GMU is in the second tier, not even ranked numerically.

Maybe some of the GMU professors spend too much time blogging (as opposed to producing fundamental and applied research), and maybe some of them spend too much time putting up the show. They should focus on improving the standing of their university, first.

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The Forrester executive summary:

The “wisdom of crowds” is capturing the attention of corporate strategists across the globe, and, as a result, many are now looking to prediction markets — speculative markets in which traders collectively predict future events — to generate collective intelligence. For enterprises, prediction markets bring unique value: They focus on the future, aggregate diverse information pools that can be applied to multiple decision-making domains, create streams of actionable data suitable for executive decision-making, and can often cut through corporate politics and pressures at lower cost than traditional forecasting methods. Market researchers will, however, need to have an active hand in the management of these mechanisms, ensuring strong management support, the right incentives for traders, and a focus on appropriate questions. When executed properly, the value to the enterprise is enormous; as a result, Forrester believes that prediction markets will ultimately find a permanent home in the market research toolbox.

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For information on hard-copy or electronic reprints, please contact the Client Resource Center at +1 866.367.7378, +1 617.617.5730, or resourcecenter –at– forrester –dot– com. We offer quantity discounts and special pricing for academic and nonprofit institutions.

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APPENDIX #1: Prediction Markets – DRM Review

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APPENDIX #2:

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Here is a list of companies that provide software for prediction markets:

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Inkling Markets – (MSR + AMM)

NewsFutures – (CDA + optional AMM + SR)

Xpree – (MSR + AMM)

Zocalo – (CDA + MSR + AMM) – (open-source)

Nosco – (CDA + MSR + AMM)

QMarkets – (MSR + AMM)

Ask Markets – (MSR + AMM)

Exago Markets – (CDA + optional AMM)

Gexid – (?)

ProKons – (?)

Spigit – (?)

HSX Virtual Markets – (Virtual Specialist + AMM)

HubDub – (MSR + AMM) – (not licensed)

Yahoo!‘s Prediction Exchange – (MSR + AMM + DPMM) – (not licensed)

Google‘s Prediction Exchange – (CDA) – (not licensed)

MicroSoft PredictionPoint – (MSR + AMM) – (not licensed)

InTrade – (CDA + AMM for play money) – (not licensed)

TradeSports – (CDA + AMM for play money) – (not licensed)

Iowa Electronic Markets – (CDA) – (not licensed)

HedgeStreet – (CDA) – (not licensed)

TradeFair – (CDA) – (not licensed)

BetFair – (CDA) – (not licensed)

Trading Technologies International – (CDA) – (not for event derivatives)

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Here’s a list of prediction market consultants:

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Robin Hanson – (George Mason University, Virginia, U.S.A.)

• Robin Hanson does prediction market consulting work, and have no exclusive arrangements.
• “I’m more interested in helping groups that want to add lots of value to big decisions, versus groups that just want to dabble in a new fad.”

Inkling – URL: Inkling Markets – (Chicago, Illinois, U.S.A.)

• Adam Siegel
• Nathan Kontny

NewsFutures – (Maryland, U.S.A. & Paris, France, E.U.)

• Emile Servan-Schreiber — Post Archive at Midas Oracle
• Maurice Balick

Xpree – (California, U.S.A.)

• Mat Fogarty

Chris Hibbert – (California, U.S.A.)

• Chris Hibbert (Software architect / Zocalo project manager) — Post Archive at Midas Oracle
• Chris Hibbert’s personal website — Chris Hibbert’s personal blog —
• Chris Hibbert’s CommerceNet profile — (His stint there ended in mid 2006.)

Justin Wolfers – (University of Pennsylvania’s Wharton Business School, Pennsylvania, U.S.A.)

• Justin Wolfers takes on prediction market consulting work.
• The prediction market industry is “a case where the interaction between firm practice and academic research are reasonably close.”

Koleman Strumpf – (University of Kansas, Kansas, U.S.A.)

• Koleman Strumpf — Post Archive at Midas Oracle
• Koleman Strumpf can be approached to consult on prediction market projects.
• “Prediction markets help harness the knowledge of diverse groups. They have great potential as a tool for industry.”

Nosco – (Danemark, E.U.)

• Jesper Krogstrup
• Oliver Bernhard Pedersen

Qmarkets – (Israel)

• Noam Danon

Ask Markets – (Greece, E.U.)

• George Tziralis — Post Archive at Midas Oracle

HP Services & HP Labs – (U.S.A.)

• Predicting the future –with games — Introductory article
• Information Dynamics Lab — Internal prediction markets
• BRAIN – (Behaviorallly Robust Aggregation of Information in Networks) — Scoring Rules (i.e., non-trading technique)
• Bernardo A. Huberman – Bernardo Huberman – Senior Fellow & Director
• Kay-Yut Chen -
• Google Search for “prediction markets”

Hollywood Stock Exchange (HSX) & HSX Research – (L.A., California, U.S.A.)

• Prediction market consultancy firm
• Movie business

IntelliMarket Systems – (L.A., California, U.S.A.)

• Charles R. Plott – Charles Plott – (CalTech Inst., California, U.S.A.)

Gexid – Global Exchange for Information Derivatives – (Germany, E.U.)

• Bernd Ankenbrand — Post Archive at Midas Oracle

ProKons – (Germany, E.U.)

• Peter Gollowitsch

Exago Markets – (Portugal, E.U.)

• Pedro Da Cunha

NimaniX – (Israel)

• Elad Amir (CEO), Littal Shemer Haim (VP Business development), David Shahar (VP R&D)

Michael Giberson – (Texas, U.S.A.)

• Michael Giberson (Energy Economist – Center for Energy Commerce, Rawls College of Business, Texas Tech University) — Post archive at Midas Oracle
• Knowledge Problem – Blog on economics, energy policy, more.

Other Consulting Firms

McKinsey – (U.S.A.)

• Google Search for “prediction markets”
• The Promise Of Prediction Markets – by McKinsey – 2008-04-XX

Accenture – (U.S.A.)

