Will Air France Flight 447′s black box be recovered?

Sport
The most anticipated sporting event this week is still the ongoing NBA playoffs. Last week the Lakers had only a even chance of wining compared to the Orlando Magic, this week though Hubdubbers make it a surefire bet it’s the Lakers for the win.

NBA Finals, LA Lakers – Orlando Magic, series outcome?

Politics

For anyone who thought British politics was boring and mundane, the recent expenses scandal in the UK is certainly creating a right fuss… Will it bring down Gordon Brown though? Well the expenses scandal and Brown’s staggering loss in recent elections in the UK, has his chances of being forced out in 2009 as high as 62% as of now.

Will Gordon Brown resign or be forced from office by the end of 2009?

Entertainment
David Carradine’s tragic death last week under ‘mysterious’ circumstances was shocking. His odd demise whether it was suicide or accidental, perhaps was caused by drugs? Hubdubber’s seem to think drugs a quite likely cause. There’s a 72% chance a autopsy shows drugs were in Carradine’s system.

Will autopsy show drugs be found in David Carradine system?

This weekend three main movies are vying for contention at the box office, Up, The Hangover and The Taking of Pelham 1 2 3. Up has already received critical acclaim, but the comedy The Hangover is gaining ground this week. As of now Up though still seems to the be the likely winner at the box office.

Which will be the No. 2 film at the U.S. box office the weekend of June 12-14, 2009?

Trading percentages given are at time of posting and may not match up with markets after the fact due to Hubdub users forecasting on said markets. Posted from newspundits blog.

World

The doomsday clock probably moved up another notch this week with North Korea flexing its military might. First a nuclear detonation, then missile tests and now the world awaits more irrational action. More missile tests between June 1 – June 7 have a 48% chance of occurring, and a new war in Asia has a 36% chance.

When will North Korea launch their next missile?

Sports
The NBA final is now underway, it’s a best of seven series, and as of now Hubdubbers only slightly favor the LA Lakers over the Orlando Magic.

NBA Finals, LA Lakers – Orlando Magic, series outcome?

The NHL playoffs are also underway this week. The final is between the Detroit Red Wings and the Pittsburgh Penguins and the Red Wings are certainly the front runners to win the best of seven series.

Stanley Cup Final, Detroit Red Wings – Pittsburgh Penguins, series outcome?

Science
The Atlantic hurricane season officially begins this week and the initial outlook calls for a 50% chance of a normal season, a 25% chance of an above-normal season and a 25% chance of a below-normal season. Hubdub forecasts that in June and July there’s a equal 32% probability that we have either no storms or only one.

How many hurricanes will there be in the Atlantic in June and July?

Politics
Barack Obama’s Supreme Court nominee Sonia Sotomayor has evoked some criticism from the right, from questions of her sexuality to her views on abortion, but for now she seems to have weathered the storm. Abortion being the sticky issue it is, Sonia Sotomayor has a 69% chance of not specifying whether she is or isn’t pro-choice.

Will Justice Sotomayor describe herself as pro-choice?

Trading percentages given are at time of posting and may not match up with markets after the fact due to Hubdub users forecasting on said markets.

Cross Posted from Newspundits blog.

Politics
Undoubtedly the biggest news coming out of Washington last week was the retirement of Justice Souter. As the dust settles, the focus is now on who will replace him. A smart trader wouldn’t forecast anyone just yet. That said though Sonia Sotomayor is getting a surprising amount of activity, now given a 42% chance of replacing Souter.

Who will replace Justice Souter?

Science
Apparently the end isn’t nye, which is a bummer since for the last week I thought the zombie apocalypse might be upon us, and we all know how cool those look! There’s still a chance we face imminent annihilation though! Hubdubbers give the Swine Flu alert level rasing to 6 a 62% chance. Alert level 6 means we’re in a pandemic.

Whats next for the Swine Flu alert level: 4 or 6?

Entertainment
Yes that’s right American Idol will soon be over, and whatever your feeling about the show in general it has to be said it’s developing into a American Institution. This season Hubdub is forecasting Adam and Danny have a 79% chance of being the last two contestants standing.

Who Will Be the Final Two Contestants on American Idol?

Sport
This week the main NBA playoff game is between the Boston Celtics and Orlando Magic. Who will win? Hubdub says the current front-runner is Boston and the forecast is that they’re likely to win in 6 games.

NBA Playoffs, Boston Celtics – Orlando Magic, series outcome?

World

Don’t hate the player hate the game! Or in bad Italian Non odiare il giocatore odia il gioco. Silvio Berlusconi, Italy’s Prime Minister is on the prowl for a ‘new thing,’ after his wife decided the 71 year-old’s flirtatious eye was too much. Currently Berlusconi, known for his young taste is 29% likely to next marry a 30 to 39 year-old.

What will be the age of Silvio Berlusconi’s next wife?

Trading percentages given are at time of posting and may not match up with markets after the fact due to Hubdub users forecasting on said markets.

Cross Posted From NewsPundits

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A recent article in the prestigious academic journal Science (May 16, 2008, Vol 320, p. 877-8) once again makes the case for regulated prediction markets, more commonly known as “betting exchanges” to online gamblers. The authors make the case that such markets are useful in forecasting future events with less error than traditional measures such as polling. This argument is hard to ignore, with the authors including 21 top economists from such esteemed institutions as Yale, Stanford, Berkeley, and the University of Pennsylvania. Notable among the authors is Justin Wolfers from the Wharton School of business at UPenn, an economist who has gained notoriety in gambling circles due to his work on such topics as NBA referee bias (highlighted in a May 2008 article from MajorWager: http://www.majorwager.com/index.cfm?page=27&show_column=660).

