Midas Oracle .ORG » Iowa Electronic Markets

The relative advantage of prediction markets (over conventional means of forecasting, namely polls and statistical models) is remarkably… SMALL.

Chris F. Masse — Fri, 22 Jan 2010 08:27:38 +0000

In a new study, Daniel Reeves, Duncan Watts, Dave Pennock and I compare the performance of prediction markets to conventional means of forecasting, namely polls and statistical models. Examining thousands of sporting and movie events, we find that the relative advantage of prediction markets is remarkably small. [...]

Given that sports and entertainment markets are among the most mature and successful, our results challenge the view that prediction markets are substantively superior to alternative forecasting mechanisms. Nevertheless, it is certainly possible that there are forecasting applications where either the relative advantage of markets is larger, or that such differences in performance are consequential. Thus, while prediction markets may yet prove to be useful, it would seem the enthusiasm for their predictive prowess has outpaced the evidence.

Prediction Without Markets — by Sharad Goel, Daniel M. Reeves, Duncan J. Watts, David M. Pennock

http://www.cam.cornell.edu/~sharad/papers/pred-wo-markets.pdf

Robin Hanson’s comment:

Whoever said that every prediction market would always be more accurate than any other mechanism? [*] I’d say they are more-accurate more often than they are less-accurate, compared to mechanisms with similar resources. And your plots at the bottom look like they are testing calibration, not accuracy.

Read Daniel Reeves’s answer to Robin Hanson.

[*] Google, doc.

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Professor Thomas Rietz (Iowa Electronic Markets) was so wrong on the usefulness of prediction markets about the 2016 Summer Olympics in Chicago.

Chris F. Masse — Fri, 02 Oct 2009 16:49:15 +0000

Chicago Olympic Market Might Have Value, Says Reitz (Chicago Tribune, April 17)
A credible source of information about Chicago’s chances of hosting the 2016 Olympics would have value, says columnist Bill Barnhart. Local real estate developers, hotel operators, employment agencies, vendors of products and services to major events and others have a direct stake in whether or not an Olympics is staged here. Politicians and civic leaders presumably would want to know whether the city’s bid has a chance, so that they wouldn’t throw good money after bad. An auction market centered on whether Chicago will win could provide that information, even if there were no huge payoff for hedgers or speculators, said finance professor THOMAS RIETZ at the University of Iowa, a board member of the popular Iowa Electronic Markets. The Iowa market limits wagers to $500 but has an enviable track record in picking the winners of national elections. “Our goal is to aggregate information, which is a different goal than being able to hedge the economic risk associated with something like this,” Rietz said. “I don’t think it’s an outlandish idea.”

http://www.chicagotribune.com/business/yourmoney/chi-0704160447apr17,0,2547860.column?coll=chi-business-hed

Prof, you were 100% wrong.

Prediction markets on which country will host the Olympics have never worked.

- BetFair’s event derivative prices (on the far right of the chart, you can see that the price went down to zero):

- InTrade’s event derivative prices (on the far right of the chart, you can see that the price went down to zero):

- HubDub’s event derivative prices:

Who will recieve the winning bid to host the 2016 Olympics?

- Here’s what happened to the Paris 2012 event derivative:

Google Caffeine upgrades NewsFutures, downgrades the Iowa Electronic Markets.

Chris F. Masse — Wed, 12 Aug 2009 22:22:49 +0000

Google Search versus Google Caffeine for “prediction markets”

P.S.: For those who don’t follow Midas Oracle on a daily basis (how dare), Google Caffeine is the future Google Search.

UPDATE: The Inkling Markets website goes on page 2, on Caffeine. Good.

UPDATE: Google Caffeine is off for a few hours.

How BetFair Works = How BetFair lies about the history of the betting exchange industry

Chris F. Masse — Wed, 12 Aug 2009 15:58:51 +0000

How BetFair Works — VIDEO

This BetFair video totally misinforms the public about the history of the betting exchange industry. It actually started in the United States of America, with the Iowa Electronic Markets in 1988, the ForeSight Exchange in 1994, and the Hollywood Stock Exchange in 1996.

Sheep and Wolves

Chris F. Masse — Thu, 04 Jun 2009 13:29:30 +0000

My post re-publishing the InTrade check received by Wiser Than The Crowd has been mis-interpreted by him. There was nothing about “hating the game” in my post. It was just a reference to the “sheep and wolves” concept floated by Robin Hanson. (See also the Iowa Electronic Markets research on their traders.)

Go reading more research papers, Erik.

The Iowa Health Prediction Market is usable for the probability seekers.

Chris F. Masse — Wed, 29 Apr 2009 20:06:46 +0000

Iowa Health Prediction Market

Swine Influenza Prediction Markets

I like how they use icons, and the way they display probabilities on that page. It is clear, and we can get the info real quick.

Emile tells me that IHPM was developed with NewsFutures source code, but customized by them.