• Google Search for “prediction markets”

Gartner – (U.S.A.)

• Google Search for “prediction markets”

Forrester – (U.S.A.)

• Google Search for “prediction markets”
• Prediction Markets: Wisdom Of The Crowd Comes To The Enterprise. – 2008-07-14

The Boston Consulting Group – (U.S.A.)

• Google Search for “prediction markets”

CapGemini – (U.S.A.)

• Google Search for “prediction markets”

KPMG – (U.S.A.)

• Google Search for “prediction markets”

Price Waterhouse Cooper – (U.S.A.)

• Google Search for “prediction markets”

Ernst & Young – (U.S.A.)

• Google Search for “prediction markets”

Deloitte – (U.S.A.)

• Google Search for “prediction markets”

IBM – (U.S.A.)

• Google Search for “prediction markets”

EDS – (U.S.A.)

• Google Search for “prediction markets”

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Zotero:

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Zotero Handbook: PDF file

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US scientists have invented a pill that can boost memory.

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Invented by Dr Gary Lynch from the University of California.

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John Delaney (CEO of InTrade) – (InTrade PDF file – CFTC PDF file):

Nearly all leading academics, not known for their attraction to unanimity, have publicly supported event markets. A great majority of these academics have been supplied with Intrade market data in the past, a service that Intrade intends to continue, for all study leads to an increase in transparency and understanding of event markets. It seems that the leading event market academics make no distinction between the benefits derived from academic owned markets like Iowa Electronic Markets and commercial market platforms like Intrade.

Yet many academics, with some notable exceptions, do temper their policy prescription to suggest a “safe harbor” for academic sites where research might be more generally available. As noted above Intrade has gladly supplied its event market data, typically free of charge to most of the leading prediction market academics and their students, and we are committed to encouraging the future study of event markets by continuing to supply our event market data free of charge or at very deep discounts. The academics that study event markets do a great service in developing our understanding of the strengths and weaknesses of event markets. Some commentators suggest that market liquidity and breadth typically benefit all event market stakeholders. Thus far commercial platforms like Intrade seem to be providing the greatest depth and breadth in event markets.

As Intrade has been a staunch supporter of event market academic study, and supplies greater depth and liquidity in its event markets than any other platform, it seems strange not to be a preferred purveyor. Perhaps the predominant reason many academics have held back from advocating and treating all event markets alike is a sense that initiatives to clarify or unwind the legislation restraining the optimal development of event markets is unlikely to be achievable. It seems many academics and commentators suggest a slow bureaucratic and pragmatic caution rather than focus on the optimal result. While the optimal result may be more challenging to achieve, for consistency, for better price discovery for the benefit of all, as well as for the development of Intrade, we encourage CFTC to apply common goals, objectives and standards for all participants.

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Prediction Market Industry Association – (PMIA)

4) Lobby for a clear legal and regulatory environment conducive to the productive adoption of prediction markets by individuals, firms, and governments, and ensuring free access to these markets by traders.

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The PMIA’s first board is comprised of:

[...]
Robin Hanson (George Mason University)
Justin Wolfers (Wharton School – University of Pennsylvania)

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Nearly all leading academics, not known for their attraction to unanimity, have publicly supported event markets. A great majority of these academics have been supplied with Intrade market data in the past, a service that Intrade intends to continue, for all study leads to an increase in transparency and understanding of event markets. It seems that the leading event market academics make no distinction between the benefits derived from academic owned markets like Iowa Electronic Markets and commercial market platforms like Intrade.

Yet many academics, with some notable exceptions, do temper their policy prescription to suggest a “safe harbor” for academic sites where research might be more generally available. As noted above Intrade has gladly supplied its event market data, typically free of charge to most of the leading prediction market academics and their students, and we are committed to encouraging the future study of event markets by continuing to supply our event market data free of charge or at very deep discounts. The academics that study event markets do a great service in developing our understanding of the strengths and weaknesses of event markets. Some commentators suggest that market liquidity and breadth typically benefit all event market stakeholders. Thus far commercial platforms like Intrade seem to be providing the greatest depth and breadth in event markets.

As Intrade has been a staunch supporter of event market academic study, and supplies greater depth and liquidity in its event markets than any other platform, it seems strange not to be a preferred purveyor. Perhaps the predominant reason many academics have held back from advocating and treating all event markets alike is a sense that initiatives to clarify or unwind the legislation restraining the optimal development of event markets is unlikely to be achievable. It seems many academics and commentators suggest a slow bureaucratic and pragmatic caution rather than focus on the optimal result. While the optimal result may be more challenging to achieve, for consistency, for better price discovery for the benefit of all, as well as for the development of Intrade, we encourage CFTC to apply common goals, objectives and standards for all participants.

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Prediction Market Industry Association – (PMIA)

4) Lobby for a clear legal and regulatory environment conducive to the productive adoption of prediction markets by individuals, firms, and governments, and ensuring free access to these markets by traders.

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The PMIA’s first board is comprised of:

[...]
Robin Hanson (George Mason University)
Justin Wolfers (Wharton School – University of Pennsylvania)

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July 4th 2008
The Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street NW
Washington, DC 20581
U.S.A.

Attention: Office of the Secretariat

RE: “Concept Release on the Appropriate Regulatory Treatment of Event Contracts”

To Whom it May Concern:

It is an honour for me as Chief Executive Officer of Intrade the Prediction Market Limited (“Intrade”) to provide price discovery information on thousands of event markets free of charge to notable institutions such as yourselves at the U.S. Commodity Futures Trading Commission, the U.S. Navy, the Federal Reserve Banks of New York, Richmond, and Chicago, the European Central Bank, the Bank of Japan, the American Enterprise Institute – Brookings Joint Centre, CATO Institute, and the Bank of England. We have similarly supplied our price discovery event market information to political organisations, students and staff at every Ivy League College, and students and staff at over 50 universities worldwide.

