Midas Oracle .ORG

Michael Giberson May 10th, 2008

As noted here in multiple posts over the past few days, the U.S. Commodity Futures Trading Commission is thinking about prediction markets. Last week it released a “Concept Release on the Appropriate Regulatory Treatment of Event Contracts” and invited public comments on several questions as it attempts to sort out its proper role, if any, in overseeing such markets.

Formal comments are due July 7 at the CFTC. Informal comments are already springing forth: see, for example, reactions by David Pennock, Chris Masse, and Chris Hibbert. Likely more to come.

My preliminary reaction is to be encouraged. Growth of the industry in the United States is frustrated by a lack of clarity over the CFTC’s role. If real money event contract markets are to become serious business in the United States, the government will have to figure out where these markets fit in the legal and regulatory world. The CFTC is taking a step toward figuring these things out. If CFTC’s conclusions turn out to be too burdensome, then appeals can by made – to the Commission itself, to courts, or to Congress. But the process has to start somewhere.

Whether their next steps are in the right direction, who knows. I think that their steps are more likely to be in the right direction if they get high quality comments filed by prediction market proponents.

(On Knowledge Problem I’ve put up a much longer post which explains the CFTC concept paper in more detail and does a little bit of sorting through the questions asked. Readers here who have already looked at the concept paper will not learn much new, but you are still welcome to take a look.)

Tags: CFTC, Chris F. Masse, Chris Hibbert, Chris Masse, David Pennock, laws, prediction markets, regulation, Regulations

• All Guest Authors's Posts , Analysis (Industry) , Politics , Regulations
• Comments(3)

Chris Hibbert May 3rd, 2008

I want to quibble with one of Dave Pennock’s comments on the CFTC request. Pennock wrote “It’s not often that an industry in its infancy cries out for more government oversight.”

It’s actually quite common. The term in the economics literature that includes this is regulatory capture. When there’s a regulatory body specific to a particular industry, it’s very common for industry to be the major source of expertise in the area, and so for the regulators to be reasonably friendly with the businesses. The businesses can work for regulation that limits entry, and cuts down on competition that reduces profits, and they can work together to ensure that public relations problems are addressed in a cohesive way. But cutting down on competition often means fewer choices for consumers by way of tighter controls on what products are offered.

In our case, the thing I worry about is a narrow ruling that only “socially valuable” questions can be asked, and an expensive process for deciding what innovative questions can be posed. It seems likely that some interests will work to ensure that sports and entertainment questions be declared off-limits. The companies that have the strongest interest in fighting that faction are mostly persona non grata in the CFTC’s eyes, since they currently operate outside the law (TradeSports) or outside the country (BetFair).

The narrower the set of approved questions, or the more expensive the process of getting approval, the less chance that markets will be commercially successful. I think the experiments within companies have indicated (though not proven) that a mix of valuable and popular claims is necessary in order to attract continuing participation.

My biggest worry about fighting for CFTC regulation at this point is that they’ll approve something narrow, and this won’t produce enough successes to demonstrate that loosening the restrictions over time would be beneficial. The alternative is to continue to find ways to introduce markets under the radar and demonstrate their value to the academic audience, which could lead to a friendlier hearing in a more distant future after prediction markets have demonstrated social value and little risk of harm.

Of course the other likely outcome is that the novel experiments don’t happen because of the threat of litigation or regulation. But that seems unlikely given the growth in internal markets within companies. I think there’s more likelihood of long-term success without regulation than with it, and we’re better off waiting until the chances that the regulations will provide a broad approval are significantly higher.

(Cross-posted from pancrit.org.)

Tags: BetFair, CFTC, Chris Hibbert, David Pennock, event derivative markets, event futures markets, innovation, laws, prediction markets, public prediction markets, Regulations, socially valuable prediction markets, TradeSports

• All Best Posts Ever , All Guest Authors's Posts , Analysis (Industry) , Exchanges & Markets , Regulations
• Comments(20)

Chris F. Masse May 2nd, 2008

Tags: Chris Hibbert, corporate prediction markets, enterprise prediction markets, internal prediction markets, open source, open-source software, Prediction Market Software, prediction markets, private prediction markets, software for prediction markets, Zocalo

• Software
• Comments(0)

Chris Hibbert May 2nd, 2008

Chris Masse has asked me a few times about what I’m working on, and what my plans are for Zocalo. I have been working on development of Zocalo since 2004, including a period of 18 months as a Research Fellow at CommerceNet. I’ve been busy with personal matters for much of the last 8 months (a major home remodel), so I wasn’t able to put in as much time as I’d have liked recently, but I’ve been working on the code again full-time for about two months.

