InTrade prediction markets got health care wrong… – dixit Daniel Gross of Slate, a site I will no longer read.

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Slate&#8217-s Daniel Gross:

Don&#8217-t Short Obama

Why political futures markets got the health care bill so wrong.

By Daniel Gross

Posted Monday, March 22, 2010, at 6:05 PM ET

It would be very difficult to tote up all the times pundits pronounced the health care bill dead, and the prospects for the Obama administration dire—especially after the election of Scott Brown in January. Intrade, the political futures market, which functions as a conventional-wisdom-processing machine, also got health care wrong. Check out this chart for the contract on health care reform being passed by June 2010. The contract is worth 100 if it is passed, zero if it is not. After Brown&#8217-s election, it slumped to as low as 20. As recently as March 17, it was below 40. Even as late as Friday, it was trading in the mid-80s. These trading data show that &#8220-investors&#8221- in this market were skeptical of the Obama administration&#8217-s ability to pass significant health care legislation, right up until the end.

Is there a larger lesson here? (Aside from the obvious one, which is political futures markets usually aren&#8217-t very good at predicting what actually will happen in the future?) I think so. And it&#8217-s this: Don&#8217-t short Obama. In fact, that&#8217-s been the lesson of Obama&#8217-s entire career so far.

[Stock market stuff inserted here.]

On some level, it&#8217-s tough to blame the Intrade crowd for getting Obama and health care wrong. The type of people who trade there, folks who think they&#8217-re quite savvy about money, the market, and politics, are the same conventional wisdom hawkers who were so monumentally wrong before the financial crisis. If you&#8217-ve tuned into CNBC or Fox Business Channel, or read the Wall Street Journal since January 2009, you would have been subject to a constant stream of money managers, pundits, talking heads, and policy wonks declaring that the U.S. economy is becoming a socialist hellhole that is hostile to business and investors. (If there were a way to short Fox Business Channel, I&#8217-d do it in a hurry.)

The conventional wisdom market has not yet internalized the message that it&#8217-s dangerous to your financial and professional health to short Obama. Judging by the debate in the House last night, by the talk on cable news shows this morning (full of talk about how this is going to kill Democrats in November), and by the chatter on the business networks this morning (full of talk about how the tax increases in the health care bill will destroy the markets and the economy), the shorts haven&#8217-t learned anything.

I agree with Dan Gross that prediction markets are a &#8220-conventional-wisdom-processing machine&#8221-. Prediction markets incorporate expectations (informed by facts and expertise) just like the mass media do.

Prediction markets can&#8217-t look into the far away future.

In the ObamaCare case, prediction markets have just been summarizing objectively, dynamically and quantitatively (day in, day out) what the political media were reporting about the health care reform, and about the prospect of its passing in Congress and of its signing by the President.

It would be easy for a scientist to verify that &#8212-by comparing archived media articles with the historical InTrade prices.

ADDENDUM: To answer Hutch&#8217-s question, the only trouble I saw in the history of this contract is the brief manipulation that happened on March 16, 2010.

UPDATE: Funny video:

Flawed New Hampshire polls = Non-accurate New Hampshire prediction markets

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The most comprehensive analysis ever conducted of presidential primary polls:

&#8220-a handful of methodological missteps and miscalculations combined to undermine the accuracy of predictions about presidential primary winners in New Hampshire and three other states.&#8221-

Via Mister the Great Research Scientist David Pennock &#8211-who is an indispensable element of the field of prediction markets.

As I blogged many times, prediction markets react to polls&#8230- See the addendum below&#8230- – [UPDATE: See also Jed’s comment.] – Prediction markets should not be hyped as crystal balls, but simply as an objective and continuous way to aggregate expectations. So, if you think of it, their social utility is much smaller than what the advocates of the &#8220-idea futures&#8221-, &#8220-wisdom of crowds&#8221- or &#8220-collective intelligence&#8221- concepts told us. Much, much, much, much smaller&#8230- They all make the mistake to put accuracy forward. (By the way, somewhat related to that issue, please go reading the dialog between Robin Hanson and Emile Servan-Schreiber.)

