Foresight 2010 debate: Futarchy from Monica Anderson on Vimeo.

Download this post to watch the video —if your feed reader does not show it to you.

Who cares about that Mencius Moldbug anyway?

Previously.

- They are event derivatives, not “stocks”.

I REQUEST A KIWI CORRECTION.

- Paul Hewitt comments on Eric Crampton’s blog.

- Paul Hewitt comments on Robin Hanson’s blog. Many exchanges with Robin Hanson. Read it all.

- Paul Hewitt:

[...] My point is that the case for prediction markets has not been made, at all. There is a tiny bit of proof that they are as good as alternative methods, and in a very few cases, very slightly better. Also, you need to be aware that even the slightly better prediction markets had the benefit of the alternative forecasting institution available to it. That is, the official forecasters at HP were also participants in the ever-so-slightly better prediction markets. [...]

–> I personally stay away from any discussion about conditional prediction markets (and futarchy). I prefer focusing on the ‘simple’ prediction markets.

It is a long text, so I will post again about it, in the near future. (Happy Xmas, by the way.)

ADDENDUM: Saturday, January 16, 2010: Debate between Robin Hanson and Mencius Moldbug

ACT ONE: Nate Silver lunched with Robin Hanson, one month ago, to interview him for his future book about forecasting.

ACT TWO: Robin Hanson has published yet another post pumping up prediction markets for solving every problem on Earth —this time, yelling in bold that they are the solution to any global warming controversy.

ACT THREE: Nate Silver reads his post, and declares to the world that “Dr. Hanson” is the new Jesus.

MY TAKE: While it is true that prediction markets “incentivize accuracy”, they have been so far implemented only for short-term problematics (e.g., “Will Barack Obama get elected as US president?“). Plus, they have not made a difference —the non-business news media never cite the probabilities generated by the prediction markets.

I expected a less naive analysis from Nate Silver. He should read Midas Oracle before proclaiming to the world that long-term prediction markets are the solution: “The Robin Hanson-inspired, real-money, conditional prediction markets at InTrade are a world-wide disaster of thermonuclear proportion, concludes the long-time Robin Hanson fanboy who forked over real money to InTrade to have them set up and run.“

[...] I conclude those four contracts did not provide valuable information about how the [2008 US presidential] election would affect the world.

UPDATE: See the comments below, and Nate Silver’s second take.

[...] If I interpret correctly what you suggest, this will be equivalent to a “prediction market on a prediction market”, aka “options on markets”: Guess where the price of a long term market will be at set points in the future, before the expiration of the long-term market. InTrade experimented with such contracts last Fall (the X contracts). I was initially fascinated. However, we soon realized that such markets do not offer much additional information: Current price of the long-term contract and time to expiration are enough to determine the optimal price of the “X” contract.

The solution: Bite the bullet and have a long-term contract, based on a verifiable outcome. If you are interested in having checkpoints along the way, use conditional prediction markets (e.g., see the tax features, conditional of the result of the presidential election). Or think harder of what you are trying to measure and build a contract that has a verifiable outcome early on.

Robin Hanson, is what I would term a market fundamentalist – somebody who believes that markets are the primary mechanism for achieving the public good. Recent events have demonstrated that this creed is morally bankrupt. We are, in the words of Michael Sandel, “at the end of an era of market triumphalism”.

Robin Hanson:

I deny the accusation, though I’m not sure why I should have to. Having a high opinion of the eventual info power of decision markets [*] is very different from saying “markets are the primary mechanism for achieving the public good.” Shouldn’t you have to first provide support for your accusation, rather than me somehow having to first prove bald accusations wrong?

[*] That’s at the core of the issue. Somebody who has a “high opinion” of something that has not given stellar results since 1988 is obviously exaggerating. I personally have a somewhat good opinion of prediction markets and conditional prediction markets, but not a “high opinion” —sense my nuance. Niall O’Connor has been too strong in his “accusation” ( ), but he is a bit in the right. [UPDATE: Niall O'Connor has an honest reply to Robin Hanson.]

Find here a good review of “Predictocracy” —via Daniel Horowitz.