As we’ve discussed before in other contexts, one can divide two probabilities like these to obtain a conditional probability: e.g., if the Democrats put X on the ticket, they will win the general election Y% of the time (where Y = odds of X becoming VP/odds of X being nominated).

These markets are thin, so the conditional probabilities should be taken with a grain of salt. But they are interesting nonetheless:

The pattern I see here is that conditional probabilities are higher for fresh faces (Webb, Sebelius; and arguably Bayh and Richardson despite their longer tenure) than for the old guard (Clinton, Nunn, Biden).

Of course, these should be viewed as correlations, not necessarily causal effects. For example, two possible explanations are: 1) putting a fresh face on the ticket helps Obama, either because there is less baggage or less of a contrast in national-politics resume length, or 2) Obama will only pick an old guard candidate in the state of the world in which he needs to shore up a weakness (i.e., picking Clinton to end a civil war, or Nunn to add foreign policy experience).
On the GOP side:

Huckabee has the highest conditional probability, and Pawlenty and Jindal are noticeably lower. Interpreting this one is harder: it depends on what aspect of Huckabee one thinks the market is expecting to be appealing (religion, likeability, Southernness, selective economic populism).

Technical note: the bids and asks reported above are actual quotes scrapped this AM; the mids are (bid+ask)/2, rescaled to add to 100 across all candidates.

When software vendors and consultants try to sell prediction market systems to business, both the successes and the failures of existing forecasting systems likely stand as barriers. If the company’s current system is seen as successful, the company will have little motivation to change. If the company’s most recent million dollar system is a disaster, they will hesitate to leap into something new. I guess that leaves the moderately dissatisfied and mildly happy folks as likely sales targets.

An article in CIO highlights a demand forecasting disaster at Nike and discusses ways in which companies have adapted demand forecasting systems into business plans. The article was first published in 2003, so it is a few years old, but it stresses an important point – that a good system involves both software and people.

It’s been more than two years since Nike Chairman Phil Knight owned up to the sneaker giant’s disastrous $400 million experiment with demand forecasting software. The headlines are well known: Nike went live with its much-vaunted i2 system in June 2000, and nine months later, its executives acknowledged that they would be taking a major inventory write-off because the forecasts from the automated system had been so inaccurate. With that announcement in February 2001, Nike’s stock value plummeted, along with its reputation as an innovative user of technology.

… Nike isn’t the only company with a forecasting horror story. Corporate America is littered with companies that invested heavily in demand software but have little or nothing to show for it.

… Yet vendors and academics are still pushing forecasting software. In 2002 alone, companies spent $19 billion on demand forecasting software and other supply chain solutions, according to IDC (a sister company to CIO’s publisher). And in a speech in February, Stanford University supply chain guru Hau Lee extolled the virtues of harnessing software to extract customer knowledge in order to forecast demand.

Many CIOs, however, remain skeptical. Privately, members of Lee’s audience complained to a reporter present that the ability to accurately forecast could hardly be taken for granted. And according to a recent Booz, Allen & Hamilton survey of 196 senior executives, 45 percent said that supply chain technology in general had failed to meet their expectations. More than half—56 percent—blamed the shortcoming squarely on demand forecasting software.

Of course it is easier to blame the software than to blame the humans in the systems, but the article suggests that any good system will need both.

Even forecasts that are made with a limited number of variables and with accurate data will be off. They still make the fundamental assumption that what was true yesterday will be true tomorrow. But because the data about a change lags behind the change itself, it takes human market watchers to note business climate alterations.

… “When the future doesn’t resemble the past, none of this forecasting software works well,” [Vicor CIO Doug] Richardson says.

… The mishap taught Vicor the necessity of factoring human intelligence into its forecasts. In order to make sure that it isn’t caught off guard again, the company set up a dual forecasting process in which the sales department comes up with a forecast and the computer system, which was upgraded a year ago, makes another. The two are complementary; the sales department is too conservative with its forecasts (Richardson thinks the salespeople are merely cautious; a cynic might point out that they are compensated for selling above quota).

The article discusses several other cases as well.

(Vicor adopted a forecasting system from Smart Software, and is now featured as a customer testimonial on the Smart Software site. Presumably, they’re happier with their new system.)

