- An event is “retarded” when it is after the others on the timeline.

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- I use the term “advanced, primary indicator” to talk about the leading sources of information that active traders rely on.

- Last time, in the title, I said that the InTrade traders were “retarded”, in the sense that they were late to compute that Israel will not attack Iran in the second semester of 2008. One InTrade trader (I presume he / she is) took strong exception with my wording. Sorry for that, man / woman.

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RANDOM HOUSE UNABRIDGED DICTIONARY:

- retarded = to be delayed

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Here’s the updated version of the story in question:

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- US Military Chief Says Any Attack on Iran Would be Destabilizing.

- Israel has signaled the U.S. and other allies that air operations to destroy Iran’s nuclear facilities are not imminent.

- Pentagon chiefs fear that Israeli plans for an attack on Iran’s nuclear programme will fail to destroy the facilities because neither the CIA nor Mossad knows where every base is located.

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Explainer On Prediction Markets

Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that traders bring when they agree on prices. Prediction markets are meta forecasting tools that feed on the advanced indicators (i.e., the primary sources of information). Garbage in, garbage out… Intelligence in, intelligence out…

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 can be interpreted as the objective probability of the future outcome (i.e., its most statistically accurate forecast). A 60% probability means that, in a series of events each with a 60% probability, then 6 times out of 10, the favored outcome will occur; and 4 times out of 10, the unfavored outcome will occur.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism.

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- US Military Chief Says Any Attack on Iran Would be Destabilizing.

- Israel has signaled the U.S. and other allies that air operations to destroy Iran’s nuclear facilities are not imminent.

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Explainer On Prediction Markets

Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that traders bring when they agree on prices. Prediction markets are meta forecasting tools that feed on the advanced indicators (i.e., the primary sources of information). Garbage in, garbage out… Intelligence in, intelligence out…

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 can be interpreted as the objective probability of the future outcome (i.e., its most statistically accurate forecast). A 60% probability means that, in a series of events each with a 60% probability, then 6 times out of 10, the favored outcome will occur; and 4 times out of 10, the unfavored outcome will occur.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism.

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In the Fallon case (an Irish jockey suspected of collusion with some bettors), the British police investigated the incidents. BetFair provided testimony. But the British justice decided that mister Fallon shouldn’t be convicted.

This week, the British police aired an internal report about why they lost the case —their fault, they write. I won’t analyze the full case on Midas Oracle, but I just want to touch 2 things:

1. The Times (of London) says that “any prosecution based on race-reading, that is proving a motive by [analyzing] a jockey’s ride, is doomed because it is open to so many interpretations.”
2. The British Police “had an inadequate understanding of the nature of online betting exchanges and the process of laying a horse to lose, the mechanism by which the defendants were alleged to have attempted to profit from fixed races.”

This second point was very clear during the trial, and the media reported, at the time, that BetFair didn’t do a good job in making sure that the Police would understand all the facts and mechanisms involved. Below are the media excerpts that make that case.

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The Guardian:

[...] [Acting detective inspector Mark Manning] began his investigation by visiting the offices of Betfair, the company through which the bets involved in the case were made. He was told that Fallon’s fellow defendant Miles Rodgers had risked a total of £2m, but Manning misunderstood and left with the belief that Rodgers had made a net profit of that amount. By the time the trial opened more than three years later, it had become clear that Rodgers had made a net loss of over £250,000 on the races concerned. [...]

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The Guardian:

[...] In part, the fault is Betfair’s, for failing to ensure that police investigators understood the meaning of the complex evidence they provided, and for passing pages of irrelevant data to the Crown that provided one of many early embarrassments for the prosecution. [...]

The senior detective in charge of the investigation, Mark Manning, had met [Betfair lawyer David O'Reilly] at Betfair’s offices earlier that year [in 2004]. Manning left with a fundamental misunderstanding – that Rodgers had made a net profit of £2m from his betting activities, when in fact this was the total amount that had been risked. By the time the trial began, it had become clear that the accounts controlled by Rodgers had in fact made a net loss of more than £250,000 on the 27 races investigated.

