forecast (v.)
c.1388, “to scheme,” from fore “before” + casten “contrive.” Meaning “predict events” first attested 1494.

Previously: Apple dictionary on “predicting” vs “forecasting”

Previously: Andrew Gelman on “predicting” vs “forecasting”

-

THE END RESULT OF THE MEMORIAL DAY FIGHTING OVER TERMINOLOGY:

1. Etymology indicates that the word “forecasting” is OK to use as a meaning for “predicting”.
2. Predictive modeling expert Andrew Gelman can’t see any difference between the 2 words, and that guy is an expert —Robin Hanson is not, and I am not.
3. It is true (as I said from day one) that the word “forecasting” is treated differently than the word “predicting”in the dictionaries. If Robin Hanson had a good pair of eyeglasses, and were humble and modest enough to read dictionaries, he would see that, too.
4. However, point #1 and point #2 are more important to moi. (See, abiding forever by point #3 means that the recent past should always govern us. Obviously, wrong. We should free ourselves from the chain of the past and re-invent things, when necessary.)
5. Hence, I declare the words “forecasting” and “predicting” as perfectly equivalent —a complete U-turn [*] that will give credence to the untrue rumor that I am “bi-polar”.
6. And so, our good doctor Robin Hanson wins the fight (and I lose miserably, the face planted in the dirt, while the prof tramples my corpse with a joyful vengeance), and he is allowed to use the term “collective forecasting” to mean “collective intelligence that predicts”.
7. But the discussion is not over (so as to piss off our good friend Mike Linksvayer a bit further). Is there a better term than “collective forecasting”?…

[*] My category “forecasting” is all messed up, now. I used to file there things about predictive modeling and polling, exclusively.

QUESTION (from LinkedIn): Forecasting the same as prediction? Which one is more realistic and easier to do?

ANSWER: Forecasting is different from predicting. Predicting is much easier but far less accurate.

Predicting is when you start making guesses about things. For example, you predict that laying sheet-rock will take 45 hours to do and you guess that it will be done in 2 weeks.

Forecasting, on the other hand, is when you take information from past jobs and apply it to a new job. For example, if you have seen that laying the sheet-rock for a 3,000 sq ft space takes 65 hours and it usually done in 4 weeks then the next time you have to quote out the same job you’ll be able to forecast how much its going to cost and how long it will really take i.e. when it will really be done after work starts on it.

The big difference is predicting is based on your best guess from experience. Forecasting is based on data you’ve actually recorded and tracked from previous jobs.

Previously: Apple dictionary on “predicting” vs “forecasting”

Previously: Andrew Gelman on “predicting” vs “forecasting”

NEXT: Predicting = Forecasting –> Collective Forecasting = Collective Intelligence That Predicts

I suspect the words have different meanings in different contexts.  In statistics, “prediction” is often used even when the result has already happened:  that is, if you have a model, y = f(x) + error, then f(x) is said to be the “predicted” value.  So you can have a predicted value, even for an observation you’ve seen.  I’ve worked in an example using climate models where the term “hindcast” was used, because we were fitting a model from 40 years of data and then using it to predict values that had already occurred.

In common usage, I think “prediction” refers to predictions of the future. Consider the famous Niels Bohr quote, “Prediction is very difficult, especially about the future.”  I assume he as being ironic and was assuming that prediction is always about the future.  I can only assume forecasting is also about the future, given the “fore” at the beginning of the word.  So I don’t really know the difference between prediction and forecasting.

I’ve never heard the term “collective forecasting,” but I’m sure that reflects my ignorance rather than anything else.

Previously: Apple dictionary on “predicting” vs “forecasting”

Andrew Gelman’s website

Andrew Gelman’s excellent blog

Andrew Gelman sometimes guest-blog at Nate Silver’s blog.

NEXT: Predicting = Forecasting –> Collective Forecasting = Collective Intelligence That Predicts

THE RIGHT WORD

While all of these words refer to telling something before it happens, predict is the most commonly used and applies to the widest variety of situations. It can mean anything from hazarding a guess (: they predicted he’d never survive the year) to making an astute inference based on facts or statistical evidence (: predict that the Republicans would win the election).

When a meteorologist tells us whether it will rain or snow tomorrow, he or she is said to forecast the weather [*], a word that means predict but is used particularly in the context of weather and other phenomena that cannot be predicted easily by the general public (: statistics forecast an influx of women into the labor force).