Addendum

California Institute of Technology economist Charles Plott:

What you&#8217-re doing is collecting bits and pieces of information and aggregating it so we can watch it and understand what people know. People picked this up and called it the &#8220-wisdom of crowds&#8221- and other things, but a lot of that is just hype.

New Hampshire – The Democrats

The Hillary Clinton event derivative was expired to 100.

Dem NH Clinton

Dem NH Obama

Dem NH Edwards

New Hampshire – The Republicans

The John McCain event derivative was expired to 100.

Rep NH McCain

Rep NH Romney

Rep NH Huckabee

Rep NH Giuliani

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2008 US Presidential and Congressional Elections Prediction: The Sarah Palin effect has partially evaporated, but its remains point to a close race, come Tuesday, November 4, 2008.

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#1. 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&#8230- Intelligence in, intelligence out&#8230-

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.

More Info:

– The Best Resources On Prediction Markets = The Best External Web Links + The Best Midas Oracle Posts

– Prediction Market Science

– The Midas Oracle Explainers On Prediction Markets

– All The Midas Oracle Explainers On Prediction Markets

#2. Objective Probabilistic Predictions = Charts Of Prediction Markets

Put your mouse on your selected chart, right-click, and open the link in another browser tab to get directed to the prediction market page of your favorite exchange.

2008 US Elections

InTrade

2008 US Electoral College

2008 Electoral Map Prediction = InTrade – Electoral College Prediction Markets = Probabilistic predictions for the 2008 US presidential elections based on market data from InTrade = electoralmarkets.com

– This is a dynamic chart, which is up to date. Click on the image, and open the website in another browser tab to get the bigger version.

2008 US ELECTORAL MAP PREDICTION: The 2008 US elections thru the prism of the prediction markets – 2008 US presidential and congressional elections – US President Prediction + US Congress Prediction – Barack Obama vs. John McCain

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#1. 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&#8230- Intelligence in, intelligence out&#8230-

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.

More Info:

– The Best Resources On Prediction Markets = The Best External Web Links + The Best Midas Oracle Posts

– Prediction Market Science

– The Midas Oracle Explainers On Prediction Markets

– All The Midas Oracle Explainers On Prediction Markets

#2. Probabilistic Predictions = Charts Of Prediction Markets

Put your mouse on your selected chart, right-click, and open the link in another browser tab to get directed to the prediction market page of your favorite exchange.

InTrade

2008 US Electoral College

2008 Electoral Map Prediction = InTrade – Electoral College Prediction Markets = Probabilistic predictions for the 2008 US presidential elections based on market data from InTrade Ireland = electoralmarkets.com

– This is a dynamic chart, which is up to date. Click on the image, and open the website in another browser tab to get the bigger version.

75,000 people turned out to hear Barack Obama at Waterfront Park, Portland, Oregon, U.S.A.

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Record Obama Crowd, the Size of a City

Oregon&#8217-s Democratic Primary

InTrade

Price for Oregon Democratic Primary. May 20th at intrade.com

BetFair

Kentucky&#8217-s Democratic Primary

InTrade

Price for Kentucky Democratic Primary. May 20th at intrade.com

BetFair

NewsFutures

Some delegates from FL or MI will be seated at the Democratic Convention.

© NewsFutures

First look at individual states for the 2008 US presidential elections

2008 US Presidential Election Winner – Individual

Price for 2008 Presidential Election Winner (Individual) at intrade.com

Price for 2008 Presidential Election Winner (Individual) at intrade.com

Price for 2008 Presidential Election Winner (Individual) at intrade.com

2008 US Presidential Elections

Source: Dynamic, compound prediction market charts from InTrade

Next US President

Next US President

Winning Party

Winning Party

Female President?

Female President?

