I dont’ know that you could say Chicago was the “weakest link”, just because it got dropped first in the voting. The political process caused it to go early. However, Michael Giberson is wrong to imply that the prediction was accurate on the basis that Chicago and Rio were fairly close. Let’s keep in mind that the options are about as discrete as they come. Even if Chicago were to have come in a close second, it would have been a complete miss by the market.

If one needed to make a decision that depended on whether Chicago would win the bid, the prior choice would have been completely wrong, once the true outcome was revealed.

I have to agree with Chris. The market participants did not possess a sufficient level of information completeness to arrive at the correct prediction. Furthermore, the discrete nature of the outcomes made it a risky prediction. Finally, I’m guessing that few, if any, of the IOC voting members were involved in the prediction markets, leading one to conclude that all (or almost all) of the market participants were “noise” traders.

Elsewhere, another commentator claimed that, because the prediction market started to show Chicago’s share falling during the morning of the vote, this was evidence that prediction markets work. Hardly. It does show that prediction markets rarely provide accurate predictions sufficiently in advance of the outcome, in order for useful decisions to be made.

The prediction market industry really needs to investigate the determinants of success and which types of markets (issues) have the potential to provide consistently accurate predictions. Way too much time and effort is being spent arguing about meaningless markets, trivial questions, and false accuracy claims.

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Previously: The Chicago candidacy, which was favored by the prediction markets (and gullible bettors like Ben Shannon), is the one that fared the worst.

Previously: Chicago won’t have the Olympics in 2016.

ADDENDUM:

- BetFair’s event derivative prices:

- InTrade’s event derivative prices:

- 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:

Prof Michael Giberson:

I think the “small, secretive committee” explanation is weak [].

Bradbury does an excellent job sifting through the shifting coalitions revealed in the three rounds of IOC voting. Neither Madrid nor Toyko showed any significant ability to attract votes as the rounds proceeded. It was going to be Rio or Chicago all along, but Chicago was weakest in the four-way vote and lost early, leaving the games to go to Brazil.

Based on Bradbury’s [analysis], I’m convinced that the decision was pretty much a toss up between Chicago and Rio. That conclusion was also implied in the prediction market prices just before the decision. Sure, the prediction markets favored Chicago, slightly, over Rio; I don’t think you can call it a miss given the closeness of the decision.

Well:

1. The voting mechanism of the IOC regarding the 2016 Olympics venue was known to the news media and the prediction market traders (like Ben Shannon) well before the vote.
2. The prediction market traders gave a surreal boost to the Chicago probability.
3. The reality check is that Chicago was the weakest candidate.
4. Hence, the prediction market traders were not informed enough about the basic facts regarding the IOC voting, for the reason that the International Olympic Committee is governed by secrecy, politics, and pork.

Next: “I have to agree with Chris. The market participants did not possess a sufficient level of information completeness to arrive at the correct prediction.”

Previously: The Chicago candidacy, which was favored by the prediction markets (and gullible bettors like Ben Shannon), is the one that fared the worst.

Previously: Chicago won’t have the Olympics in 2016.

ADDENDUM:

- BetFair’s event derivative prices:

- InTrade’s event derivative prices:

- 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:

I don’t share his views, but I wanted to link to his piece for you to make up your own mind about the issue.

No “careful observer knew this in advance” (about Chicago being a lemon), for the simple reason that if they knew, they would have downgraded Chicago on the InTrade and BetFair prediction markets, and Ben Shannon would have not bet $6,000 on Chicago.

I look forward to your contrite correction on the frontpage of Knowledge Problem —in bold, and with a link to Midas Oracle, stating that “Midas Oracle is the only website in the world to have told you *not* to bet on Chicago —and to stay (far) away from any Olympics venue prediction market.”

My thesis holds: The International Olympic Committee (IOC) is a close aristocratic group that does not leak out good information.

Previously: The Chicago candidacy, which was favored by the prediction markets (and gullible bettors like Ben Shannon), is the one that fared the worst.

Previously: Chicago won’t have the Olympics in 2016.

ADDENDUM:

- BetFair’s event derivative prices:

- InTrade’s event derivative prices:

- 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:

Next: “I have to agree with Chris. The market participants did not possess a sufficient level of information completeness to arrive at the correct prediction.”

Prof Michael Giberson:

Chris, isn’t it odd for you to state “Chicago had not the slightest chance to begin with.” The phrase implies you believe that the probability of Chicago’s selection was near zero all along, but you have been claiming that it is impossible to predict anything about the outcomes of IOC selection processes.