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Via Tech Crunch, Weather Bill is now open for business. This is their ABOUT page:

WeatherBill sells Weather Contracts to eligible buyers. Weather Contracts can be used to protect your business from adverse weather conditions, by paying you when those adverse conditions occur. Some eligible buyers may also use WeatherBill to make speculative bets on the weather. Weather Contracts are financial instruments, which fall under the regulation of the Commodities and Futures Trading Commission. They are completely legal to buy, as long as you are an eligible buyer. [...]

In order to purchase a Weather Contract from Weatherbill, you must meet eligibility requirements. These requirements are set by the Commodity Exchange Act. You can try to Sign Up for an account, to determine if you are eligible.

Weather Bill FAQ & Answers:

What are WeatherBill contracts?

WeatherBill contracts are financial instruments that can be used by business managers and owners to protect against adverse weather. Adverse weather can be as simple as a rainy day or as destructive as a 6-month drought. If you know what weather conditions may impact your business, you can create a Contract that will pay you when the conditions occur, thus “hedging” your risk. Hedging your weather risk helps decrease the volatility of your business’s profits. There is no minimum contract amount – you can buy protection for as little as $1.

Why would I want to buy a WeatherBill contract?

Every year, 70% of US businesses are impacted by the weather. Heat waves, hurricanes – even just abnormally warm winters or wet springs can impact the operations of all types of business. Ski resorts suffer during a warm winter and amusement parks lose visitors on rainy days. Sound planning means putting together a solid business interruption strategy. Weather Contracts can help guard against some of the unpredictabilities of weather. Use the WeatherBill Tools to learn more about how your business may impacted by the weather.

Are WeatherBill contracts the same as weather insurance?

No. WeatherBill contracts are financial instruments, regulated by the Commodity Futures Trading Commission. Weather Contracts do not require an insurance agent, a claims process, or a proof of loss to qualify for payment. Weather Contracts require payment based solely on weather measurements. WeatherBill automates this “settlement” and you will usually get a check in the mail within a few business days after a Contract has been settled.

Who are eligible buyers of WeatherBill contracts? How do I know if I’m eligible?

Buyers of WeatherBill contracts range from retail store owners to traders to state governments. In order to create an account, you must be a US-based corporation, individual, or entity, and you must meet the criteria of an “Eligible Contract Participant”, as defined here [*].

Why do you need my Social Security number?

WeatherBill is required by US federal law to collect the Social Security Number (SSN) / Taxpayer Identification Number (TIN) of every customer. This is done to maintain an exact record that identifies all parties that buy our Weather Contracts, which are regulated contracts. These identifiers are transmitted and stored securely, and will not be used or disclosed by us for any purpose other than as required by law.

Is my personal information safe with WeatherBill?

Yes. We keep all information encrypted and secure, and will never share or sell it to anyone except as required by law.

Is this gambling? Is WeatherBill legal?

This is not gambling. If you are an eligible buyer, you are entering into a legal and binding Contract with WeatherBill when you purchase a Weather Contract. WeatherBill contracts are intended to be used as risk-management instruments that can help buyers manage financial risk tied to the weather. Weather Contracts are commodity contracts regulated by the Commodity Futures Trading Commission. They can be traded over-the-counter (i.e. not on a public exchange or marketplace), so long as both parties entering into the trade are eligible to trade. To find out if you’re eligible, please read the definition of “Eligible Contract Participants” here, or try to register for a WeatherBill account.

WeatherBill using settlement data supplied from EarthSat, an independent provider of weather data.

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[*] Eligibility requirements for a WeatherBill account:

1. You must be acting for your own account.
2. You must be a US-based corporation, individual, or entity.
3. You must meet the definition of “Eligible Contract Participant”. We have made it rather simple for you to determine if you qualify as an ECP – you may try to register for an account and you will be asked several questions that will automatically determine your eligibility.

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Addendum: Jason Ruspini sends me this CFTC’s EBoT page. No idea whether the “Weather Board of Trade” that is listed on that CFTC page is the parent company of Weather Bill.

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Previous Blog Posts:

- Comments on Weather Bill dot com – REDUX

- Comments on Weather Bill dot com

- Thoughts on Weather Bill – professor by Eric Zitzewitz – (Written before the opening of Weather Bill)