OPEN-SOURCE PREDICTION EXCHANGE: How Smarkets is going to eat BetFairs lunch -well, they hope.

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TechCrunch UK

There’s an interesting twist – they plan to offer an open API for people to develop their own betting applications and use the Smarkets infrastructure. Their idea is this: users don’t need knowledge of odds or experience. It’s more about speed and entertainment than sports.

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Smart idea, but how will this crack the chicken-and-egg problem that every prediction exchange (betting exchange) has at inception? How will this help fighting BetFair’-s network effect? What makes you think that BetFair and TradeSports don’-t offer “-speed and entertainment”-? Do people really want to trade sports or “-develop their own betting applications”-? What would prevent BetFair and TradeSports to do the same?

Anyway, best wishes to UK-based Yankees Jason Trost and Hunter Morris. :-D

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Smarkets

Smarkets – Their web framework. – PDF file

Smarkets – Open-source software they use.

Smarkets – Press release

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The best research papers on prediction markets

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As seen by Andreas Graefe…-

IIF’s SIG on Prediction Markets

Research Papers

Basics

Several studies explain the concept of prediction markets and provide useful summaries of the method, e.g.

- Spann, M. &amp- Skiera, B. (2003). Internet-based Virtual Stock Markets for Business Forecasting, Management Science, 49, 1310-1326. [Full text]
- Wolfers, J. &amp- Zitzewitz, E. (2006). Prediction Markets in Theory and Practice, New Palgrave Dictionary of Economics and the Law (in press). [Full text]
- Wolfers, J. &amp- Zitzewitz, E. (2004). Prediction Markets, Journal of Economic Perspectives, 18, 107-126. [Full text]
- An overview and classification of 152 studies on prediction markets, published between 1991 and 2006, is provided by
Tziralis, G. &amp- Tatsiopoulos (2007). Prediction Markets: An Extended Literature Review, Journal of Prediction Markets, 1, 75-91. [Full text]

Evidence on the accuracy of prediction markets

This section summarizes research that analyzes the relative performance of prediction markets and other forecasting methods.

Markets vs. polls (election forecasting)

- Berg, J., Nelson, F. &amp- Rietz, T. (2008). Prediction Market Accuracy in the Long Run, International Journal of Forecasting, 24, 283-298. [full text]
- Erikson R. S. &amp- Wlezien C. (2007). Are Political Markets Really Superior to Polls as Election Predictors? Public Opinion Quarterly, forthcoming. [full text]
- Stix, G. (2008): When Markets Beat the Polls, Scientific American Magazine, March 2008. [Abstract]

Markets vs. unaided experts and groups

- Pennock, D. M., Lawrence, S., Giles, C.L. &amp- Nielsen, F.A. (2000). The Power of Play: Efficiency and Forecast Accuracy in Web Market Games, Technical Report 2000-168, NEC Research Institute. [full text]
– For predicting Oscar Award winners, Pennock et al. (2000) compared prices of the Hollywood Stock exchange to expert judgments of five movie columnists. On the day the experts revealed their forecasts, only one of them was better than the market predictions. From the day after, the market outperformed all experts as well as the expert consensus.
- Servan-Schreiber, E. J., Wolfers, J., Pennock, D. M. &amp- Galebach, B. (2004). Prediction Markets: Does Money Matter? Electronic Markets, 14, 243-251. [full text]
- For predicting the results of NFL games, Servan-Schreiber et al. (2004) compared the forecasts of two markets to those of 1,947 self-selected individuals. At the end of the season, the markets ranked 6th and 8th compared to the individuals. The human average – which would be the outcome of a classical survey – ranked 39th.