Also, the NYT article reports on backbiting and disarray at the USOC. While the article is published after the IOC decision, presumably any careful observer knew this in advance [*] and you are suggesting it was relevant to the outcomes of the IOC market, i.e. you are suggesting it is a reason to have believed the Chicago selection as particularly unlikely. Again, this suggestion is contrary to your earlier views suggesting IOC decisions are unpredictable because there is no good information to aggregate.

I look forward to your correction!

[*] You presume too much, doc.

If, as you said quite cockily, “any careful observer knew this in advance“, then the (mass or vertical) media would have reported about that, and, logically:

1. the prediction market traders would have downgraded Chicago early on;
2. Ben Shannon (who is a smart man and a well informed bettor) would not have bet 6,000 bucks on Chicago.

The proof is in the pudding, doc.

You are wrong and I am right.

Google Trends + Google Insights For Search

Via Prof Levitt

Previously: Flu predictions based on querying behavior (on Google and Yahoo!) are somewhat less impressive than simply looking to the recent past of flu levels.

What do our research scientists think?

Would you re-formulate it?

Here’s an aggregation of the state polls —it gives you a historical view of the potential electoral college (“270” is the magic number).

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As you can see, Barack Obama has always been favored by these state polls —except for a short period of time (just after Sarah Palin emerged on the national scene and became a short-lived sensation, and just before the sudden credit, economic and financial crises incited the voters to put the blame on both the current Republican administration and their ally, John McCain).

The question that has made rounds in news desks around the country is whether people who take part in polls have an issue with one candidate being an African American. In other words, do white people overstate their support for Barack Obama when they talk to the pollster in person? This potential distorting effect has been popularized by the media as the “Bradley Effect“. (In reality, the real reason why Tom Bradley lost the 1982 election in California is because his views were too liberal, and that his opponent fought combatively and decisively in the last month leading to the 1982 election day —and it worked out, he managed to beat Tom Bradley in the end.)

Let’s look at the recent past. How did the polls fare during the Democratic primary opposing Hillary Clinton (the white woman) and Barack Obama (the black man)? Psychologist Anthony Greenwald and political scientist Bethany Albertson have analyzed data from the 32 states holding Democratic primaries, and here’s what they found out.

Polls may underestimate Obama’s support by 3 to 4 percent. [Yes, "underestimate", not "overestimate". Read on.]

Current polls of the presidential election may be underestimating Barack Obama’s support by 3 to 4 percent nationally and possibly larger margins in the Southeast and some strongly Republican states, according to University of Washington researchers.

Psychologist Anthony Greenwald and political scientist Bethany Albertson, who analyzed data from the 32 states holding Democratic primaries, said race played an unexpectedly powerful role in distorting pre-election poll findings and the same scenario could play out in the election between Obama and John McCain.

“The Clinton-Obama raced dragged on so long, but it generated a lot of data. It is the only existing basis on which to predict how a black candidate will do in a national general election,” said Greenwald, who pioneered studies how people’s unconscious bias affects their behavior. “The level of inaccuracy of the polls in the primaries was unprecedented.”

Prior to the start of the primary season, the UW researchers thought the so-called Bradley effect would play a key role in the 2008 election. Previously, this effect showed exaggerated pre-election poll support for black candidates in some prominent elections in the 1980s and 1990s.

The Bradley effect is named for former Los Angeles mayor Tom Bradley, a black, who lost a close 1982 gubernatorial election in California after holding a solid lead in the polls. As the 2008 primaries played out, Greenwald and Albertson found that the Bradley effect only showed up in three states — California, New Hampshire and Rhode Island.

However, they found a reverse Bradley effect in 12 primary states. In these states they found actual support for Obama exceeded pre-election polls by totals of 7 percent or more, well beyond the polls’ margins of error. These errors ranged up to 18 percent in Georgia.

“The Bradley effect has mutated. We are seeing it in several states, but the reverse effect is much stronger,” said Greenwald. “We didn’t have a chance to look at these effects before on a national level. The prolonged Democratic primary process this year gave us a chance to look for this effect in 32 primaries in which the same two candidates faced each other.”

Albertson and Greenwald believe the errors in the polls are being driven by social pressures that can operate when voters are contacted by telephone prior to an election. They said that polls from states in the Southeast predicted a large black vote for Obama and a much weaker white vote. They found that, in a few Southeast states, exit polls showed that both whites and blacks gave more votes to Obama than the pre-election polls had predicted.

“Blacks understated their support for Obama and, even more surprising, whites did too. There also is some indication that this happened in such Republican states as Montana, South Dakota, Oklahoma, Missouri and Indiana,” Greenwald said.