Betfair provided more than 300 pages of data in evidence, showing the betting activities of Rodgers’ accounts on these 27 races. O’Reilly, the first witness called, claimed in court that this data showed how Rodgers would take bets on certain horses at much bigger odds than were being offered by anyone else. Under cross-examination, however, O’Reilly was led to the realisation that the Betfair data for eight of the 27 races included details of bets made after the race had started, at which point larger odds could be justified by mid-race developments. Observers were shocked that Betfair could have made such a blunder in handling its own data.

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The father of one of the accused (and now cleared) jockey:

The man from Betfair admitted at the start of the trial he had misled police as to the amounts that had been gambled and then they brought in an expert witness from Australia [Ray Murrihy, Racing NSW's chief steward] who doesn’t know how things work here [in the U.K.].

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Daily Mail:

The case highlighted the difficulty of proving, forensically and legally, that a jockey has tried and succeeded in stopping a horse from winning.

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BBC News:

[...] At the end of the day, serious questions will be asked of both City of London Police and the Crown Prosecution Service as to why they agreed to proceed with a case that was so flawed and had little chance of success.

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The Increasing Dominance of Teams in Production of Knowledge

We have used 19.9 million papers over 5 decades and 2.1 million patents to demonstrate that teams increasingly dominate solo authors in the production of knowledge. Research is increasingly done in teams across nearly all fields. Teams typically produce more frequently cited research than individuals do, and this advantage has been increasing over time. Teams now also produce the exceptionally high-impact research, even where that distinction was once the domain of solo authors. These results are detailed for sciences and engineering, social sciences, arts and humanities, and patents, suggesting that the process of knowledge creation has fundamentally changed.

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Currently, any group blog (like Freakonomics or Midas Oracle) is in fact an aggregation of solo blogs —in the example above, Justin Wolfers wrote his blog post without the assistance of Steve Levitt (just like I’m writing this present blog post without the direct supervision of our Scientific Advisory Board chief Michael Giberson).

In the future, I foresee a process where a blog post could be written by at least 2 bloggers (i.e., 2 co-authors). I have looked into this issue, and concluded that WordPress is not yet ready for that. But it’s coming… It’s coming… Push… Push…

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Technical Note on WordPress 2.5:

1. I regret that, in WordPress 2.5, it’s now impossible to sort post archives by blog author. WordPress is written by young white males who don’t have any experience with group blogs and blog communities.
2. The usability bozos who overhauled the WordPress administration menus decided that you now have to click on a post/comment title to edit it —thus breaking the Web convention which says that you click on a weblink to open it, not to edit it. … I’m not the only one having trouble with this.

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[...] In part, the fault is Betfair’s, for failing to ensure that police investigators understood the meaning of the complex evidence they provided, and for passing pages of irrelevant data to the Crown that provided one of many early embarrassments for the prosecution. [...]

The senior detective in charge of the investigation, Mark Manning, had met [Betfair lawyer David O'Reilly] at Betfair’s offices earlier that year [in 2004]. Manning left with a fundamental misunderstanding – that Rodgers had made a net profit of £2m from his betting activities, when in fact this was the total amount that had been risked. By the time the trial began, it had become clear that the accounts controlled by Rodgers had in fact made a net loss of more than £250,000 on the 27 races investigated.

Betfair provided more than 300 pages of data in evidence, showing the betting activities of Rodgers’ accounts on these 27 races. O’Reilly, the first witness called, claimed in court that this data showed how Rodgers would take bets on certain horses at much bigger odds than were being offered by anyone else. Under cross-examination, however, O’Reilly was led to the realisation that the Betfair data for eight of the 27 races included details of bets made after the race had started, at which point larger odds could be justified by mid-race developments. Observers were shocked that Betfair could have made such a blunder in handling its own data.