Divine and foreshadow mean to suggest the future rather than to predict it, especially by giving or evaluating subtle hints or clues. To divine something is to perceive it through intuition or insight (: to divine in the current economic situation the disaster that lay ahead), while foreshadow can apply to anyone or anything that gives an indication of what is to come (: her abrupt departure that night foreshadowed the breakdown in their relationship).

Foretell, like foreshadow, can refer to the clue rather than the person who gives it and is often used in reference to the past (: evidence that foretold the young girl’s violent end).
Augur means to foreshadow a favorable or unfavorable outcome for something (: the turnout on opening night augured well for the play’s success).

Prophesy connotes either inspired or mystical knowledge of the future and suggests more authoritative wisdom than augur (: a baseball fan for decades, he prophesied the young batter’s rise to stardom).

Although anyone who has inside information or knowledge of signs and symptoms can prognosticate, it is usually a doctor who does so by looking at the symptoms of a disease to predict its future outcome.

[*] So much for the 3 commenters (Paul, Daniel, and Mike) who didn’t get my point about weather forecasting being the most understood form of forecasting —one that is based on predictive modeling, WHICH THE PREDICTION MARKETS (AND THE OTHER NON-TRADING MECHANISMS THAT PREDICT) HAVE NOTHING TO DO WITH.

NEXT: Andrew Gelman on “predicting” vs “forecasting”

NEXT: Predicting = Forecasting –> Collective Forecasting = Collective Intelligence That Predicts

Betting markets like Betfair’s are a form of prediction market

• Yahoo! Answers
  • “prediction markets” — “prediction market”
• Google Answers — This service has been decommissioned.
  • “prediction markets” — “prediction market”
• WikiBooks — WikiBooks – (English) — Search for “prediction markets”
• WikiNews — WikiNews – (English) — Search for “prediction markets”
• Wikipedia — Wikipedia – (English) — Prediction Markets — Betting Exchanges — Derivatives — The Wisdom Of Crowds — Collective Intelligence — Forecasting
• Handbook on Collective Intelligence – by MIT CCI

-

• Midas Oracle
  • Explainer on prediction markets – at Midas Oracle .ORG
  • List of explainers on prediction markets – at Midas Oracle .ORG
  • “Explainers” post category – at Midas Oracle .ORG
  • Prediction Market Science – at Midas Oracle .ORG
  • Prediction Markets Timeline – at Midas Oracle .ORG
• Robin Hanson
  • Idea Futures (not updated) — Futarchy — The Policy Analysis Market (and FutureMAP) Archive – by Robin Hanson
  • Prediction Markets Definitions – by Robin Hanson – 2006-11-21
  • The Robin Hanson explainer on prediction markets – (PPT file) – by Robin Hanson – 2007-09-05
  • The concept of Info Value – by Robin Hanson - 2008-01-14
• David Pennock
  • Implementing Hanson’s Market Maker – by David Pennock – 2006-10-30
  • Evaluating Probabilistic Predictions – by David Pennock - 2006-12-26
  • Does Wisdom Require Markets? – by David Pennock – 2007-01-19
  • How and When to Listen to the Crowd – by David Pennock – 2007-02-09
  • Computational aspects of prediction markets – by David Pennock – 2007-02-09
  • The right way to implement a multi-outcome prediction market: Linear programming – by David Pennock – 2008-02-19
  • What is (and what good is) a combinatorial prediction market? – by David Pennock – 2008-12-22
• Panos Ipeirotis
  • Defining Probability in Prediction Markets – by Panos Ipeirotis - 2008-01-13
  • Prediction Market Efficiency vs. Prediction Market Accuracy – by Panos Ipeirotis – 2008-01-14
• Chris Hibbert
  • PM Intro: Basic Formats – [simple double auctions] – by Chris Hibbert – 2005-12-30
  • PMs with Open-Ended Prices – [markets with open-ended prices] – by Chris Hibbert – 2006-01-05
  • Looking at Both Sides – [the symmetry of complementary purchases] – by Chris Hibbert – 2006-04-17
  • Market Design: Book and Market Maker – [how to integrate an order book with an automated market maker] – by Chris Hibbert – 2006-04-28
  • Increasing Liquidity in Multi-Outcome Claims – [the mechanics of multi-outcome markets] – by Chris Hibbert – 2006-07-19
  • Continuous Outcomes: Bands, Ladders, and Scaled Claims – [predicting the value of a continuous variable] – by Chris Hibbert – 2006-09-20
  • Integrating Book Orders and Market Makers – (mirror on MO) – by Chris Hibbert – 2006-09-20
  • Conditional and Combinatorial Betting – (mirror on MO) – by Chris Hibbert – 2007-03-06
  • Market Makers for Multi-Outcome Markets – (mirror on MO) – by Chris Hibbert – 2007-09-10
• New York Times
  • The History of Prediction Markets – by the New York Times – 2007-11-04
• BBC News
  • How does a betting exchange work? How does BetFair work? – by BBC News – 2007-12-07
• Forrester
  • Prediction Markets: Wisdom Of The Crowd Comes To The Enterprise. – by Forrester – 2007-07-14
• James Surowiecki
  • The Wisdom Of Crowds – by James Surowiecki – 2005-xx-xx