We estimate that over 300 global media businesses such as The New York Times, The Wall Street Journal, The Washington Post, The Financial Times, The Los Angles Times, Chicago Tribune, Economist, Bloomberg, Reuters, Forbes, Time, Fortune, CNN, CNBC, Fox, ABC and others have used Intrade event market information.

Investment firms on Wall Street, and the other major financial centres of the world, have solicited and been provided with Intrade price discovery event market information. The above lists are not exhaustive.

Further, Intrade provides free real-time transparent price discovery event market information to millions of people from the general public. While Intrade serves a global community and has registered members from 162 countries, our 82,000 plus membership are predominantly resident in the United States. The predictive probability information on event markets that we supply to the general public is both intuitive and readily and rapidly assimilated without the necessity for paid subscriptions or a financial education.

Intrade has been transparent and industrious, as have others, in nurturing the development of the event market industry. Intrade as a profit-maximizing business does of course expect to significantly benefit from its dedicated employment. However the benefits to society at large will be equivalently great from Intrade’s focus on event markets.

While U.S. institutions and society benefit from Intrade’s services it is perversely unclear as to whether Intrade, and indeed myself, are considered persona gratis by the United States. However, we are more optimistic than ever that Intrade as the de facto leader in the event market industry sector will soon have the ability to stand on a firm, transparent and appropriate regulatory footing thanks to the process that the CFTC has accelerated through their request for comments on how to regulate event markets.

Not since the Industrial Revolution have the risks and their commensurate opportunities of dealing with great uncertainty and rapid change that we all face been so high. Much of this change and uncertainty is technology driven, with most countries, organizations and households accepting, in theory at least, that they must change.

The recent implosion of credit markets is just one example of the great uncertainty and potential for events impacting citizens of the United States and farther afield.

To adapt to a changing world in an orderly and optimal manner requires access to information, robust decision-making processes and the courage and determination to grasp the opportunities that a dynamic world offers. The CFTC and indeed the United States itself has access to the information, the decisionmaking expertise, and a historical track record of determination and accomplishment.

But the relentless change that we all face will be best dealt with if we have the best information, in real time, to reduce uncertainty, risk and stress. Event market information can and has increased the quality and timeliness of decision-making. Event markets can act as a democratic mechanism that gives voice to the broadest range of event stakeholders and, in so doing, aggregates a peerless information set. By encouraging the aggregation, distribution, validation and appropriate use of the best event market information, society will benefit even more than it does today from event markets. To do otherwise than to encourage event market development would be a societal travesty.

The dynamic nature of the world that we live in, where the pace and systematic impact of change seem to be increasing, will be greatly aided if event markets are given a certain regulatory footing in the United States and other jurisdictions. This, coupled with the fact that markets excel in aggregating information and estimating the value of a product or the likelihood of an event occurring, testifies to the logic that the price discovery that event markets produce should now be encouraged by the CFTC.

The CFTC by clarifying the status of event markets now will be of great service to Americans. In this regard the CFTC has an important opportunity and one that the CFTC seem very positively biased to grasp in light of its statements, such as…
- The CFTC state on their website that they have “An Important Mission in the Ever-Changing World of Finance.”
- “The CFTC assures the economic utility of the futures markets by encouraging their competitiveness and efficiency.”
- “The CFTC is also mandated to enable futures markets to serve the important function of providing a means for price discovery and offsetting price risk.”

CFTC Acting Chairman Walt Lukken, when announcing the execution of a memorandum of understanding with the SEC on March 11, 2008, stated: “The regulatory structure that oversees the U.S. financial markets embrace innovation, growth and competition in the global marketplace, without compromising market integrity, customer protection and the public good.”

The above statements, in addition to the Concept Release by the CFTC, are very encouraging. It is specifically this price discovery and risk management mandate that justify the CFTC’s embrace of event markets, should justification be needed.

Intrade has listed 211,607 individual event markets and aggregated and distributed predictive event market information on subjects such as Arctic Oil Drilling, Climate Change, Commodities, Company Earnings, Constitutional Referenda, Currencies, Disease Outbreaks, Earthquakes, Economic Numbers, Entertainment Awards and Earnings, Indices, Euro Adoption, Federal Reserve Announcements, Gas Prices, Gasoline Tax, Geo Political Events, Homeland Security in the U.S., Mergers & Acquisitions, Social Security Reform and U.S. Taxes. This list is far from exhaustive.

No other platform has listed more event markets than Intrade. To the best of our knowledge and belief the event market leadership position that is often ascribed to Intrade is wholly justified from a review of the breadth of the event markets listed and information we have aggregated and distributed. Information, as noted above, that is used by governmental agencies, businesses, academics, and the general public to reduce uncertainty and in so doing increase the speed and quality of decisions being made.

While the obvious benefits to the general public in terms of price discovery and decision-making of some Intrade event markets will be more obvious than others, we can make robust arguments that all have the potential to serve the dual purpose of price discovery and a mechanism for offsetting price risk.

The CFTC by clarifying its position on event markets will give all event market stakeholders valuable direction on market and participant eligibility. Whether used at the federal government level or by the individual citizen, event markets provide a magnificent opportunity to use price discovery information in managing economic risk. Here are just a few examples from the 211,607 event markets we have listed.

Intrade has listed markets on the probability of the Homeland Security alert level being above or below a certain level at a certain date. “The United States spends roughly $100 billion per year on homeland security” according to the White House. The costs of migrating from a threat level of “Guarded” to a threat level of “Elevated” have very significant costs for the government, business, and society. By utilizing event market price discovery information on the probability that the alert level will be at a certain threshold on a given date, the economic consequences of the threat level can be managed in a more insightful way.

Jason Ruspini has suggested markets to Intrade on whether the marginal personal income tax rate for single U.S. filers will be equal to or greater than a range of specified percentages for tax years 2009, 2010 and 2011. Having spoken directly to a number of tax paying citizens from the United States, the transparency of this information undoubtedly serves a public good. Is there a Unites States resident taxpayer who will read this comment who is not interested in the taxes she or he will pay next year?