The father of one of the accused (and now cleared) jockey:

The man from Betfair admitted at the start of the trial he had misled police as to the amounts that had been gambled and then they brought in an expert witness from Australia [Ray Murrihy, Racing NSW's chief steward] who doesn’t know how things work here [in the U.K.].

Daily Mail:

Fallon trial at a glance

[Good recap.]

Daily Mail:

The case highlighted the difficulty of proving, forensically and legally, that a jockey has tried and succeeded in stopping a horse from winning.

Exactly.

BetFair’s co-founder Andrew Black’s empty comment.

British Horseracing Authority

Previously: There are a bunch of bozos at BetFair, in the anti-fraud and legal departments, apparently.

NEXT: Do sports prediction markets corrupt sport? No.

Yeah, well that idea is something I’ve been pushing for. There is no easy solution for this problem, though. If Google Analytics was used, companies would start inflating their stats by sending bots or their own employees there. The could add a bunch of urchintracker() calls to simulate pageviews that didn’t really happen.

What is really needed is [a] traffic reporting system that can be thoroughly audited and verified. It isn’t necessarily a nice business to be in: You’d have all the world’s traffic data, but any kind of auditing system will anger some people who think their numbers should be higher. Plus there may be a lot of labor intensive one-off investigations into cases of fraud, and possibly even lawsuits from disgruntled webmasters who think they’re being misrepresented…

UPDATE: Via Bo Cowgill, QuantCast explains its innovative approach…

Took me about 45 or 50 minutes, start to finish. A lot of it was just cut-and-paste team names and info. Easy, easy, easy! Sixteen teams, each with a name, abbreviation, description, and starting price. A bit of general market information, an image uploaded.

The market even includes a link to the official FIFA RSS feed that puts news headlines right on the market page! (Hey Chris, the link can go to any feed you want. The link could go to a special market blog for an X group.) All of this set up was easy to manage.

Check it out!

Sure it is possible to do things badly. But for straightforward event markets like this sporting event, very easy. Of course, Chris Masse’s chief complaint earlier wasn’t that the setup wasn’t easy, but that Inkling’s choice to keep it simple makes it hard for market managers to try out more complicated markets. Maybe so, but they had to start somewhere, and getting the basics done well is a pretty good place to start.

(Still haven’t figured out how to embed the Inkling chart widget into a Midas Oracle blog post [UPDATE], so the above chart is a static image that links to the market page at Inkling.)

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EDITOR’s UPDATE:

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This widget will show real-time results of the market.

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This widget will show a small graph representing market performance over the past week.

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Static chart:

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Static chart:

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Yesterday, the Seattle Post-Intelligencer ran a story entitled “Betting web site’s computers seized.” Within hours, bloggers and other news outlets picked up the story and translated it into something akin to “Betcha shut down.”

Problem: the translation isn’t true. (WARNING: if tails of government bureaucrats running roughshod over its citizens turns your stomach, stop reading here.)

What’s Happening

What happened was this. Last Friday, Betcha’s attorneys and I met with the state Gambling Commission to address their concerns. They had us drive to their offices in Lacey, WA, about an hour from Betcha’s offices. The meeting lasted all of about five minutes, with it ending in a deputy commissioner handing us a pre-printed Cease and Desist order. I’ll attached a PDF copy of it later, but the gist of it was “shut down or else.” Why she couldn’t have told us this over the phone I am not sure — I suspect it had something to do with making my Friday afternoon a very expensive one. (Tax dollars hard at work.) At almost the exact same moment, Seattle lawyer Lee Rousso was, coincidentally, filing a lawsuit in state court asking the court to declare the state’s anti-Internet gambling ban unconstitutional. Although the law has previously been criticized on First Amendment grounds, and the Commission has taken positions in the past that appear pretty tough to square with any notion of free speech [], Mr. Rousso’s challenge is based on the Commerce Clause — that is, the law seeks to protect the in-state Native American casinos from out-of-state competition, and is therefore unconstitutional.

