Midas Oracle .ORG » IEM

Beware the propaganda sent out by the executives of the prediction exchanges

Chris F. Masse — Thu, 13 Nov 2008 09:36:06 +0000

A Iowa Electronic Markets director has been caught (by a young student) red-hand over-selling the IEM predictive power…!!!…

First of all, thank you for your continued work on the IEM. [MicroSoft Word file] It’s great to see a continued and consistent trader base and methodology.

But I do have to admit that I am very uncomfortable with the way the paper compares the Vote Share market and the polls to the final Election Day result. Both a prediction market and a poll are trying to put a number on uncertainty, and that uncertainty is only ever known/fixed on Election Day. While the dynamics of how each reacts certainly can be compared and assessed, measuring an error based on comparing 2007 results to Election Day results strikes me as really unreasonable.

While I do find it fascinating that the markets bounced around the final result, leading to a potential interpretation that there was a structural reason why the Democrats won in 2008, I disagree with using prediction market results to imply that the result was pre-ordained.

I believe that prediction markets should be compared to polls through the election cycle to determine how each moves relative to each other (for communication and information flow). I believe that prediction markets and polls can only be assessed based on their results shortly before Election Day (for accuracy), and that as you get further before that the numbers become meaningless.

All that said, I’m willing to change my mind if there’s enough evidence otherwise.

Jed Christiansen

- Iowa Electronic Markets propaganda

- HubDub propaganda

- InTrade propanganda – Bis.

- BetFair propaganda

Midas Oracle = About + Archives + Authors + Best + Contact + Information Technology + Links + Probabilistic Predictions + Post-Mortem Predictions + Prediction Exchanges + Prediction Software + Publish Your Post + How To Publish

Reuters cite InTrade and the IEM…

Chris F. Masse — Thu, 16 Oct 2008 16:31:52 +0000

… but not HubDub with which they have a partnership.

Still room for improvement, there.

InTrade has surpassed BetFair and TradeSports (and the Iowa Electronic Markets, too).

Chris F. Masse — Tue, 30 Sep 2008 06:39:12 +0000

InTrade’s PageRank is now 7 / 10 —while all the other major prediction market firms are at 6 / 10.

It shows that the prediction market approach is paying off. Do provide journalist-friendly objective probabilistic predictions (expressed in percentages –not those fucking decimal odds), and the media will link to you, thanks to all the free-market economists who love your model and act as unpaid publicists for you. Make sure your website can resist under heavy traffic loads on Election Day, and during the occasional days where important news break. Then, milk out all this free publicity. Run registration ads allover your exchange website to attract new traders. Make money. Invest in IT —but don’t let the IT maniacs complicate your prediction exchange too much (as BetFair did).
Long-term, the InTrade model (based on the prediction market approach) should be more profitable, in theory. Because of legal impediment, InTrade is not as profitable as it should be, alas.

Illiquid prediction exchanges to liquid prediction exchanges: “You’re too volatile.”

Chris F. Masse — Wed, 17 Sep 2008 10:10:20 +0000

Previously: Emile Servan-Schreiber on InTrade’s volatility

Nobel laureate Gary Becker and judge Richard Posner both wish that, one day, real-money prediction markets will be legal, without restrictions, in the United States of America.

Chris F. Masse — Tue, 16 Sep 2008 17:27:03 +0000

Via David Pennock of Odd Head fame

Gary Becker:

[...] I believe that online political prediction markets, and other online prediction markets as well, should be legal in the United States and elsewhere, even if the amounts bet were quite large. There is no important substantive difference between such online betting markets and the Chicago Mercantile Exchange and other exchanges that allow individuals and organizations to take positions on movements of stock indexes, housing price indexes, and prices of other derivatives. A distinction is sometimes made between political betting markets and derivative markets since participants in derivative markets may be hedging other risks that they face. Yet this distinction has little substance since if larger bets were allowed in online political markets, groups whose welfare depended greatly on political outcomes would make greater use of these markets. For example, if a Republican presidential win would mean greater spending on military weapons, companies in the arms business might hedge their risks by betting on Barack Obama.

