Ah, Mencius. Combines a brilliant insight on prediction markets that I hadn’t seen before and increases my understanding (they require training) with ridiculously stupid points like “They can’t predict things that no one knows”.

Duh, they are information aggregators which give us a better estimate of the consensus probability than other methods (b/c if anything else works better than the current market you can use it and make money). This is an awesome property – that they automatically incorporate other prediction methods. But only over time through the training process.

I agree with that overall, but I disagree with the choice of words for “better” and “awesome”.

1. I wrote that 2 EPM software providers (NewsFutures and CrowdCast, representing half of this industry) are turning their back from the trading technology and are opting for the non-trading technologies.
2. The NewsFutures CEO insisted to let the world know that, oh no, no, no, NewsFutures haven’t abandoned the trading technology, and that they are proud to be able to propose both to their customers.
3. That was a PR point he wanted to make (so as to sound that NewsFutures is the omni-solution provider, wow, you should be so impressed). But the piece of truth that our readers should have in mind is what I am telling them: NewsFutures and CrowdCast don’t believe anymore that EPMs are the right solution to propose to companies.
4. While you can have a very interesting conversation, privately, with Emile on that, all of the sudden, when a question is publicly asked to His Majesty, then the PR machine is all silent.

The question was:

NewsFutures does list here 4 tools. Could Emile tell us how popular each of these tools is? I would like a percentage for each of these 4 tools. In other words, could Emile quantify EPMs in the whole collective intelligence solution panorama? Is that inferior to 50% or superior to 50%? Please. Thanks.

There is now a prediction market industry, where I do a lot of consulting, most of which is to private companies.  Most of these are on prediction markets, but some are decision markets.

What Robin Hanson does not say to his gullible readers (mostly, young collegians who have no experience of real-life forecasting) is that:

1. When you ask any non-ideological researchers, these days, on the value of prediction markets over simpler collective intelligence mechanisms, they tell you either that the benefit is very, very small or that it is non measurable (i.e., it probably does not exist).
2. Half of the so-called EMP industry (a microscopic industry that lives on hype and trial balloons, it should be said), which Robin Hanson is so proud to belong to, has abandoned enterprise prediction markets. Notably, NewsFutures (founded by a Robin Hanson fanboy, and advised for years by Robin Hanson himself) and CrowdCast (a VC-backed venture) have (independently of each other) decided to stop selling proposing EPM SaaS only to customers, and focused instead on simpler and more social mechanisms. For more information, I recommend my readers to go conversing with Emile Servan-Schreiver of NewsFutures, who has a lot to say about this issue. Emile is well versed into both the research and the practical sides of collective intelligence used within companies. [UPDATE: See Emile's comment.] Mat Fogarty (who, him, as experience in real-life forecasting for business) and Leslie Fine (a scientist) of CrowdCast are also good interlocutors.

Contrary to Overcoing Whatever, Midas Oracle publishes both the good and the bad about prediction markets. We do not censor the bad news. We do not cherry-pick the good news. You will notice, in the near future, that we will publish information that supports the opposite thesis (that is, EPMs are the panacea), and then we will link to Inkling Markets as the best interlocutor in town. We try to publish about both sides (EPMs are no good, EPMs are good), not because we are “bi-polar”, but because the jury is still out on this matter, and our readers need to have both arguments put under their very nose. Act one today.

Adam Siegel is no hedgehog.

Addendum

Here is the definition of a fox (as opposed to a hedgehog):

• a thinker who knows many little things, draws from an eclectic array of traditions, and is better able to improvise in response to changing events;
• a self-critical, eclectic thinker who is willing to update his/her beliefs when faced with contrary evidence, who is doubtful of grand schemes and is rather modest about his/her predictive ability.

Arik Johnson is twittering it.

#inkling

And the event is being video-tapped… —stay tuned to Midas Oracle.

P.S.: The Inkling workshop is a regret-free conference.

#inkling

Best wishes to Inkling Markets for their workshop. It will be a rich event, and no-one will have “regrets” about it.

UPDATE: The Fox… and the Hedgehog

Spring is the traditional home buying season and many real estate professionals are predicting a significant “spring bounce.” Will it happen? Try your hand at predicting the rise (or fall) in web traffic to 5 popular real estate search sites.

If you haven’t visited us lately, come back and see what we’ve got for you to judge: http://elabexchange.com.

Judge right and you can win $25 and have a chance to win the quarterly mega-prize.

Hope to see you soon,

Lawrence D. Wright, Ph.D.

Research Associate, UCR eLab eXchange

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A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays $100 only if candidate X wins the election, and $0 otherwise. When the market price of an X contract is $60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative represents the imputed perceived likelihood of the partially uncertain future outcome (i.e., its aggregated expected probability). A 60% probability means that, in a series of events each with a 60% probability, the favored outcome is expected to occur 60 times out of 100, and the unfavored outcome is expected to occur 40 times out of 100.

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

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

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