Combinatorial Prediction Markets — David Pennock Edition

Chris F. Masse — Thu, 19 Mar 2009 20:21:06 +0000

ACM:

[...] Prediction markets are gaining interest because the Internet allows greater worldwide access to them, as well as to the ever-increasing amount of data stored on any topic imaginable (which theoretically allows participants to make more informed predictions, individually and in aggregate). These factors, plus the enormous amount of computing power that will make it possible to instantly calculate exponentially small odds, are stimulating new research on advanced computational models in prediction markets. These models could be capable of analyzing entire events such as the annual NCAA collegiate basketball tournament, which begins a 63-game schedule with 2⁶³ possible outcomes by the tournament’s end. [...]

Growing opportunities in internal private-sector prediction markets are also revealing divergent philosophies among the markets’ designers. Many of the public markets feature price-adjustment algorithms built around answering discrete multiple-choice outcomes, such as which candidate will win an election or if a product will launch in month x, y, or z. [...]

IEM steering committee member Thomas Rietz, a professor of finance at the university, says the aggregate zero-risk design of the IEM allows the markets to perfectly reflect the aggregate forecast opinions of its participants. By aggregate zero-risk, Rietz explains that when a trader enters a particular bilateral (either/or) market, he or she must buy one share of each choice, called a bundle, for a total cost of $1. If the trader holds the bundle until the market concludes, there is neither profit nor gain. If the trader guesses the outcome successfully, and sells the losing unit of the bundle to another trader while the market is running, he or she picks up the original $1 bet plus whatever price was agreed upon for the losing share that was sold. If the trader chooses to hold onto the loser and sell the eventual winner, however, they will incur the $1 loss at payout time. At any given time, the number of eventual winning shares and losing shares is equal and held by the traders. So, the university bears no counterparty risk and there is no need to provide hedging margins that irrationally affect outcomes. “The price you would be willing to buy or sell for today is your expectation of its value in the future—the prices can be directly interpreted as a forecast,” Rietz says. “In ordinary futures markets, there is a long-lasting debate, going back to John Maynard Keynes in the 1930s, over whether prices can legitimately be used as forecasts, and it all hinges on whether or not people demand a return or face a risk in aggregate when they’re investing in these contracts.” [...]

One enduring research problem on combinatorial markets is mitigating the effects a virtually unlimited spectrum of outcomes will have on creating markets that are so thin in trades they do not serve their purpose of aggregating information. In such markets, which might bear a resemblance to an enterprise prediction market in that there are not enough participants to provide a statistically valid spread of opinion, Pennock says a market-maker algorithm might serve as a price setter within widely acceptable limits. “I believe that approximation algorithms will be fine for the market maker, because people don’t really care about making bets on things that are incredibly unlikely, like 10−6 chance,” Pennock says. “But as long as you’re betting on something with a 10% chance of happening, we’ll be able to approximate pretty quickly with a market-maker price.” [...]

David Pennock’s website and blog

Box office prediction markets don’t work out at the Iowa Electronic Markets.

Chris F. Masse — Sun, 21 Dec 2008 07:36:31 +0000

… and so the IEM honcho condemns the Cantor Exchange.

I disagree.

The University of Iowa — Home of the world-famous Iowa Electronic Markets

Chris F. Masse — Tue, 16 Dec 2008 09:50:42 +0000

… is now a client of NewsFutures.

My good doctor Emile, care to say more?

Flu prediction markets can correct Google Flu Trends.

Chris F. Masse — Mon, 15 Dec 2008 16:14:23 +0000

2 practicing physicians laugh at using collective intelligence for nation-wide flu detection:

[...] Flu Trends tracks almost perfectly with data on influenzalike illnesses that the CDC obtains from doctors’ offices. And as an added bonus, Flu Trends detects outbreaks up to two weeks earlier, when people are still sitting at home sneezing into their keyboards. [...]

But if officials monitored only Flu Trends, it would be difficult to sort the signal from the noise —in addition to losing critical details on who is sick. Things besides an actual flu outbreak can cause people to search the Internet for flu information. We would imagine that Flu Trends would spike on the release date for a flu-related movie —maybe Outbreak 2: Electric Booga-Flu. And what happens if a pandemic flu scare hits the nightly news? Flu Trends’ ability to detect when the real pandemic hits will be obliterated when people, including those without symptoms, start to search the Internet. Monitoring drugstore sales has the same issue: A jump in cold-medicine sales may mean a flu outbreak, but it could also mean that CVS is running a sale or that flu fear is causing people to stock their medicine cabinets. [...]

They end their articles saying that Google can’t cure the flu, anyway. [???]

The response to the objections they jot down in the 2nd paragraph above is easy:

Informed by all other means, the event derivative traders can determine whether the spikes in Google Flu Trends are due to abnormalities (see the 2nd paragraph in the excerpt above) or due to the real spreading of influenza.
Hence, the flu prediction markets have a much higher social utility than Google Flu Trends. Chris Masse said so.
David Pennock, go writing another research paper about that.
History will retain that David Pennock was research scientist under Chris Masse’s reign in the field of prediction markets.

Google Flu Trends

Iowa Health Prediction Market

The “predict flu using search” study you didn’t hear about – by our good Doctor David Pennock

BBC

New York Times

WSJ Health blog

University College Cork (UCC) School of Medicine + Intrade

Dylan Evans’ website

Previously: #1 + #2 + #3