On a more macro level, Intrade has listed a market on whether the cold fusion experiment of Dr. Yoshiaki Arata will be replicated in a peer-reviewed scientific journal before 31 December 2009. The possible impact of such a development to our energy needs little hyperbolae. The fact that President Bush requested $25 billion for the U.S. Department of Energy’s 2009 Budget speaks to the importance of maximum transparency in such matters. It may also be interesting to note that $493 million of the $25 billion was allocated to Fusion Energy Services. Does transparency to such price discovery information serve positively the United States and others? Absolutely!

Professor Koleman Strumpf suggested that Intrade list a market on whether Blu-Ray Disc sales will outnumber HD-DVD disc sales in the United States in 2008. If an organisation’s employees or profits are potentially influenced by the outcome of this event, as were Toshiba’s, the main supporter of HDDVD, then access to such information is both valuable and gives opportunity for welfare maximisation.

Intrade has also listed, at the request of University of Westminster Business School, markets on whether the number of violent crimes committed in 2010 will be lower than those committed in 2007. Intrade has additionally listed at the request of a United States resident member of our platform a market on the impact of U.S. Government debt if a non-Democrat is elected president of the United States in 2008.

Professor Eric Zitzewitz, Professor Robin Hanson, Professor Justin Wolfers and others at the forefront of event market academia have all suggested event markets to Intrade in the past that have been listed and which provided event market information both for academic study and business and general public use.

Imagine if you were a resident of a state such as Florida that is frequently exposed to severe storms and how crucial information on the likelihood of a storm hitting your state can be if your business, family and friends are likely to be impacted by such an occurrence. Intrade lists event markets on such
eventualities.

The event markets listed on Intrade provide price discovery information on whether an earthquake measuring 9.0 or more on the Richter Scale will happen anywhere in the world in 2008; whether Avian Flu H5N1 is confirmed in the United States in 2008; whether the U.S. carries out an overt attack on North Korea; or even whether Robert Mugabe departs his presidency in 2008. These significant events are highly relevant to millions of people in the United States and elsewhere.

President Bush stated in an address on global climate change that: “This is a challenge that requires a 100 percent effort; ours, and the rest of the world’s.” It seems to us impossible to make a “100 percent effort” to address the challenge of climate change without using event markets to aggregate information, such as that provided by Intrade’s market on whether 2008 will be one of the warmest years ever recorded.

All of the markets cited above give information on the probability of the event occurring. Some of the information aggregated and distributed by Intrade has been more predictive than other. The predictive accuracy of Intrade’s event markets and event markets generally have been cited and studied extensively by academics and others including, but not limited to Professor Robin Hanson, Professor Charles Noussair, Professor David Paton, Professor Leighton Vaughan Williams, Dr. David Pennock, Professor Eric Zitzewitz, Professor Mark Perry, Professor Erik Snowberg, Professor Marco Ottaviani, Professor Justin Wolfers, Professor Koleman Strumpf, and Professor Paul Tetlock.

Nearly all leading academics, not known for their attraction to unanimity, have publicly supported event markets. A great majority of these academics have been supplied with Intrade market data in the past, a service that Intrade intends to continue, for all study leads to an increase in transparency and understanding of event markets. It seems that the leading event market academics make no distinction between the benefits derived from academic owned markets like Iowa Electronic Markets and commercial market platforms like Intrade.

Yet many academics, with some notable exceptions, do temper their policy prescription to suggest a “safe harbor” for academic sites where research might be more generally available. As noted above Intrade has gladly supplied its event market data, typically free of charge to most of the leading prediction market academics and their students, and we are committed to encouraging the future study of event markets by continuing to supply our event market data free of charge or at very deep discounts. The academics that study event markets do a great service in developing our understanding of the strengths and weaknesses of event markets. Some commentators suggest that market liquidity and breadth typically benefit all event market stakeholders. Thus far commercial platforms like Intrade seem to be providing the greatest depth and breadth in event markets.

As Intrade has been a staunch supporter of event market academic study, and supplies greater depth and liquidity in its event markets than any other platform, it seems strange not to be a preferred purveyor. Perhaps the predominant reason many academics have held back from advocating and treating all event markets alike is a sense that initiatives to clarify or unwind the legislation restraining the optimal development of event markets is unlikely to be achievable. It seems many academics and commentators suggest a slow bureaucratic and pragmatic caution rather than focus on the optimal result. While the optimal result may be more challenging to achieve, for consistency, for better price discovery for the benefit of all, as well as for the development of Intrade, we encourage CFTC to apply common goals, objectives and standards for all participants.

While some evidence and event markets have highlighted that event markets do not always provide robust predictive information, the preponderance of the research suggests that event markets have both the ability and track record of providing the best available information upon which decisions may be based or optimised. Of course the uncertain regulatory status of event markets constrains the development of liquidity, price discovery and by logical extension societal benefits.

Intrade has received testimonials from numerous U.S. regulated businesses and private citizens which state they would like to trade on certain event markets but are unable due to the regulatory uncertainty. Therefore, unless and until event markets are given a certain status they will not develop to their full potential.

Based on the above and comments by many others, some of whom have been mentioned by name in this comment, the price discovery mandate that the CFTC has can only be served if event markets are embraced.

In terms of offsetting price risk and the opportunity for hedging, the overwhelming majority of markets listed by Intrade can easily be seen to have underlying economic implications and risks. For example, U.S. tax rate changes, a negative geopolitical event, an increase in the threat level to homeland security and the associated costs of a higher threat level, or indeed Social Security reform all have massive economic justifications across society.

As with the CFTC’s price discovery mandate, it is impossible for us to imagine how risks can be optimally assessed and managed without the status of event markets being clarified.