Markets vs. other forecasting methods

- Chen, K. Y., Plott, C. R. (2002). Information Aggregation Mechanisms: Concept, Design and Implementation for a Sales Forecasting Problem, Social Science Working Paper No.1131, California Institute of Technology, Pasadena. [full text]
- For forecasting sales figures, Chen and Plott (2002) reported on an internal market at Hewlett-Packard that beat the official forecasts of the company in 6 out of 8 events.
- Jones Jr., R. J. (2008). The state of presidential election forecasting – The 2004 experience, International Journal of Forecasting, 24, 308-319. [Abstract]
- Jones (2008) analyzed the forecasts of IEM’-s vote-share market for the 2004 election and compared them to traditional polls, a Delphi expert survey, regression models and a combination of all four approaches, the Pollyvote. He concludes that in comparison with most methods of forecasting the popular vote, the IEM was the superior performer.Spann, M. &amp- Skiera, B. (2003). Internet-based Virtual Stock Markets for Business Forecasting, Management Science, 49, 1310-1326. [Full text]
- Spann and Skiera (2003) compared forecast accuracy of an internal market at a large German mobile phone operator. They found that the market forecasts outperformed were more accurate than four extrapolation models (arithmetic mean, geometric mean, linear trend and exponential trend).

Corporate Markets

- Chen, K.-Y. &amp- Plott, C. R. (2002). Information Aggregation Mechanisms: Concept, Design and Implementation for a Sales Forecasting Problem. Social Science Working Paper No.1131, California Institute of Technology, Pasadena. [Full text]
- Cowgill, B., Wolfers, J. &amp- Zitzewitz, E. (2008). Using prediction markets to Track Information Flows: Evidence from Google, working paper. [Full text]
- Ortner, G. (1997). Forecasting Markets – An Industrial Application: Part I, working paper, TU Vienna. [Full text]
- Spann, M. &amp- Skiera, B. (2003). Internet-based Virtual Stock Markets for Business Forecasting, Management Science, 49, 1310-1326. [Full text]

Decision Markets

- Hanson, R. (1999). Decision Markets, IEEE Intelligent Systems, 14, 16-19.

Manipulation

- [Except] Hansen et al. (1998), most empirical studies report that manipulative attacks on result accuracy have not been successful historically (Rhode and Strumpf 2006), in the laboratory (Hanson et al. 2006), and in the field (Camerer 1998).
- Camerer, C. (1998): Can Asset Markets Be Manipulated? A Field Experiment with Racetrack Betting, Journal of Political Economy, 106(3), 457-482. [Abstract]
- Hansen, J., Schmidt, C. &amp- Strobel, M. (2004). Manipulation in Political Stock Markets – Preconditions and Evidence, Applied Economics Letters, 11, 459-463. [Abstract]
- Hanson, R., Oprea, R. &amp- Porter, D. (2006). Information Aggregation and Manipulation in an Experimental Market, Journal of Economic Behavior &amp- Organization, 60, 449-459. [full text]
- Rhode, P. W., and Strumpf, K. S. (2006). Manipulating Political Stock Markets: A Field Experiment and a Century of Observational Data, Working Paper, University of North Carolina(2006). [full text]

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More research papers on prediction markets

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Is Big Brother being fixed in Great Britain? And are the alleged fixers using BetFair to make a fast buck (or quid, as they say in the U.K.)?

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Via Ed, The Daily Mail:

The Daily Star reveals that some punters are set to earn more than half a million pounds after a total bet of ?971 was staked via BetFair on Nikki to win at 1000-1 shortly after she was voted out of the house. [...]

Rumours of ‘-insider dealing’- on BetFair chat forums continue to surround the clued up gamblers who stand to win ?582,250. [...]

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That “-Nikki”- was evicted, an later on re-instated in the game.

Hence, the questions about the traders who did bet on her, after her eviction. Did they “-know”- something that the other traders didn’-t?

On the other hand, it’-s a constitutional right for Joe A. Doe to bet ?971 on a loser. Many do that every day at the horse race track. We should not accuse people of insider trading (or corruption) without any evidence.

BetFair employs many specialists in their “-integrity team”- to deal with such occurrences.

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BetFair makes the frontpage of the New York Times -as the White Knight of sports. – Note that the term prediction markets is never pronounced. – TradeSports is not mentioned, but the last paragraph of the article suggests that all Internet sports betting should be legal and regulated.