Democratic Candidate

Democratic Candidate

Republican Candidate

Republican Candidate

Source: BetFair Politics Zone

Barack Obama to win the Democratic nomination


© NewsFutures

Hillary Clinton to win the Democratic nomination


© NewsFutures

Next US President Will Be Democratic.


© NewsFutures

Next US President Will Be Republican.


© NewsFutures

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&#8230- Intelligence in, intelligence out&#8230-

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.

More Info:

– The Best Resources On Prediction Markets = The Best External Web Links + The Best Midas Oracle Posts

– Prediction Market Science

– The Midas Oracle Explainers On Prediction Markets

– All The Midas Oracle Explainers On Prediction Markets

Barack Obama will finish off Hillary Clinton by June 15.

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The End

Lawrence O&#8217-Donnell (a leftist journalist &#8211-but a good one, whom I appreciate):

A senior campaign official and Clinton confidante has told me that there will be a Democratic nominee by June 15. […] Yes, Clinton spokespersons publicly seem to be lost on gravity-free planet Clinton, but privately they know the end is near.

There&#8217-s a quasi consensus among the political pundits to say that Hillary Clinton will not be the Democratic nominee in November 2008.

Tim Russert:

That was Wednesday night. I have just watched NBC Nightly News this Thursday, and the same Tim Russert appeared with 2 white boards full of calculations, which all pointed to Hillary Clinton being toasted.

My general thoughts about the place of the political prediction markets in this primary election season:

  1. The weight of the political prediction markets in the US political scenery is close to epsilon. I have been monitoring Memeorandum (the Web&#8217-s best political news and opinion aggregator), and it has never featured one piece of political prediction market journalism &#8212-not only that, but none of the popular popular pieces, featured by Memeorandum, has ever mentioned the political prediction markets and their probabilities. The people who breathe politics on a daily basis (the experts and the bloggers) don&#8217-t give the first fig about the prediction markets. They couldn&#8217-t care less.
  2. The prediction market luminaries who predicted that the prediction markets were to become a tool used in political campaigns were dead wrong. I have never read that campaign staffers use actively the political prediction markets. Campaigns use private polls, only.
  3. Like in 2004 (when Howard Dean was crowned, early on), the prediction markets, at the start of the primary season, were incapable of foreseeing who would be each party&#8217-s nominee, ultimately &#8212-Barack Obama and John McCain both came out of the blue. But the polls and the political experts didn&#8217-t see them, too.
  4. Nothing surprising in that. While the idiots emphasize the supposed magical power of the prediction markets (using adjectives such as &#8220-fascinating&#8221- or &#8220-intriguing&#8221- when writing about them), the well informed people know for a fact that they simply aggregate information from the primary, advanced indicators and the opinions expressed by the political experts. Nothing more than that. The prediction markets are incapable of foretelling upsets, by essence.
  5. The last weeks were particularly interesting, in that regard, because the Obama-vs-Clinton polls have been of no interest &#8212-only the views of the political experts who could count in terms of delegates and super-delegates were of interest. The political prediction markets on the Democratic side, these last weeks, have been a reflection of the pundits&#8217- calculations.
  6. Outside of our blog, the only person who has aimed at practicing prediction market journalism is Justin Wolfers. He has understood the concept.
  7. I would have my own concept of prediction market journalism, and I don&#8217-t agree with the way he executes, but that&#8217-s a detail. The main thing is that he has gotten the concept. That&#8217-s what is important, and that&#8217-s what makes all the difference between Justin Wolfers and the HubDub bloggers (for instance). The concept. The concept. The concept. The idea is to center the narrative around the inputs given by the relevant prediction market(s) &#8212-not just gluing artificially news bits and a prediction market chart (or a link to a prediction market).
  8. InTrade, BetFair and NewsFutures are, in my view, the 3 prediction exchanges that matter for prediction market journalism &#8212-as of now.

Now, the charts of the expired prediction markets &#8212-starting with Pennsylvania (of 2 weeks ago):

Yesterday&#8217-s North Carolina:

Yesterday&#8217-s Indiana:

Sources: InTrade &amp- BetFair

(Go there for the remaining primaries and caucuses. I don&#8217-t put them on, here, because they don&#8217-t matter anymore.)

