of information that can be usefully aggregated by a market. Careful study of, say, the first six Harry Potter books and reading interviews with J.K. Rowling may produce some sense of what will happen, but ultimately whether “Harry Potter must die” (as Marginal Revolution suggested) or “Harry Potter will NOT die!” (as Chris. F. Masse at Midas Oracle interprets prediction market prices to suggest) will depend on what Rowling wants to say through the book and how she decides to do it.

I don’t think there is sufficient information available to form a good probability estimate. So the betting is all based on emotion, and some bettors will be lucky and others not. An informed insider can enter the market and clean up.

A lot of people enjoy betting on entertainment events (a category broad enough to include everything from the Super Bowl winner to week-end movie box office totals to the survivor/winner in the TV show “Hell’s Kitchen), and far be it from me to want to squash people’s fun. Fun is good (and good for business if you are a prediction market maker).

But if you are an investor trying to maximize long term returns and have no inside information, this is a case where Kelly’s criterion for betting comes into play. Kelly’s criterion for bet size can be described as “edge over odds,” implying, as Wikipedia explains: “If the gambler has no edge, … then the gambler should bet nothing.”

[NOTES: This post is a lightly edited version of "Will Harry Potter Die? Don't Bet on It," originally posted at Knowledge Problem.

The Wolfers and Leigh piece provides a good general background on prediction markets. HT to Midas Oracle for the heads up on the Wolfers and Leigh article.

Also at Marginal Revolution: Tony Soprano must live, citing a Washington Post story among others.]