The CFTC are also sensitive to retaining the competitiveness of futures markets and retaining “competition in the global marketplace”. There has been much written about the United States losing its edge in global financial markets. Often cited is that burdensome and inflexible regulations, most notably the Sarbanes-Oxley legislation passed by Congress in 2002, are driving business to London, Hong Kong, Frankfurt and elsewhere. In this regard, the CFTC has an opportunity to be a world first and embrace event markets. In so doing the CFTC will ensure the United States’ leadership position is encouraged for the important and growing event market industry.

The greatest challenge in bringing about an appropriate and successful embrace of event markets by the CFTC is unlikely to be identifying and agreeing that the public good will be served, or that risks may be better managed. The challenge for the CFTC may well be the uncertainties relating to legal and jurisdiction issues. In these matters there are experts far better versed than Intrade to opine.

The financial events of the last six months in which virtually the entire world financial system stopped functioning to a greater or lesser extent has highlighted what can happen when many of the world’s largest financial institutions make concurrent similar mistakes. Such systemic contagion has led commentators to suggest a more fundamental approach to how and what we regulate. Where event markets are concerned we are hopeful that this is the case and that the level of regulation is such that the evolving stage of the event market industry is not stifled.

We are proud to be at the forefront of the development of the event market industry. We are determined to continue providing the best information on relevant event markets to the widest audience. We wish to solidify our regulatory position in the U.S. and elsewhere. We strongly encourage the CFTC to clarify the situation with regard to event markets for the benefit of all, even if there are costs to Intrade. We are highly optimistic that the CFTC will grasp this opportunity to benefit all society and we wish to serve our own most important role in an industry niche that we have been privileged to help shape.

Respectfully Submitted on behalf of the entire Intrade Team by
John Delaney
Chief Executive Officer

CC to Fax 202.418.5521 and e-mail: secretary@cftc.gov.

1. “Intrade … isn’t just an entertaining Web site. It is the latest iteration of one of the most important economic developments of modern times.” David Leonhardt, Economics Reporter, The New York Times, February 14, 2007

2. Costs of regulation are high in the U.S., “that’s a key reason the leading commercial prediction market, Intrade, is based in Ireland” Prof Paul Tetlock, Wall Street Journal, May 11th 2007

3. “On Dec. 11, 2003, Intrade’s contract on Saddam Hussein’s capture suddenly began to move. … Two days later, Saddam was in custody.” Bill Saporito, Time Magazine, October 24, 2005

4. “At FORTUNE we often write about the latest hot company, but it’s rare that we get a chance to introduce you to an entirely new market… Intrade is the only efficient market system around for investing in, well, almost anything” Andy Serwer, Managing Editor, Fortune, August 8, 2005

5. 78% of traffic to Intrade.com in the period 1 January to 30 June was from the U.S.

6. “Intrade futures market ~ the greatest time-saving invention of this century.” John Tierney The New York Times

7. The Uncertainty Stress Scale: its development and psychometric properties. Can J Nurs Res. 1994 Fall;26(3):15-30, PMID: 7889446

8. As of June 30 2008

9. For many people, Intrade is the king of the prediction markets.” Stephen Dubner, Freakonomics, The New York Times July 5 2007

10. http://www.whitehouse.gov/homeland/book/sect5.pdf.

11. http://feedroom.businessweek.com/?fr_story=5a3aa8086dbd52b35ae21c7f5abe94f85fa0a8ab&rf=sitemap.

12. http://www.energy.gov/news/5920.htm

13. “Want straight answers on what will happen in politics and current events? Answers without partisan bias or wishful thinking? You can’t do much better than the prices at Intrade.” Professor Robin Hanson, Professor of Economics, George Mason University

14. “My forecast? Prediction markets will become ever more important to business and public policy. And Intrade are running the most interesting markets around.” Professor Justin Wolfers

15. http://www.whitehouse.gov/news/releases/2001/06/20010611-2.html

16. “Analysts can debate about a recession as much as they want, but talk is cheap. It’s great to have [Intrade] futures trade where people put money behind their beliefs!” Professor Mark J. Perry, University of Michigan-Flint

17. http://www.international-economy.com/TIE_Sp07_Baker.pdf and http://knowledge.emory.edu/article.cfm?articleid=1015

18. “Regulatory Underkill,” Arthur Levitt Jr., Wall Street Journal, March 21, 2008

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NEXT: More from John Delaney about regulations

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Date: Mon, 07 Jul 2008 10:12:46 -0400
To: secretary@cftc.gov
From: Robin Hanson <rhanson@gmu.edu>
Subject: Comment on “Concept Release on the Appropriate Regulatory Treatment of Event Contracts”
—————————————————————-
I am an event market innovator, having published the first detailed discussions envisioning their widespread application, having designed a widely used trading mechanism (the market scoring rule), and having co-developed the first internal corporate markets (at Xanadu), the first public web markets (the Foresight Exchange), and the aborted-but-influential Policy Analysis Market.

As I am less well trained in law than social science, I will not comment on what the C.F.T.C. is legally authorized to do, but only on how various policies correspond to public interest and public opinion. I speak here only for myself and not for any organization with which I may be affiliated.

The degree and type of regulation appropriate for a financial market depends on traders’ motives. Long ago most everything beyond direct physical exchange was widely discouraged or prohibited as “gambling” or “speculation.” The motives imputed to traders seemed to be some combination of mistakes, overconfidence, thrill of action, love of risk, and showing off one’s confidence and risk tolerance.

While public opinion on gambling has changed little, eventually legal exceptions were carved out for markets where, though speculation was still possible, enough participants had more sympathetic motives to garner public support. Securities markets allowed business managers to hedge ownership, insurance markets allowed hedging of various idiosyncratic risks, and commodities futures markets allowed hedging of various common risks.

It has long been noted approvingly that such speculative markets often had the desirable side effect of inducing people to collect info and aggregate it into prices. But until recently such info was not considered or accepted as a primary explanation or justification for a market’s existence. Given the myriad ways our society now suffers, often dramatically, from failures to aggregate info, I am very optimistic about the long term potential for such markets to offer substantial social value. However, the question remains of how such info-motivated markets should be regulated today.