If large bets were allowed, some wealthy groups may bet a lot on their candidates in order to exert bandwagon influences on public opinion through their large bets affecting market odds. If so, these markets likely would become less reliable as predictors of outcomes, and hence would have less influence on opinions. To a large extent, therefore, these markets would be self correcting, although online political markets might place various other restrictions on bets, as is common in derivative and other exchanges.

Richard Posner:

[...] There is an interesting question whether prediction markets should be thought of as “gambling” and perhaps prohibited. As a matter of policy, that would be a mistake, even if one thinks that gambling should be prohibited. The prediction markets are markets for speculation, rather than for game-playing or risk-taking. Slot machines, card-playing, roulette wheels, and other conventional forms of gambling do not generate socially valuable information. Speculation does. Commercial speculation serves to hedge commercial risks and bring prices into closer phase with value. Political, cultural, etc. prediction markets also yield socially valuable information. The outcome of elections is important to companies and even individuals for whom particular public policies are important; they may wish to make adjustments to avert or exploit looming political change. Politicians too need to have as sharp a sense as possible about the effects on the electorate of their and their opponents’ strategies. Apparently they can get more accurate information from the prediction markets than from the public opinion pollsters.

WORLD’S #1 PREDICTION MARKET GURU IMPLIES THAT THE PREDICTION MARKETS ARE NOT MATURE ENOUGH.

Chris F. Masse — Fri, 12 Sep 2008 15:13:50 +0000

Is Intrade out on a limb?

Emile Servan-Schreiber — Fri, 12 Sep 2008 10:40:56 +0000

As I write this, Intrade gives the advantage to McCain over Obama and has the Republican party even with the Democratic party to win the election, whereas all the other prediction markets, meaning IEM, Betfair, and the NewsFutures play-money kind still favor a Democrat in the White House. That disconnect prompted Chris to wonder aloud whether Intrade is faster than the other markets to incorporate the latest polls, perhaps because of its “bigger liquidity”.

That’s an interesting reaction on several levels.

First, reactivity and accuracy are not to be confused for one another. Given that market prices are supposed to be more accurate and more stable that fickle U.S. raw polls (Berg et al, 2008), one should not necessarily be impressed by the market that is quickest to mirror the latest polls. I very much doubt that traders in the “other” markets have not heard about the latest polls giving McCain an edge. Rightly or wrongly – it is too soon to tell – they just gave those polls less weight that the Intrade traders apparently did.

Second, the argument from “bigger liquidity” is not receivable. Recently, Paul Tetlock analyzed Tradesports data in depth and found that more liquidity may in fact make the market dumber. He concludes: “In both sports and financial prediction markets, the calibration of prices to event probabilities does not improve with increases in liquidity; and the forecasting resolution of market prices actually worsens with increases in liquidity.”

My personal theory is that Intrade has a hair-trigger Republican bias which is not found in the other markets, because Intrade appeals to, and is marketed to, the more Republican-leaning segments of the U.S. population. In my opinion, the Intrade/Tradesports Republican bias was already evident in the 2004 election, as this analysis shows.

Of course, I may be completely wrong. In any case, I find today’s dual disconnect between the polls and most of the markets, on the one hand, and between Intrade and the other markets, on the other hand, to be two very interesting data points that should be duly recorded so we can come back to them later, with hindsight.

2008 US Elections Prediction: John McCain is now the favorite at InTrade, while all the other prediction exchanges still have Barack Obama ahead. Is InTrade quicker to incorporate the latest polls because of the bigger liquidity of its prediction markets?

Chris F. Masse — Thu, 11 Sep 2008 19:29:06 +0000

#1. Explainer On Prediction Markets

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 this partially uncertain event (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 forecasting mechanisms, times the value of accuracy in improved decisions, minus the cost of maintaining these prediction markets, relative to the cost of the other forecasting mechanisms. According to Robin Hanson, a highly accurate prediction market has little value if some other forecasting mechanism(s) can provide similar accuracy at a lower cost, or if very few substantial decisions are influenced by accurate forecasts on its topic.