“If you call people on the phone today and ask who they will vote for, some will give responses influenced by what may be understood, locally, as the more desirable response. It is easy to suppose that these people are lying to pollsters. I don’t believe that. What I think is they may be undecided and experiencing social pressure which could increase their likelihood of naming the white candidate if their region or state has a history of white dominance. They also might give the name of the Republican if the state is strongly Republican.

A good analogy of a desirable response and social pressure, he said, would be if you lived in Detroit and you get a call asking if you will participate in an anonymous survey about automobiles.

“You agree and are asked if you prefer American or foreign cars. Even if you own a Japanese car, you might experience some pressure to give an answer that might be more appreciated by the caller — that you prefer American cars,” said Greenwald. “When it comes to politics, although voters are presumably anonymous when speaking to pollsters, the fact that the person calling them knows their phone number may not let them feel anonymous.”

Albertson noted that the polls have systematically underestimated Obama’s support and this can have an impact on the election.

“This distortion is interesting because poll numbers are part of the story journalists tell the public and they can also affect campaign strategy, such as states in which to spend resources,” she said.

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Isn’t that amazing? The liberal media are bombarding you about a so-called “Bradley Effect” (leading you to believe that America is such an horrific racist country), and these 2 researchers are debunking all that. Look at the chart below, and do spot by yourself that the “Reverse Bradley Effect” (on top of the chart) is bigger than the “Bradley Effect” (at the bottom of the chart).

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In passing, do spot, at the left bottom of the chart above, that the polls made during the Democratic primary race in New Hampshire were among those that over-predicted Barack Obama. You might remember that the prediction markets (whose traders feed on the polls) wrongly predicted the defeat of Hillary Clinton in New Hampshire.

But the overall question is this: If that’s true that the polls have an anti-Obama bias, then doesn’t that mean that the political election prediction markets are currently under-predicting the margin of Barack Obama’s victory come November 4th? I understand that you might find this question weird, taking into context that the prediction markets are already predicting a landslide for the Democratic presidential candidate, one week before the election, but do hear this:

1. That study on the “Reverse Bradley Effect” done by those 2 researchers seems very serious.
2. Few media outlets have reported this groundbreaking study to their readers.
3. Hence, few event derivative traders (at InTrade, BetFair, HubDub and NewsFutures) are aware of the anti-Obama bias of the polls.
4. As a result, the prediction markets, which act as a giant information aggregation mechanism, are a bit less optimistic on Barack Obama’s margin of victory than they should be.
5. If you were a betting man / woman, a worthy calculated risk would be to be more cocky when trading on the prediction markets about Barack Obama’s chances.

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[UPDATE: See my follow-up post that takes a second look at both the "Bradley Effect" and the "Reverse Bradley Effect".]

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Speaking of speculations, there is an additional factor that pleads in favor of better results for Obama than the polls are predicting. As I said, the sudden credit, economic and financial crises have largely benefited Barack Obama, because the voters are blaming the current administration (and their ally, John McCain). As you can see on the compound charts below (which are not up to date), the deeper the financial crisis, the weaker John McCain becomes. And the good news, if you are betting on Barack Obama, is that the financial markets all over the world are currently experiencing a global sell-off, “as worry about the severity of a global recession and the bleak outlook for profits gripped investors.” Many leading indicators are expected this week, and they will be horrific, which will further send the stock markets spiraling down —and, inversely, the Barack Obama event derivatives (on all prediction exchanges) will go up. So, this week is a good opportunity to be bullish about Barack Obama on InTrade, BetFair, HubDub and NewsFutures.

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To wrap up this post, I am now showing you below the latest odds produced by the prediction markets.

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#1. Explainer On Prediction Markets

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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 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.

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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

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#2. Objective Probabilistic Predictions = Charts Of Prediction Markets

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- Listed below are the odds produced by the prediction exchanges. If you are interested in the predictions, we advise you to have a close look, first, at the real-money prediction markets (InTrade, BetFair and the Iowa Electronic Markets). Now, if you want to have real fun interacting with the news, we recommend that you trade on the play-money prediction markets (HubDub and NewsFutures).

- If you want to visit one of those prediction exchanges, put your mouse on the selected dynamic chart, right-click, and open the link in another browser tab.

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2008 US Elections

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InTrade

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2008 US Electoral College

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- This is a dynamic electoral map, which updates itself each time you refresh this webpage. Click on the image, and open the website (ElectoralMarkets.com) in another browser tab to get the bigger version. – [Feed readers: Download this webpage to visualize this InTrade widget, since it doesn't display within feed readers.]