Ideally an entire new regulatory regime would be carved out, on par with regimes for securities, insurance, and commodities futures regulation. But who would bother with such an effort before such markets had proven themselves able to realize substantial social value? And how could such markets prove themselves without at least tentative legal spaces in which to experiment? I know of no good reason why the C.F.T.C. should not provide one of the first such spaces.

Two key issues face a new regulatory regime for info-motivated event markets, especially one carved out of a common-risk-hedging commodities-future regulatory regime:

• How does optimal regulation of info-motivated event markets differ from that of common-risk-hedging markets?
• How can regulators ensure that this new regime is not used as a back door to escape prohibitions on other commodity futures trading, or to escape general prohibitions against gambling?

How Does Optimal Regulation Differ Here?

On the first question, the largest difference I see, by far, is the appropriate scale. When hedging risks it makes sense to focus first on risks, and hence trades, which are a large fraction of the wealth of the individuals or organizations involved. If risks are common there should be many who trade if any trade, and so market volume should be many times individual wealth levels. It also makes sense to devote a small fraction of this volume to efforts to avoid foul play. I have heard that it costs on the order of a million dollars to jump the regulatory hoops to gain approval for such markets, and I cannot say that this is not roughly the right cost magnitude.

For markets whose main function is to collect info, however, the appropriate scale seems far smaller. To collect info on a topic, those who know or could find out need only be offered a sufficient incentive to bother. In the lab, experimental economists see substantial effort and price info aggregation when only a few tens of dollars are at stake, and field data seems consistent with this estimate. If most of the social value from info-motivated event markets were concentrated in a few very important topics, it would not matter much if regulatory barriers prevented markets on topics with small info values. But if, as seems more plausible, much of the value is found in a long thick tail of smaller topics, then to realize this social value it is essential that regulatory barriers to creating such markets be reduced to the lowest feasible level.

For example, consider a topic where a social value of one thousand dollars could be realized, if only people were allowed to trade in a market on that topic. It is hard to see how this value could actually be realized if the regulatory cost to create this market were more than a few hundred dollars. If there were a million such topics, the total social value such markets could create would be one billion dollars.

A related difference is when it makes sense to limit participation. If most of a certain kind of risk is held by wealthy individuals or large organizations, then it can make sense to limit participation to such traders. But for info collection it is crucial to allow participation by the sorts of people who could plausibly obtain that info. For a great many topics these people will be spread out in the population, and not easily distinguished from most other people. A broad permission to participate will thus be desired in such cases.

How Can We Distinguish When This Regime Should Apply?

On the second question, we seek a reliable way to distinguish markets where the info collected is a strong rationale for its existence, a rationale strong enough to justify overturning the usual public presumption against generic speculation, and strong enough relative to hedging rationales to justify using this new regulatory regime, rather than other hedging regulatory regimes.

One proposed distinguishing criteria includes the size of an individual trader’s stake, and the number of traders. The Iowa Electronic Markets are limited on both of these parameters. Such limits do succeed in preventing large hedging markets from masquerading as info-motivated event markets. But they do little to prevent generic gambling markets from masquerading as info-motivated event markets.

Another proposed distinguishing criteria is the form of the organization that hosts the market. Some have proposed that tax-exempt, research, and government organizations be given wider latitude than for-profit businesses. I understand that this matches a common public perception, but honestly it seems mostly wishful thinking to believe that such organizations are substantially more likely to create markets with a strong info rationale, or to avoid whatever problems one fears with for-profit businesses.

Some have suggested that topics could be used to distinguish the strength of info rationale. Markets on sporting events might be presumed to have low info rationale, while markets on public policy might be presumed to have high info rationale. This approach seems to open a proverbial “can of worms,” however, requiring a great and continuing effort to categorize topics.

To ease this effort, one could inherit some other topic categorization. For example, regulation of speech distinguishes topics where free speech is presumed to perform very valuable social functions, and so has strong legal protection, from topics where such functions are less clear, allowing speech to be more easily regulated. Event markets might be permitted on topics where free speech has a strong legal protection.

In contrast to such weak indicators let me propose a stronger indicator of when a speculative market has a strong info rationale. I am not proposing that only markets which sport this indicator be allowed, but rather that at least such markets be allowed. My proposal is to permit markets where a sponsor pays to ensure that traders on average do not lose financially from participation, as this payment creates a strong presumption that this sponsor expected to gain substantial value from that info.

It is hard to see many of the benefits that traders may gain from trading, but we can more easily see the average financial costs that traders suffer. Traders may have to pay for permission to trade, to deposit into a system, to check prices and trading history, for each trade, and to withdraw their winnings. In addition, trader deposits may not earn competitive risk-adjusted rates of return. Payment is sometimes in the form of seeing ads. Such fees are essential to the profitability of “gambling” businesses today that rely primarily on traders’ speculative motives.

If for a particular topic, a sponsor were willing to ensure that traders paid none of these common trading fees, that sponsor would have credibly suggested that his or her market would not exist if that sponsor did not expect related info to have substantial value. If this sponsor furthermore subsidized this market, allowing traders to gain on average by trading against ignorant automated market makers, this would show even more clearly that this sponsor valued the resulting info. Such measures would ensure that traders suffered no average financial loss from their participation, though traders could still lose on average, such as by wasting too much time dealing with these markets.

Of course we do not expect sponsors to arise to support all topics where info collected by trading would have substantial social value. We expect businesses to sponsor markets on topics where they can profit from info, and charities to collect donations to support markets on topics they consider more broadly valuable. But we also expect many coordination failures, where each party prefers that others pay for commonly valuable info. So the case for prohibiting markets that fail my proposed criteria is much weaker than the case for permitting markets that meet this criteria.

It also remains possible that even when a sponsor finds info to be valuable enough to pay for, the social value of that info could be much less than the private value to this sponsor. If we could identify classes of such cases, these classes might form the basis of exceptions to this general permission I propose.