On Monday, I arrived to the offices early to unlock the doors so the raiders wouldn’t bust them down. (Not cheap to replace a busted down door.) A few hours later, Commission enforcers, indeed, showed up and took everything. Our books, our posters, my business cards — everything. (The warrant wasn’t limited – among other things, it included “stamps,” “printers,” “scanners,” “jewelry,” “envelopes”, “napkins”, “cardboard coasters” and “keys.”) No one from Betcha was there — not a good way to start the week, being on the business end of a roving commission. Ironically, my wife stopped by during the raid and chatted up Rick Herrington, the chief Raider (read: head of Commission enforcement.) When my wife asked Mr. Herrington whether they’d be selling our equipment on eBay, he shrugged his shoulders, as if to say “maybe yes, maybe no.” He then told her “Nick should have come to us first about this.” This exchange I find revealing: it seems that the Commission is more interested in ruining me and Betcha than anything else. Why? Because we’re near their turf.

As troubling was how the conversation continued. According to my wife, Mr. Herrington repeated several times “he’s breaking the law, he’s breaking the law.” When she told him that that was a judge’s decision, he replied “doesn’t matter, he’s still breaking the law.” (If that’s not guilty until proven innocent, I don’t know what is.)
On Tuesday, we petitioned a state court in Olympia to enjoin the Commission from this “seize and threaten now, ask questions later” approach. It almost never happens that a court will enjoin law enforcement from enforcing its version of the law, no matter how warped that version may be. This is an extraordinary remedy and we didn’t get it yesterday, although it wasn’t for lack of fantastic work by our lawyer.

The hearing wasn’t without substantial incident and irony. Apparently, although several people at both the Commission and Attorney General’s office had been served with our papers via fax, e-mail, and PDF, someone at the Commission did not receive an original copy of one of the documents, as required by the state service statute. As a result, we could not proceed until we could prove someone at the Commission had been served with an original copy of this document. We then had to race across Olympia to the Commission’s office in a nearby town to serve the Commissioner himself — personally. (Not a single person in the legal department was working on that glorious 94-degree Tuesday — go figure.) The irony — exactitude matters big time to the Commission when it comes to serving paperwork that they already had. But precision in reading a criminal statute that may result in me doing years in the Gray Bar Hotel, not to mention wiping out a fair bit of investor capital and no less than seven years of man work — nah.

What’s Next

In terms of next steps, the situation is this. We are pursuing an action to get a court to declare Betcha legal. If the law and/or the Constitution matters in Washington (open question, that), I am confident Betcha will prevail. In the meantime, however, we face a Cease and Desist Order from a Commission that appears hell-bent on destroying Betcha at all costs. We’re going to review it in detail later today and decide on a course of action. We may have to take the betting-for-money part of the site down until we get on the other side of the steamroller.

You can rest assured, however, about our resolve. The government bureaucracy has been running roughshod over the citizens of this country for far too long. [] Prosecutors make up facts, legislators make it a crime to play poker in your own home, bureaucrats rewrite the laws, logic and the dictionary — and we’re all left at their mercy. The frog is boiling and the water’s getting hotter every day. I pledge to the friends and users of Betcha.com that I will do my part to turn the heat down. If that means rotting in jail, so be it.

The text above appeared on Nick Jenkins’ blog at Betcha.com. Visit the original blog post to see all the links inserted in his text, and which don’t appear above.

Previous: IT DIDN’T TAKE LONG. NICK JENKINS’ BETCHA.COM GETS BUSTED THREE WEEKS AFTER LAUNCH.

Problem: the translation isn’t true. (WARNING: if tails of government bureaucrats running roughshod over its citizens turns your stomach, stop reading here.)