Now, the charts of the prediction markets, going forward:

2008 US Presidential Election Winner – Individual

Price for 2008 Presidential Election Winner (Individual) at intrade.com

Price for 2008 Presidential Election Winner (Individual) at intrade.com

Price for 2008 Presidential Election Winner (Individual) at intrade.com

2008 US Presidential Elections

Source: Dynamic, compound prediction market charts from InTrade

Next US President

Next US President

Winning Party

Winning Party

Female President?

Female President?

Democratic Candidate

Democratic Candidate

Republican Candidate

Republican Candidate

Source: BetFair Politics Zone

Barack Obama to win the Democratic nomination


© NewsFutures

Hillary Clinton to win the Democratic nomination


© NewsFutures

Next US President Will Be Democratic.


© NewsFutures

Next US President Will Be Republican.


© NewsFutures

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&#8230- Intelligence in, intelligence out&#8230-

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.

More Info:

– The Best Resources On Prediction Markets = The Best External Web Links + The Best Midas Oracle Posts

– Prediction Market Science

– The Midas Oracle Explainers On Prediction Markets

– All The Midas Oracle Explainers On Prediction Markets

Previous blog posts by Chris F. Masse:

  • Prediction Markets
  • Meet professor Justin Wolfers.
  • Become “friend” with me on Google E-Mail so as to share feed items with me within Google Reader.
  • Nigel Eccles’ flawed “vision” about HubDub shows that he hasn’t any.
  • How does InTrade deal with insider trading?
  • Modern Life
  • “The Beacon” is an excellent blog published by The Independent Institute.

So no matter how you cut it, Obama will almost certainly end the primaries with a pledged-delegate lead, courtesy of all those landslides in February.

No GravatarJonathan Alter: &#8220-Hillary’s Math Problem – Forget tonight. She could win 16 straight and still lose.&#8221-

UPDATE

Previous blog posts by Chris F. Masse:

  • Red Herring’s list of the top 100 North-American high-tech startups includes Inkling Markets —but not NewsFutures, Consensus Point, or Xpree.
  • Professor Koleman Strumpf explains the prediction markets to the countryland people.
  • Professor Koleman Strumpf tells CNN that a prediction market, by essence, can’t predict an upset.
  • Time magazine interview the 2 BetFair-Tradefair co-founders, and not a single time do they pronounce the magic words, “prediction markets”.
  • One Deep Throat told me that this VC firm might have been connected with the Irish prediction exchange, at inception.
  • BetFair Rapid = BetFair’s standalone, local, PC-based, order-entry software for prediction markets
  • Michael Moore tells the Democratic people to go Barack Obama in Pennsylvania (a two-tier state), but the polls and the prediction markets tell us that that won’t do the trick.

Doing The Delegate/SuperDelegate Math.

No GravatarNew York Times – Talking Point Memo

Read the previous blog posts by Chris F. Masse:

  • Never talk when you can nod, and never nod when you can wink, and never write an e-mail because it’s death. You’re giving prosecutors all the evidence we need.
  • Is Justin Wolfers a libertarian? Probably not.
  • The information technology that caught Eliot Spitzer
  • Eric Zitzewitz’s 10 minutes of fame
  • Fun with conditional probabilities
  • Wrongly Crafted Headlines Of The Day
  • an American, petite, very pretty brunette, 5 feet 5 inches, and 105 pounds

The Michigan primary as seen thru the prism of the InTrade prediction markets

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Michigan, U.S.A. &#8212- Tuesday, January 15, 2008

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The Democrats

The Hillary Clinton event derivative was expired to 100.

MI Dem Clinton

MI Dem Obama

MI Dem Edwards

MI Dem Field

&#8212-

The Republicans

The Mitt Romney event derivative was expired to 100.

MI Rep Romney

MI Rep McCain

MI Rep Giuliani

MI Rep Field

Source: InTrade