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

- This is a dynamic electoral map, which is up to date. Click on the image, and open the website (ElectoralMarkets.com) in another browser tab to get the bigger version.

- This is a dynamic electoral map, which is up to date. Feed readers: Download this webpage to visualize this InTrade widget.

Source:

- The electoral map widget is from InTrade .COM.

- InTrade .COM.

- All the charts below are also dynamic —they update themselves each time you open this webpage.

2008 US Presidential Election Winner – Individual

2008 US Presidential Election Winner – Political Party

2008 US Congressional Elections Winner – Political Party

2008 US Senate Control

2008 US House Of Representatives Control

Sources:
- The dynamic, compound prediction market charts are from InTrade .COM.
- The individual charts, however, are from InTrade .COM v2. We will later transition to the charts from InTrade .COM when the charting quality of their widgets improves.
- We are also waiting to be able to hot-link to the advanced charts of InTrade .COM.

BetFair

Winning Party

Next US President

Source: BetFair Politics Zone

Iowa Electronic Markets

2008 U.S. Presidential Election Vote Share Market

2008 U.S. Presidential Election Winner-Take-All Market

- Source: Iowa Electronic Markets

NewsFutures

Next US President Will Be Democratic.

Next US President Will Be Republican.

HubDub

- HubDub’s prediction markets on the 2008 electoral college

Resources on US Politics

- CNN – US Political Dashboard

- Yahoo! News – US Political Dashboard

- Real Clear Politics – Polls

- Electoral-Vote.com – Polls

- Five Thirty Eight – Polls

- Wikipedia – 2008 US Presidential Elections

- Wikipedia – 2008 US House Of Representatives Elections

- Wikipedia – 2008 US Senate Elections

- Wikipedia – 2008 US Gubernatorial Elections

Canadian Elections

InTrade

Winner of Next Canadian Federal Election – Political Party

Conservatives

Liberal

BetFair

2008 Federal Election

Most Seats

Overall Majority

UK Elections

BetFair

Next General Election – Most Seats

Next UK Prime Minister

InTrade

Winner of Next UK Election – Political Party

UK Conservatives

UK Labour

The Prediction Exchanges

- List of the main real-money and play-money prediction exchanges (betting exchanges) at Midas Oracle

- Complete list of the real-money and play-money prediction exchanges (betting exchanges) at Midas Oracle

- Complete list of the real-money and play-money prediction exchanges at CFM

Charts Of Expired Prediction Markets

- Charts Of Expired Prediction Markets

- Other Charts Of Expired Prediction Markets

Hedging your political ads on InTrade or the Iowa Electronic Markets

Chris F. Masse — Mon, 08 Sep 2008 09:28:40 +0000

Centrist Messenger: How it works.

Centrist Messenger will issue a refund of the purchase price of the advertisement, if and only if the single candidate that you selected as being supported by your ad does not win the general presidential election of the United States and the other candidate wins.

About Centrist Messenger – Video @ YouTube

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

Chris F. Masse — Thu, 04 Sep 2008 18:03:17 +0000

#1. Explainer On Prediction Markets

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.

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

- This is a dynamic electoral map, which is up to date. Click on the image, and open the website (ElectoralMarkets.com) in another browser tab to get the bigger version.

- This is a dynamic electoral map, which is up to date. Feed readers: Download this webpage to visualize this InTrade widget.

Source:

- The electoral map widget is from InTrade .COM.

- InTrade .COM.

- All the charts below are also dynamic —they update themselves each time you open this webpage.

2008 US Presidential Election Winner – Individual

2008 US Presidential Election Winner – Political Party

2008 US Congressional Elections Winner – Political Party

2008 US Senate Control

2008 US House Of Representatives Control