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Previously: BetFair’-s Mark Davies on sports betting and the fight against corruption

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Previous blog posts by Chris F. Masse:

  • Excellent article about enterprise prediction markets and Inkling Markets —with a good word for Robin Hanson, who invented MSR.
  • HubDub limitations
  • BetFair Developer Program use Joomla! as their blog software (and CMS).
  • Lawsuit aiming at compelling the office of the United States trade representative to produce a copy of its compensation settlement with the European Union over the United States’ withdrawal of gambling services from the General Agreement on Trade in Services.
  • Iraq War = “not necessary”, “a serious strategic blunder” — US News Media = “complicit enablers” in the manipulation of the public (“the propaganda campaign”) — George W. Bush turned away “from candor and honesty when those qualities were most needed.”
  • JASON RUSPINI’S CROCKERY: The Brain states forcefully that they are not “event futures”, but “binary options”. Still, as soon as he premieres prediction markets on tax rates at InTrade, he calls them “tax futures” —of course.
  • Tasmania’s Prime Minister who licenced BetFair Australia departs “abruptly”.

A Betting Exchange = A Bookmaker -> !??

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BetFair:

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Betfair Customer Services 19 Mar 18:27
Dear BetFair, I hope you will answer the following:

Under current UK regulations you are not required by law to inform your customer base of changes in advance, but under FSA regulations and European Law you would be. Given the strength with which you defended the GC’-s consideration that exchanges should be FSA regulated when the Gambling Bill was first drafted, don’-t you think it would have been wise or prudent to satisfy the most basic of FSA regulations too – and advise your customer base of material changes to the bet matching algorithm: the key component of the exchange software we all trade on, and one which matches wagers totalling billions of pounds in the UK today.

I am not sure you are correct here: what we were doing here is entirely in line with our licence and what we have always said we do. If you look at repeated statements made about what we are, I (this is Mark [Davies]) have always stated publicly on behalf of the company that the best definition of a betting exchange is a bookmaker which uses technology to manage its risk perfectly. This is what we were doing here: matching bets in a manner which meant that we, as an operator, had no exposure to the outcome of the event. People have always described Betfair as P2P and told me that our description of the company in these risk-based terms was spin. The reality is the opposite: Betfair is a many-to-many system where demand between customers is matched such that the operator of the exchange does not have risk to the outcome of the event. It is precisely on this basis that we have always been licensed as a bookmaker.

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Mark Davies, BetFair’s Managing Director (Corporate Affairs)

Mark Davies

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Meet David Jack, the managing director of TradeFair.

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David Jack is on the right…- (here with Andrew “-Bert”- Black, the BetFair co-founder).

David Jack, the managing director of TradeFair

David Jack (Managing Director of TradeFair, a BetFair spin-off)

Previously: Binaries and Spreads: BetFair spins off TradeFair.

NEXT: Why does Tradefair care about Prediction Markets – by TradeFair’-s David Jack – 2007-12-06

Binaries and Spreads: BetFair spins off TradeFair.

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Via “-jwolstenholme”- and via Niall O’-Connor, who got the scoop, here’-s UK-based TradeFair (Binaries and Spreads):

TradeFair

–-&gt- David Jack (Managing Director of TradeFair) —- (Thanks to Niall for the LinkedIn link.)

A virtual tour of InTrade, the leading prediction exchange for North America

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John Delaney guides you inside the InTrade prediction markets. (YouTube videos)

#1. Welcome to InTrade

#2. Welcome to Trading 101 – InTrade

#3. Trading 101 on InTrade

Interesting. Well done. I hope we will have much more videos like these from all of the prediction market industry players, in the coming months.

The Global Betting Exchange

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The company behind BETDAQ will launch a new exchange in the near future. It is backed by significant players in the global sports trading market. It will offer breath of markets and level of liquidity unsurpassed in the betting exchange sphere. It wil target the retail exchange bettor. It will not be purple in colour.

Main investor: Dermot Desmond

Alleged investor: J. P. McManus

Other investors: [One or two surprises to come...]

Signed: Deep Throat

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The Global Betting Exchange

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Note to the Midas Oracle readers: Actually, there are two brand-new, real-money prediction exchanges (betting exchanges) that will pop up onto the prediction market scene soon. (That is, Global Betting Exchange is only one of them.)