I have many other opinions about how such markets might be defined and regulated, but I’ve already gone one for quite a bit here – if you like what you see here and want more, you know where to find me.

In Summary

In addition to existing regulatory regimes for ownership-hedging securities, idiosyncratic-risk-hedging insurance, and common-risk-hedging futures, it could make sense to have a distinct regulatory regime for markets whose main reason to exist is the info that they collect. Compared with existing commodities futures regulation, such a regime should set a much lower barrier to creating such markets, as much of the social value may be distributed in millions of small markets. And while it is hard to determine in general which markets would create high social info value, relative to cost, we should presume such high value when a sponsor is willing to pay to ensure that traders suffer no average financial cost from their participation.
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Robin Hanson rhanson@gmu.edu http://hanson.gmu.edu
Research Associate, Future of Humanity Institute at Oxford University
Associate Professor of Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326 FAX: 703-993-2323

Robin Hanson

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Check that CFM page for updates. And contact me so I can make additions to the list. (I’ll then re-publish that updated list on Midas Oracle.)

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• Michael Abramowicz – Michael B. Abramowicz – (Law School, George Washington University, Washington, D.C., U.S.A.) — Post Archives at Midas Oracle
• Bernd H. Ankenbrand – Bernd Ankenbrand – (Lecturer, Witten/Herdecke University, Germany, E.U.) — Post Archives at Midas Oracle
• James Annan – (Global Environment Modelling Research Program, Frontier Research Center for Global Change, Japan)
• Werner Antweiler – (UBC Election Stock Market, Sauder School of Business, University of British Columbia, Vancouver, Canada)
• Kenneth J. Arrow – Kenneth Arrow – (Economics Department, Stanford University, California, U.S.A.)
• Tom W. Bell – Tom Bell – (Law School, Chapman University, California, U.S.A.) — Post Archives at Midas Oracle
• Joyce E. Berg – Joyce Berg – Profile – (Iowa Electronic Markets, Accounting, Henry B. Tippie College of Business, University of Iowa, Iowa, U.S.A.)
• Richard Borghesi – (Finance, Texas State University at San Marcos, Texas, U.S.A.) — Post Archives at Midas Oracle
• Kay-Yut Chen – (Information Services & Process Innovation Lab, HP Labs, HP, California, U.S.A.)
• Yiling Chen – (Micro-Economic and Social Systems, Yahoo! Research Labs, New York, U.S.A.) — Post Archives at Midas Oracle
• Eric Crampton – (Department of Economics, University of Canterbury, New Zealand) — Post Archives at Midas Oracle
• Ely Dahan – (Marketing, Anderson School, University of California at Los Angeles, Los Angeles, California, U.S.A.)
• Anita Elberse – (Marketing, Harvard Business School, Harvard University, Massachusetts, U.S.A.)
• Leslie R. Fine – Leslie Fine – (Information Dynamics Lab, HP Labs, California, U.S.A.)
• Gary William Flake – Gary W. Flake – Gary Flake – (MicroSoft, U.S.A.)
• Robert Forsythe – (Dean, College of Business Administration, University of South Florida, Florida, U.S.A.) — Previously: (Economics, Iowa Electronic Markets, Henry B. Tippie College of Business, University of Iowa, Iowa, U.S.A.)
• Lance Fortnow – Lance J. Fortnow – (Department of Electrical Engineering and Computer Science, McCormick School of Engineering, Northwestern University, Illinois, U.S.A.)
• Keith Jacks Gamble – Keith Gamble – (Economics (University of California at Berkeley) – California, U.S.A. — Post Archives at Midas Oracle
• Michael Gorham – (IIT Center for Financial Markets, Stuart School of Business, Illinois Institute of Technology, Illinois, U.S.A.) — Previously: (CFTC)
• Thomas S. Gruca – Thomas Gruca – Profile – (Iowa Electronic Markets, Marketing, Henry B. Tippie College of Business, University of Iowa, Iowa, U.S.A.)
• Refet Gurkaynak – (Department of Economics, Bilkent University, Turkey)
• Friedrich August Von Hayek — R.I.P. — The market as an information aggregation tool: The Use of Knowledge in Society —
• Robert W. Hahn – Robert Hahn – (Executive Director, Reg-Markets Center, American Enterprise Institute, Washington, D.C., U.S.A.) — Post Archives at Midas Oracle
• James D. Hamilton – James Hamilton – (Department of Economics, University of California at San Diego – California, U.S.A.) — Post Archives at Midas Oracle
• Robin Hanson – Robin D. Hanson – (Economics, James M. Buchanan Center, George Mason University, Virginia, U.S.A.) — Post Archives at Midas Oracle
• M. Todd Henderson – (Law School, University of Chicago, Chicago, Illinois, U.S.A.)
• Chris Hibbert – (Software Architect, Zocalo Project Manager, California, U.S.A.) — Post Archives at Midas Oracle
• Charles Holt – Charles A. Holt – (Department of Economics, University of Virginia, Virginia, U.S.A.)
• Bernardo A. Huberman – Bernardo Huberman – (Social Computing Lab, HP Labs, California, U.S.A.)
• Frédéric Koessler – (Economics, Centre Nationale de la Recherche Scientifique, France, E.U.)
• Anthony M. Kwasnica – Anthony Kwasnica – (Business Economics, Department of Insurance and Real Estate, Smeal College of Business Administration, Penn State University, Pennsylvania, U.S.A.)
• Nicolas Lambert – (Department of Computer Science, Stanford University, California, U.S.A.)
• John O. Ledyard – John Ledyard – (Economics and and Social Sciences, Division of Humanity and Social Sciences, California Institute of Technology, California, U.S.A.)