What’s Happening
What happened was this. Last Friday, Betcha’s attorneys and I met with the state Gambling Commission to address their concerns. They had us drive to their offices in Lacey, WA, about an hour from Betcha’s offices. The meeting lasted all of about five minutes, with it ending in a deputy commissioner handing us a pre-printed Cease and Desist order. I’ll attached a PDF copy of it later, but the gist of it was “shut down or else.” Why she couldn’t have told us this over the phone I am not sure — I suspect it had something to do with making my Friday afternoon a very expensive one. (Tax dollars hard at work.) At almost the exact same moment, Seattle lawyer Lee Rousso was, coincidentally, filing a lawsuit in state court asking the court to declare the state’s anti-Internet gambling ban unconstitutional. Although the law has previously been criticized on First Amendment grounds [1|2], and the Commission has taken positions in the past that appear pretty tough to square with any notion of free speech (an example), Mr. Rousso’s challenge is based on the Commerce Clause — that is, the law seeks to protect the in-state Native American casinos from out-of-state competition, and is therefore unconstitutional.

On Monday, I arrived to the offices early to unlock the doors so the raiders wouldn’t bust them down. (Not cheap to replace a busted down door.) A few hours later, Commission enforcers, indeed, showed up and took everything. Our books, our posters, my business cards — everything. (The warrant wasn’t limited – among other things, it included “stamps,” “printers,” “scanners,” “jewelry,” “envelopes”, “napkins”, “cardboard coasters” and “keys.”) No one from Betcha was there — not a good way to start the week, being on the business end of a roving commission. Ironically, my wife stopped by during the raid and chatted up Rick Herrington, the chief Raider (read: head of Commission enforcement.) When my wife asked Mr. Herrington whether they’d be selling our equipment on eBay, he shrugged his shoulders, as if to say “maybe yes, maybe no.” He then told her “Nick should have come to us first about this.” This exchange I find revealing: it seems that the Commission is more interested in ruining me and Betcha than anything else. Why? Because we’re near their turf.

As troubling was how the conversation continued. According to my wife, Mr. Herrington repeated several times “he’s breaking the law, he’s breaking the law.” When she told him that that was a judge’s decision, he replied “doesn’t matter, he’s still breaking the law.” (If that’s not guilty until proven innocent, I don’t know what is.)

On Tuesday, we petitioned a state court in Olympia to enjoin the Commission from this “seize and threaten now, ask questions later” approach. It almost never happens that a court will enjoin law enforcement from enforcing its version of the law, no matter how warped that version may be. This is an extraordinary remedy and we didn’t get it yesterday, although it wasn’t for lack of fantastic work by our lawyer.

The hearing wasn’t without substantial incident and irony. Apparently, although several people at both the Commission and Attorney General’s office had been served with our papers via fax, e-mail, and PDF, someone at the Commission did not receive an original copy of one of the documents, as required by the state service statute. As a result, we could not proceed until we could prove someone at the Commission had been served with an original copy of this document. We then had to race across Olympia to the Commission’s office in a nearby town to serve the one of the Commissioners himself — personally. (Not a single person in the legal department was working on that glorious 94-degree Tuesday — go figure.) The irony — exactitude matters big time to the Commission when it comes to serving paperwork that they already had. But precision in reading a criminal statute that may result in me doing years in the Gray Bar Hotel, not to mention wiping out a fair bit of investor capital and no less than seven years of man work — nah.

What’s Next
In terms of next steps, the situation is this. We are pursuing an action to get a court to declare Betcha legal. If the law and/or the Constitution matters in Washington (open question, that), I am confident Betcha will prevail. In the meantime, however, we face a Cease and Desist Order from a Commission that appears hell-bent on destroying Betcha at all costs. We’re going to review it in detail later today and decide on a course of action. We may have to take the betting-for-money part of the site down until we get on the other side of the steamroller.

You can rest assured, however, about our resolve. The government bureaucracy has been running roughshod over the citizens of this country for far too long. (Check out this book or BoilingFrog.com, among other sites, for some examples.) Prosecutors make up facts, legislators make it a crime to play poker in your own home, bureaucrats rewrite the laws, logic and the dictionary — and we’re all left at their mercy. The frog is boiling and the water’s getting hotter every day. I pledge to the friends and users of Betcha.com that I will do my part to turn the heat down. If that means rotting in jail, so be it.

Cross-posted from the Betcha.com blog