-
Are you aware of any/some explainer(s) out there not listed above? If yes, please e-mail me. Thanks. Appreciated. Will make up to you.
-

-

Prediction markets enable groups to attain collective intelligence. (Emile Servan-Schreiber)
A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event. (Chris F. Masse)
The event derivative price represents the aggregated expected probability of the partially uncertain event. (Chris F. Masse)
Prediction markets produce dynamic, objective probabilistic predictions. (Chris F. Masse)
A prediction market is an information aggregation mechanism. (Chris F. Masse)
A prediction market is not a magical tool. (Chris F. Masse)

-

I am seeking to expand this list. So, if you feel you’re a great prediction market thinker, do submit a quote to me. When the list is complete (that is, longer that it is currently), I will export this plugin to the WordPress plugin library —so that it will be available to the masses (no pun intended).

-

-

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 represents the imputed perceived likelihood of the partially uncertain future outcome (i.e., its aggregated expected probability). A 60% probability means that, in a series of events each with a 60% probability, the favored outcome is expected to occur 60 times out of 100, and the unfavored outcome is expected to occur 40 times out of 100.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism —with or without an automated market maker.

Prediction markets enable us to attain collective intelligence. Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that the traders bring when they agree on prices. The event derivative traders are informed by the primary indicators (i.e., the primary sources of information), like the polls, for instance. These informed speculators then execute their transactions based on their anticipations about the future —anticipations that will be either confirmed or infirmed.

The value of a set of prediction markets consists in the added accuracy that these prediction markets provide relative to the other meta predictive mechanisms, times the value of accuracy in improved decisions, minus the cost of maintaining these prediction markets, relative to the cost of the other meta predictive mechanisms. A highly accurate set of prediction markets has little value if some other meta predictive mechanism(s) can provide similar accuracy at a lower cost, or if very few substantial decisions are influenced by accurate predictions on its topic.

CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts

-

V. Issues for Comment

A. Request for Comment

The following questions consider the Commission’s regulatory purview over event contracts, the interests that may appropriately underlie Commission-regulated transactions, and the appropriate regulatory treatment of event contracts. The Commission encourages comments on the specific questions posed, as well as the broad range of issues raised in this concept release. In providing comments, please describe your relevant experience and discuss in detail the facts and legal provisions that support your conclusions. Furthermore, please consider the Commission’s mandate to protect commodity futures and options markets and customers, and ensure the integrity of the commodity derivatives marketplace, as well as the expected effects of any Commission action on competition, efficiency, innovation and the financial integrity of transactions. Any recommendation with respect to the regulatory treatment of event contracts and markets should be consistent with and supported by the Act, practical, and amenable to effective and efficient implementation.

B. Public Interest

1. What public interests are served by event contracts that are designed and will principally be traded for information aggregation purposes and not for commercial risk management or pricing purposes?

2. How are these interests consistent with the public interest goals embodied in the Act?

3. What calculations, analyses, variables, and factors could be used to objectively determine the social value of information to the general public that may be discovered through trading in event contracts? Should this be a factor in determining whether the Commission plays a role in regulating these markets?

C. Jurisdictional Determinations

4. What characteristics or traits are common to or should be used to identify event contracts and event markets?

5. How do these characteristics and traits differ from those of commodity futures and options contracts that customarily have been regulated by the Commission? How are they similar?

6. Are there criteria based on the provisions of the Act that could be used to make jurisdictional determinations with respect to event contracts and markets?

7. Given the purposes and history of the Act, would it be appropriate for the Commission to apply a test premised on commercial risk management or pricing functions to demarcate the Commission’s jurisdiction over particular contracts? If so, what factors could be used to make such a determination?

8. Given the purposes and history of the Act, would it be appropriate for the Commission to apply any test premised on the economic purpose of certain types of transactions to demarcate the Commission’s jurisdiction over particular contracts? If so, what factors could be used to make such a determination?

9. What calculations, analyses, variables and factors would be appropriate in determining whether the impact of an occurrence or contingency will result in a financial, commercial or economic consequence that is identified in Section 1a(13) of the Act?