• Andrew Leigh – (Economics, Research School of Social Sciences, Australian National University, Australia)
• Steven Levitt – Steve Levitt – Steven D. Levitt – (Economics, Director of the Becker Center on Chicago Price Theory, Graduate School of Business, University of Chicago, Illinois, U.S.A.)
• Saul Levmore – (Law School, University of Chicago, Illinois, U.S.A.)
• Robert E. Litan – Robert Litan – (Vice President for Research and Policy, Kauffman Foundation, Kansas City, Missouri, U.S.A.)
• Thomas W. Malone – Thomas Malone – Tom Malone – (MIT Center for Collective Intelligence, Management, MIT Sloan School of Management, Massachusetts Institute of Technology, Massachusetts, U.S.A.)
• Charles F. Manski – Charles Manski – (College of Arts and Sciences, Norwestern University, Illinois, U.S.A.)
• Adam Meirowitz – (Department of Politics, Princeton University, New Jersey, U.S.A.)
• Paul Milgrom – (Department of Economics, Stanford University, California, U.S.A.)
• Tracy Mullen – (Information Sciences and Technology, Penn State University, Pennsylvania, U.S.A.)
• Forrest Nelson – Profile – (Iowa Electronic Markets, Economics, Henry B. Tippie College of Business, University of Iowa, Iowa, U.S.A.)
• George R. Neumann – George Neumann – Profile – (Iowa Electronic Markets, Economics, Henry B. Tippie College of Business, University of Iowa, Iowa, U.S.A.)
• Ryan Oprea – Profile – (Director of the LEEPS laboratory, Economics, University of California at Santa Cruz, California, U.S.A.)
• Gerhard Ortner – (University of Applied Sciences, Austria, E.U.)
• Marco Ottaviani – (Management and Strategy, Kellogg School of Management, Northwestern University, Illinois, U.S.A.) – Formerly: (Economics Department, London Business School, United Kingdom, E.U.) — Post Archives at Midas Oracle
• David Paton – (Industrial Economics, Business School, Nottingham University, United Kingdom, E.U.)
• David M. Pennock – David Pennock – (Principal Research Scientist, Micro-Economic and Social Systems, Yahoo! Research Labs, New York, U.S.A.) — Post Archives at Midas Oracle
• Charles R. Plott – Charles Plott – (Economics and and Social Sciences, Division of Humanity and Social Sciences, California Institute of Technology, California, U.S.A.)
• David Porter – (Economics and Finance, Chapman University, California, U.S.A.)
• Todd Proebsting – Todd A. Proebsting – (Microsoft & University of Arizona, U.S.A.)
• Russ Ray – (Finance, College of Business, University of Louisville, Kentucky, U.S.A.)
• Daniel Reeves – (Micro-Economic and Social Systems, Yahoo! Research Labs, New York, U.S.A.) — Post Archives at Midas Oracle
• Paul W. Rhode – Paul Rhode – (US Economic History, College of Management, The University of Arizona, Arizona, U.S.A.) – Formerly: (University of North Carolina, North Carolina, U.S.A.)
• Thomas A. Rietz – Thomas Rietz – Profile – (Iowa Electronic Markets, Finance, Henry B. Tippie College of Business, University of Iowa, Iowa, U.S.A.)
• Richard Roll – (University of California at Los Angeles, Los Angeles, California, U.S.A.)
• Thomas W. Ross – Thomas Ross – (UBC Election Stock Market, Sauder School of Business, University of British Columbia, Vancouver, Canada)
• Rahul Sami – (School of Information, University of Michigan, Michigan, U.S.A.)
• Sam L. Savage – Sam Savage – (Consulting Professor, Stanford U., California, U.S.A.) — Post Archives at Midas Oracle
• Thomas C. Schelling – Thomas Schelling – (Economics, School of Public Affair, University of Maryland, Maryland, U.S.A.)
• Emile Servan-Schreiber – (NewsFutures, New York City, New York, U.S.A. & Paris, France, E.U.) — Post Archives at Midas Oracle
• Robert J. Shiller – Robert Shiller – Profile – (Economics, Yale University, Connecticut, U.S.A.)
• Bernd Skiera – (Electronic Commerce, Goethe University, Germany, E.U.)
• Vernon L. Smith – Vernon Smith – (Economics, Economic Science Institute, Chapman University, California, U.S.A.)
• Erik Snowberg – (Stanford University, California, U.S.A.) — Soon at CalTech
• Peter Norman Sorensen – (Finance, Department of Economics, University of Copenhagen, Denmark, E.U.)
• Martin Spann – (Marketing and Innovation, University of Passau, Germany, E.U.)
• Koleman Strumpf – Koleman S. Strumpf – (Economics, School of Business, University of Kansas, Kansas, U.S.A.) – Formerly: University of North Carolina, North Carolina, U.S.A.) — Post Archives at Midas Oracle
• Cass Sunstein – Cass R. Sunstein – (Law School, University of Chicago, Chicago, Illinois, U.S.A.)
• James Surowiecki – (The Wisdom Of Crowds) – (New York, U.S.A.)
• Paul C. Tetlock – Paul Tetlock – (Finance, Business School, University of Texas at Austin, Texas, U.S.A.) — Post Archives at Midas Oracle
• Philip Tetlock – Philip E. Tetlock – (Leadership, University of California at Berkeley, California, U.S.A.)
• Hal R. Varian – Hal Varian – (Chief Economist, Google, California, U.S.A.) — Formerly: (Haas School of Business, Department of Economics, University of California at Berkeley, California, U.S.A.)
• Dorina Tila – (Economics, George Mason University, Virginia, U.S.A.)
• Leighton Vaughan-Williams – (Economics and Finance, Business School, Nottingham Trent University, United Kingdom, E.U.)
• Michael Wellman – Michael P. Wellman – (Computer Science and Engineering, University of Michigan, Michigan, U.S.A.)
• Justin Wolfers – Justin J. Wolfers – (Business and Public Policy, Wharton Business School, University of Pennsylvania, Pennsylvania, U.S.A.) — Post Archives at Midas Oracle
• Eric Zitzewitz – Eric W. Zitzewitz – (Economics, Dartmouth College, Massachusetts, USA) – Formerly: (Stanford University, California, U.S.A.) — Post Archives at Midas Oracle

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