I’m pleased to be able to say that I have two consulting contracts at this point. I’m working with a group at Chapman University and another university I’m not allowed to mention in public announcements. The Chapman team is led by Dave Porter, who I worked with while he was at George Mason University. Most of the Experimentalists from the GMU Economics department have moved (or are in the process of moving) to Chapman in Orange County, California. Dave has been using Zocalo for economics experiments since 2005, while I was at CommerceNet. He has plans (and budget) to expand Zocalo to support a variety of experiments that he’d like to do. The software continues to be used at George Mason as well.

The other group is probably familiar to most of you, though my contract says I can’t use their name for publicity without approval (which they didn’t give). Suffice it to say, I’m happy to be working with this group; the professor in charge has been working on market-related software systems for almost 20 years.

These consulting contracts support my continued development of Zocalo, and both groups are fully supportive of the open source approach. Having these groups actively working with the software, requesting changes, and reviewing progress will contribute substantially to the usefulness and usability of the code. The fact that one group is working with the experiment configuration and the other with the prediction markets ensures that both will continue to be enhanced and get more robust as they are being used.

This announcement is being cross-posted to my blog: pancrit.org.

Tags: Chris Hibbert, corporate prediction markets, enterprise prediction markets, internal prediction markets, open source, open-source software, Prediction Market Software, prediction markets, private prediction markets, software for prediction markets, Zocalo

• All Guest Authors's Posts , Business , Consulting , Exchanges & Markets , Jobs & Careers , Software
• Comments(1)

Chris F. Masse April 6th, 2008

-

And we have a winner, Chris Hibbert of Zocalo:

You can buy Giuliani on Q2 for .12 and sell Giuliani on Q1 for .52, and have a combination that will pay $1 no matter what for an outlay of .64. We want to take that .36 gain and turn it into $100. 100 / .36 = 277.777…

So we’ll buy 278 shares of each.The 278 shares cost 278 * (.12 + .52), which is 177.92. Whatever happens, you’ll win $278, which puts you ahead by $100.

-

CHRIS HIBBERT FOR PRESIDENT.

-

Previously: Problem 17: Prediction Markets — USMA D/Math Problem of the Week — Submission Deadline: April 3, 2008 at 1600

Tags: Chris Hibbert, HubDub, math, prediciton markets, Zocalo

• Arbitrages , Exchanges & Markets , Prices & Probabilities , Trading
• Comments(0)

Chris F. Masse December 6th, 2007

SourceForge MarketPlace: The best place to buy support for your open source software.

CNET journalo’s opinon on SourceForge MarketPlace.

Chris Hibbert’s Zocalo, open-source software for prediction markets

Tags: Chris Hibbert, SourceForge

• Consulting , Information Technology , Resources & References , Software
• Comments(0)

Chris F. Masse November 23rd, 2006

This is a copy of the story that I ran on the sidebar blog, in mid-October:

===============

From the HSX site feed:

Hollywood Stock Exchange is an integrated marketing, research and technology company driven by its patented entertainment stock market, HSX.com, the longest continuously operating prediction market.

Reality Check:

Foresight Exchange - (FX, FSX) - (Alberta, Canada) — URL: IdeoSphere - Alternate URL: Idea Futures — Launched in 1994 by Ken Kittlitz, Sean Morgan, Mark James, Greg James, David McFadzean and Duane Hewitt — Godfathered by Robin Hanson (a prediction market co-inventor)

Hollywood Stock Exchange - (HSX) - (L.A., California, U.S.A.) — URL: HSX — HSX Movies - HSX Community — CDA with an automated market maker (AMM) that balances buy/sell orders by generating both buy and sell orders, which keep the market maker in balance as well. — HSX is a play-money prediction exchange with a game, IPO-like interface. — Owned by Cantor Fitzgerald — Founded in 1996 by Max Keiser and Michael Burns

===============

And, now, here’s my today’s blog post:

—

The sub-title of the HSX site feed has just been slightly amended to read, now:

Hollywood Stock Exchange is an integrated marketing, research and technology company driven by its patented entertainment stock market, HSX.com, the longest continuously operating commercial prediction market

The adjective “commercial” has been added.