10. What calculations, analyses, variables, and factors would be appropriate in determining whether an economic or commercial index that is based on prices, rates, values, or levels should or should not qualify as an excluded commodity under Section 1a(13) of the Act?

11. What identifiable factors, statutorily based or otherwise, limit the events and measures that may underlie event contracts when such contracts are treated as Commission-regulated transactions?

12. What objective and readily identifiable factors, statutorily based or otherwise, could be used to distinguish event contracts that could appropriately be traded under Commission oversight from transactions that may be viewed as the functional equivalent of gambling?

13. The Commission notes that Section 12(e) of the Act generally provides that the CEA supersedes and preempts other laws, including state and local gaming and bucket shop laws, with respect to transactions executed on or subject to the rules of a Commission-regulated market, or with respect to transactions exempted from the Act pursuant to the Commission’s exemptive authority under Section 4(c) of the Act. What are the implications of possibly preempting state gaming laws with respect to event contracts and markets that are treated as Commission-regulated or exempted transactions?

14. Should certain underlying events or measures –such as those based on assassinations or terrorist activities– be prohibited altogether due to the social perception and impact of such events? What statutory or other legal basis would support this treatment?

15. Are there event contracts, such as political event contracts, that should be prohibited from trading under the Act, or that deserve separate treatment or consideration, due to the nature and importance of their outcomes? What statutory or other legal basis would support this treatment?

D. Legal Implementation

16. Is it appropriate for the Commission to direct certain or all event contracts onto markets that are regulated differently from and perhaps less stringently than DCMs? For example, it may be warranted or necessary to treat event markets that aggregate information solely for academic or research purposes, event markets set-up for internal corporate purposes, or event markets that offer exceedingly low notional value contracts to traders differently than markets that possess the attributes of traditional DCMs.

17. Is it appropriate for the Commission to use the Section 4(c) exemptive authority of the Act for implementing a regulatory scheme for event contracts and markets? In this regard, the Commission notes that it has the discretion to grant an exemption under Section 4(c) to certain classes of transactions without having to make a determination as to whether such transactions are subject to the Act in the first instance.

18. Is the issuance of staff no-action relief, such as the relief issued to the IEM, an appropriate or preferable means for establishing regulatory certainty for event contracts and markets? Is a policy statement appropriate or preferable?

19. What are the benefits and drawbacks of permitting certain event markets to operate pursuant to Commission established conditions that are similar to the conditions under which the IEM operates?

E. Market Participants

20. Would it be appropriate to allow market participants, and in particular, retail customers, to trade on Commission-regulated event markets with the knowledge that the Commission may not be able to effectively monitor the measures or events that underlie certain event contracts?

21. What unique protections and prophylactic measures are appropriate or necessary for the protection of retail users of event contracts and markets?

22. What are the implications of permitting the intermediation of event contracts, including intermediation on behalf of retail market participants, both with respect to trade execution and clearing?

23. Are there any types of trader or intermediary conduct, peculiar to event contracts and markets, that should be prohibited or monitored closely by regulators?

24. What other factors could impact the Commission’s ability, given its limited resources, to properly oversee or monitor trading in event contracts?

-

THE MIDAS ORACLE TAKES:

- CALL TO ACTION: Let’s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with “event markets”.

- In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

- COMMENTS TO THE CFTC: What to expect from Tom W. Bell and Jason Ruspini

-

BACKGROUND INFO:

- CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts… notably how they define “event markets”, how they are going to extend their “exemption” to other IEM-like prediction exchanges, and how they framed their questions to the public. Here are the comments to the CFTC.

- The Arnold & Porter lawyers explain the meaning of the CFTC’s concept release on “event markets”. — (PDF file)

- What Vernon Smith told the CFTC.

- American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

-

CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts

-

V. Issues for Comment

A. Request for Comment

The following questions consider the Commission’s regulatory purview over event contracts, the interests that may appropriately underlie Commission-regulated transactions, and the appropriate regulatory treatment of event contracts. The Commission encourages comments on the specific questions posed, as well as the broad range of issues raised in this concept release. In providing comments, please describe your relevant experience and discuss in detail the facts and legal provisions that support your conclusions. Furthermore, please consider the Commission’s mandate to protect commodity futures and options markets and customers, and ensure the integrity of the commodity derivatives marketplace, as well as the expected effects of any Commission action on competition, efficiency, innovation and the financial integrity of transactions. Any recommendation with respect to the regulatory treatment of event contracts and markets should be consistent with and supported by the Act, practical, and amenable to effective and efficient implementation.