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- This is a dynamic electoral map, which updates itself each time you refresh this webpage. – [Feed readers: Download this webpage to visualize this InTrade widget, since it doesn't display within feed readers.]

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2008 US Presidential Elections – By State

- To get to the InTrade prediction market webpage for a specific state, right-click the state link, and open it in another browser tab.

• State of Alabama – Democratic – Republican
• State of Alaska – Democratic – Republican
• State of Arizona – Democratic – Republican
• State of Arkansas – Democratic – Republican
• State of California – Democratic – Republican
• State of Colorado – Democratic – Republican
• District of Columbia – Democratic – Republican
• State of Connecticut – Democratic – Republican
• State of Delaware – Democratic – Republican
• State of Florida – Democratic – Republican
• State of Georgia – Democratic – Republican
• State of Hawaii – Democratic – Republican
• State of Idaho – Democratic – Republican
• State of Illinois – Democratic – Republican
• State of Indiana – Democratic – Republican
• State of Iowa – Democratic – Republican
• State of Kansas – Democratic – Republican
• Commonwealth of Kentucky – Democratic – Republican
• State of Louisiana – Democratic – Republican
• State of Maine – Democratic – Republican
• State of Maryland – Democratic – Republican
• Commonwealth of Massachusetts – Democratic – Republican
• State of Michigan – Democratic – Republican
• State of Minnesota – Democratic - Republican
• State of Mississippi – Democratic – Republican
• State of Missouri – Democratic – Republican
• State of Montana – Democratic – Republican
• State of Nebraska – Democratic – Republican
• State of Nevada – Democratic – Republican
• State of New Hampshire – Democratic – Republican
• State of New Jersey – Democratic – Republican
• State of New Mexico – Democratic – Republican
• State of New York – Democratic – Republican
• State of North Carolina – Democratic – Republican
• State of North Dakota – Democratic – Republican
• State of Ohio – Democratic – Republican
• State of Oklahoma – Democratic - Republican
• State of Oregon – Democratic – Republican
• Commonwealth of Pennsylvania – Democratic – Republican
• State of Rhode Island – Democratic – Republican
• State of South Carolina – Democratic – Republican
• State of South Dakota – Democratic – Republican
• State of Tennessee – Democratic – Republican
• State of Texas – Democratic – Republican
• State of Utah – Democratic – Republican
• State of Vermont – Democratic – Republican
• Commonwealth of Virginia – Democratic – Republican
• State of Washington – Democratic – Republican
• State of West Virginia – Democratic – Republican
• State of Wisconsin – Democratic – Republican
• State of Wyoming – Democratic – Republican

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Source:

- The electoral map widget is from InTrade .COM.

- InTrade .COM.

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- All the charts below are also dynamic —they update themselves each time you open this webpage. – [The InTrade dynamic charts listed below go into feeds. ]

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2008 US Presidential Election Winner – Individual

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2008 US Presidential Election Winner – Political Party

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2008 US Congressional Elections Winner – Political Party

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2008 US Senate Control

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2008 US House Of Representatives Control

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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.

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BetFair

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Winning Party

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Next US President

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- This is a dynamic compound chart, which updates itself each time you refresh this webpage. – [Feed readers: Download this webpage to visualize this BetFair widget, since it doesn't display within feed readers.]

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Source:

- BetFair Politics Zone

- BetFair Chart Widgets – (They are based on Flash, a shitty technology that doesn’t go into feeds. )

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Iowa Electronic Markets

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

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2008 U.S. Presidential Election Vote Share Market

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- Source: Iowa Electronic Markets

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HubDub

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2008 US Presidential Elections

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- This is a dynamic electoral map, which updates itself each time you refresh this webpage. – [The HubDub dynamic charts listed below go into feeds. ]

- HubDub’s prediction markets on the 2008 electoral college:

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- This is a dynamic compound chart, which updates itself each time you refresh this webpage. – [The HubDub dynamic chart listed below go into feeds. ]

Who will win the 2008 US Presidential Election?

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2008 US Senate Elections

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What will be the number of Democratic Seats in the Senate after the 08 Elections?

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2008 US House Of Representatives Elections

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What will be the number of Democratic Seats in House of Representatives after 08 Elections?

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NewsFutures

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Next US President Will Be Democratic.

© NewsFutures

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Next US President Will Be Republican.

© NewsFutures

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Swing States For The 2008 US Presidential Elections

- 2008 Electoral College

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- NewsFutures and Bet2Give used to have chart widgets on the US primaries, which didn’t go into feed readers. We are waiting for their next chart widgets.

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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

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Third Presidential Debate:

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[This post was cross-posted from Midas Oracle .COM.]