—

My Question: In light of Robin Hanson’s call for the right definitions (”Prediction Markets Definitions”, his blog post here, at Midas Oracle), what do you make of the HSX line?

My Answer: Since veterans Iowa Electronic Markets and Foresight Exchange were (and are still) non-commercial operations, I’m fine with the brand-new HSX line. (Nota Bene: The for-profit consulting firm Consensus Point was born recently from the Foresight Exchange technology, as you all know.) I would just prefer the term “EXCHANGE”, as in, “HSX, the longest continuously operating commercial prediction exchange“. Let’s check next month, in December 2006, whether they make another change —probably not, this time.

—

MORE LINKS: See CFM for the complete lists of prediction market consultants and prediction exchanges. Alternatively, see AEI-Brookings’s mini-directory or the Wikipedia entry on prediction markets.

—

HAPPY THANKSGIVING. GOBBLE, GOBBLE.

—

Addendum (November 29): Chris Hibbert has posted a comment…

The precursor to the Foresight Exchange (FX), was known as IF (for “Idea Futures”). IF was created in 1994, and the transition to FX happened in July 1996, according to my mail archives. So I would say that the veracity of HSX’s claim to be the longest CONTINUOUSLY OPERATING exchange depends on whether they started before or after July 24, 1996. The transition from IF to FX attempted to maintain account balances and markets that were already in operation, but there were some glitches.

Others might point to the fact that they did maintain account balances and running markets through the transition (however rocky the transition might have been) to say that FX is a continuously operating successor to IF, no different than any other software rev.

—

Addendum 2 (November 29): I got it from the Horse’s mouth that “HSX was founded on April 12, 1996“.

—

Addendum 3 (November 29): Ken Kittlitz, the co-founder of the Foresight Exchange, has sent me this clarification…

The transition from IF to FX occurred on July 4th, 1996. We preserved as much data as we could, including all open claims, the entire ticker history, and a fair number of user accounts. As Chris notes, the transition was somewhat rocky. However, I consider it an upgrade to the original system rather than the creation of a distinct new system.

—

Tags: 4th of July, Alberta, California, Chris Hibbert, Consensus Point, David McFadzean, Duane Hewitt, Foresight Exchange, Greg James, Hollywood Stock Exchange, Ken Kittlitz, Mark James, Max Keiser, Michael Burns, Robin Hanson, Sean Morgan, technology, ThanksGiving

• All Best Posts Ever , Exchanges & Markets , History
• Comments(3)

Chris F. Masse November 15th, 2006

I received a tip from a trader. Indeed, their Horse Racing “pool betting” webpage is blank, today. As for horse racing prediction markets, I don’t see any right now, but the Breeders Cup was traded by Winner’s Curse and other speculators. (Of course, the dominant player in horse racing futures is BetFair.)

My Question: If liquidity was a problem, and if that’s what pushed them to set up a “pool betting” mechanism on horse racing, do you think that TradeSports (or else) would be interested in Robin Hanson’ Market Scoring Rules? After all, MSR was created to solve the thin-market problem.

Addendum: Professor Robin Hanson has posted a comment…

I’m sure the folks at Tradesports know that a market maker can provide liquidity; they also know it comes at a cost.

Addendum 2: Professor Robin Hanson has posted another comment…

I agree that if one were trying to maximize profits as a market maker one would not use the MSR, but I also claim that there is no way to profit from a simple MSR without moving it to a more informative price than where it started. And there is certainly no way to profit from it by leaving it at the same price it started at. Also an MSR does not need to be the only trader available; it can live peacefully as just another trader in a simple double auction.