B. Public Interest

1. What public interests are served by event contracts that are designed and will principally be traded for information aggregation purposes and not for commercial risk management or pricing purposes?

2. How are these interests consistent with the public interest goals embodied in the Act?

3. What calculations, analyses, variables, and factors could be used to objectively determine the social value of information to the general public that may be discovered through trading in event contracts? Should this be a factor in determining whether the Commission plays a role in regulating these markets?

C. Jurisdictional Determinations

4. What characteristics or traits are common to or should be used to identify event contracts and event markets?

5. How do these characteristics and traits differ from those of commodity futures and options contracts that customarily have been regulated by the Commission? How are they similar?

6. Are there criteria based on the provisions of the Act that could be used to make jurisdictional determinations with respect to event contracts and markets?

7. Given the purposes and history of the Act, would it be appropriate for the Commission to apply a test premised on commercial risk management or pricing functions to demarcate the Commission’s jurisdiction over particular contracts? If so, what factors could be used to make such a determination?

8. Given the purposes and history of the Act, would it be appropriate for the Commission to apply any test premised on the economic purpose of certain types of transactions to demarcate the Commission’s jurisdiction over particular contracts? If so, what factors could be used to make such a determination?

9. What calculations, analyses, variables and factors would be appropriate in determining whether the impact of an occurrence or contingency will result in a financial, commercial or economic consequence that is identified in Section 1a(13) of the Act?

10. What calculations, analyses, variables, and factors would be appropriate in determining whether an economic or commercial index that is based on prices, rates, values, or levels should or should not qualify as an excluded commodity under Section 1a(13) of the Act?

11. What identifiable factors, statutorily based or otherwise, limit the events and measures that may underlie event contracts when such contracts are treated as Commission-regulated transactions?

12. What objective and readily identifiable factors, statutorily based or otherwise, could be used to distinguish event contracts that could appropriately be traded under Commission oversight from transactions that may be viewed as the functional equivalent of gambling?

13. The Commission notes that Section 12(e) of the Act generally provides that the CEA supersedes and preempts other laws, including state and local gaming and bucket shop laws, with respect to transactions executed on or subject to the rules of a Commission-regulated market, or with respect to transactions exempted from the Act pursuant to the Commission’s exemptive authority under Section 4(c) of the Act. What are the implications of possibly preempting state gaming laws with respect to event contracts and markets that are treated as Commission-regulated or exempted transactions?

14. Should certain underlying events or measures –such as those based on assassinations or terrorist activities– be prohibited altogether due to the social perception and impact of such events? What statutory or other legal basis would support this treatment?

15. Are there event contracts, such as political event contracts, that should be prohibited from trading under the Act, or that deserve separate treatment or consideration, due to the nature and importance of their outcomes? What statutory or other legal basis would support this treatment?

D. Legal Implementation

16. Is it appropriate for the Commission to direct certain or all event contracts onto markets that are regulated differently from and perhaps less stringently than DCMs? For example, it may be warranted or necessary to treat event markets that aggregate information solely for academic or research purposes, event markets set-up for internal corporate purposes, or event markets that offer exceedingly low notional value contracts to traders differently than markets that possess the attributes of traditional DCMs.

17. Is it appropriate for the Commission to use the Section 4(c) exemptive authority of the Act for implementing a regulatory scheme for event contracts and markets? In this regard, the Commission notes that it has the discretion to grant an exemption under Section 4(c) to certain classes of transactions without having to make a determination as to whether such transactions are subject to the Act in the first instance.

18. Is the issuance of staff no-action relief, such as the relief issued to the IEM, an appropriate or preferable means for establishing regulatory certainty for event contracts and markets? Is a policy statement appropriate or preferable?

19. What are the benefits and drawbacks of permitting certain event markets to operate pursuant to Commission established conditions that are similar to the conditions under which the IEM operates?

E. Market Participants

20. Would it be appropriate to allow market participants, and in particular, retail customers, to trade on Commission-regulated event markets with the knowledge that the Commission may not be able to effectively monitor the measures or events that underlie certain event contracts?

21. What unique protections and prophylactic measures are appropriate or necessary for the protection of retail users of event contracts and markets?

22. What are the implications of permitting the intermediation of event contracts, including intermediation on behalf of retail market participants, both with respect to trade execution and clearing?

23. Are there any types of trader or intermediary conduct, peculiar to event contracts and markets, that should be prohibited or monitored closely by regulators?

24. What other factors could impact the Commission’s ability, given its limited resources, to properly oversee or monitor trading in event contracts?