Addendum 3 (November 16): Chris Hibbert has posted a comment…

I can’t tell whether JC Kommer has retracted his comment about MRS being a “money pump”. As I understand the term, a money pump is a mechanism that can be exploited by a trader to extract an arbitrary amount of money.

The design of the MSR is intended to provide a means for a funder to inject a pre-defined amount of money into a market. If the mechanism works correctly, the traders will collectively take that amount of money from the MSR’s market maker when the market reaches one of its extreme values.

Is there a bug in the original design or description of the market that would allow the traders to extract more money than was intended? If not, I’d like to know what other definition of “money pump” was intended.

My implementation (zocalo.sourceforge.net) endows the market maker with the funding that the backer is willing to lose, and it doesn’t have access to more money to give away than that. If the algorithm didn’t work as intended, the market maker would try to make trades at some point that it couldn’t afford. Other implementations are possible that don’t limit the market maker’s access to funds, but they will only be money pumps if there is a bug in the algorithm.

Tags: Chris Hibbert, market maker, Robin Hanson

• Betting , Exchanges & Markets , Market Makers (Automated) , Mechanism Designs
• Comments(8)

Chris F. Masse November 10th, 2006

… Bad luck, that’s the question that any real-money prediction exchange (a.k.a. betting exchange) would ask FIRST:

OK. Let’s say you’re a (human) market maker on TradeSports [or BetFair, or HedgeStreet, or USFE] for such a set of contracts. Which advanced indicators are you using to be better informed and before the rest of the traders, and to make profitable transactions?

Chris Hibbert, has posted an interesting comment.

Tags: Chris Hibbert, Robin Hanson

• Analysis (Market Proposals)
• Comments(1)

Chris F. Masse November 9th, 2006

Chris Hibbert has posted a comment:

The question I was addressing wasn’t whether mistakes get made in judging. It’s whether it’s possible to write completely correct and unambiguous claims up front as you advocate as a solution to the problem. Do you want to address that question?

I don’t believe it’s possible to get the claims correct up-front, so I don’t see your rule as a solution. My experience writing, advising, and judging at FX informs my belief. It’s all done in public on FX, so I’m not the only one with that experience. The other markets (IEM, TEN, BF, HSX, etc.) have closed processes, so the community can’t learn from their experience.

There is a lively community at FX and at each of the other markets, play money or not. The discussions can go on for quite a while. You may be right that there’s more outside attention for the real money markets, but that doesn’t help at the point that the claims are being written.

The question of party alignment of independents could easily have been addressed in an interpretation after the claim was written. Many people realized it was an important question over the last few weeks. On FX, players can ask the judge, and the judge can add his interpretation to the claim. I don’t know of other markets that have a facility for issuing clarifications that traders can see when they’re reviewing the claim.

My Partial Answer:

I acknowledge your experience at the Foresight Exchange, but you don’t convince me. Crafting contracts for TradeSports or BetFair should be done with a higher standard of professionalism, because influential bloggers would raise hell if problems arised.

I stand on my opinion that the floated prediction is the contract, and that the intent of the contract and the letter of the contract should always coincide, no matter what.

As for issuing clarifications, TradeSports does it almost on a daily basis and I object to that. In the cases that I have seen at TradeSports, if the contracts had been crafted in a serious and professional manner, there would have been no need for issuing so-called “clarifications” after the grand opening of a contract.

And some TradeSports (human) market makers and big traders told me that they asked many times to the management to unveil the draft of the upcoming contracts to them, for a short period of time before the marketing of a contract, so that they can correct the mistakes and make suggestions. Sounds like a good idea.

Addendum (November 10): Scientist David Pennock is with my opponent, Chris Hibbert, on that one…

I weigh in with Chris H. over Chris M. on this one. There will always be the possibility of bizarre circumstances arising that were unforeseen or overlooked by the contract writers. Only hindsight is 20/20. For example, did Pat Buchanan win the Reform Party nomination or not? Or, what happens to GOP.Senate contracts when Bush becomes a dictator, hires Saddam as his VP, and returns the US Senate to the Newt Gingrich?

Tags: Chris F. Masse, Chris Hibbert, Chris Masse, David Pennock, Pat Buchanan, Reform Party, Republican Party, Senate, United States Senate

• Analysis (Meta)
• Comments(1)