The concept behind using prediction markets as a decision-making tool is simple. “Shares” are made available on an open market, and the participants use their capital (and the promise of profits) to make predictions on future events, which is incorporated into the share price. In general, information tends to be widely dispersed, and a market allows wide-ranging opinions to be gathered and consolidated into a market-wide prediction. In other words, an infinite amount of opinions can be aggregated, and an open market with potential for profit provides an incentive for individuals to make their opinions publicly known.

Prediction markets always get more than their fair share of press near the end of the 4-year U.S. Presidential election cycle. The Iowa Electronics Market, housed at the University of Iowa, is perhaps the most well-known. The authors of the Science paper show that, in the week immediately preceding the Presidential elections from 1988 through 2000, the Iowa Electronic Markets erred by an average of only 1.5 percentage points from the actual vote results, while the traditional Gallup poll was off by 2.1%. Numerous other studies have shown the superiority of markets compared to other forecasting tools.

Of course, there have been some dust-ups regarding prediction markets in the past, most notably the “terrorist strike market”, unveiled a little too close to 9/11 to be palatable to the general public. The official name was the “Policy Analysis Market“, and it was established by the Pentagon to act as a prediction market for Middle East political events. It was quickly scuttled after heated comments from U.S. Senators, calling it “grotesque” and “stupid”, due to the perception of using catastrophic events such as assassinations as profit-making tools. Regardless of its political correctness (and the misinformed opinions of a few politicians), such a prediction market still holds value as a glimpse into the collective mindset of everyone with an understanding of political currents in the region. Utilizing such a prediction market as a component of foreign policy decisions may have ultimately spared the U.S. much grief in Iraq.

In recent years, prediction markets have grown beyond academic and government roles. Dublin-based InTrade is rapidly growing and provides many more options than the Iowa Electronic Markets. Others such as MatchBook have focused more on sporting contests, but provide coverage of other events as demand calls. Of course, those outside the U.S. have access to the largest betting exchange of them all, the massive European markets of BetFair. The success of these exchanges speaks to the public interest and feasibility of prediction markets.

One factor holding back the growth of online prediction markets is their close association with the quasi-legal world of sports betting and internet casinos. InTrade has been fairly proactive in this regard, spinning off from Tradesports to clean up its corporate slate, but it is still knee-deep in the legal sludge surrounding offshore “gambling”. All have to deal with the legal and financial hurdles of operating offshore.

The authors of the Science paper propose that clarification of internet gambling laws is needed to exploit the benefits of prediction markets within the United States. Clearly, the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 is one such mechanism restricting the widespread use of prediction markets. Another is the Commodity Futures Trading Commission (CFTC), the regulatory agency which oversees futures markets in the U.S. The CFTC has provided a “no-action letter” to the Iowa Electronic Markets, an assurance that they will not seek any enforcement action against the exchange. However, this protection is not absolute and may not trump state and federal law if challenged. The Science authors propose a number of legal reforms which will allow prediction markets to begin to gain acceptance within the U.S. financial regulatory structure.

By no means does the Science article condone large-scale public markets, at least not initially. They take a (typically academic) conservative approach, recommending new legal framework to allow for the establishment of small markets with limited scope so as to evaluate the promise and use of prediction markets. But baby steps are going to be a necessity in the growth and acceptance of regulated public markets.

Clearly, there are negative aspects to financial markets, and regulation certainly has its place. Bear Sterns, Enron, the S&L scandal of the 80s, and the current housing bubble all caused tremendous loss of wealth resulting from missteps in the financial markets. The current oil crisis is due at least in part to speculation, leading to the introduction of no less than 9 separate bills in the U.S. Congress seeking tougher regulation over the trading of commodities. However, the existence of problems in the financial markets does not necessitate their dissolution. Likewise, prediction markets are sure to encounter bumps in the road, but their utility should far outweigh the risks.

Should prediction markets be legalized in the U.S.? Almost certainly. They would have benefit across numerous industries, from business decisions to political policies to financial forecasting. Unfortunately, this would require building an unlikely bridge over the Puritanical moral moat placed around gambling in the U.S. But there is no inherent difference in betting on who will win in an election than what the price of oil will be in 6 months, or what the S&P 500 will close at on a particular date. Distancing prediction markets from “illegal” gambling, and instead likening them to regulated financial markets, will be a necessary first step towards broader acceptance.

The academic groundwork on prediction markets has already been laid, and offshore exchanges have begun to turn these concepts into functioning businesses. As these markets grow and begin incorporating more diverse opinions, we can expect their success rate at predicting the future to only grow. To restrict such a promising tool simply due to its perception that it is a gambling outlet is silly indeed.

6-25-08
Jay Graziani
MajorWager.com
graziani@majorwager.com

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[This article is cross-posted from Major Wager.]

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David Pennock:

[...] Each order is associated with a decision variable x that ranges between 0 and 1, encoding the fraction of the order that the auctioneer can accept. There is one constraint per outcome that ensures that the auctioneer never loses money across all outcomes. The choice of objective function depends on the auctioneer’s goals, but something like maximizing the fill fraction makes sense.

Once the program is set up, the auctioneer solves for the x variables to determine which orders to accept in full (x=1), which to accept partially (0<x<1), and which to reject (x=0). The program can be solved either in batch mode, after waiting to collect a number of orders, or in continuous mode immediately as new orders arrive. Batch mode corresponds to a call market. Continuous mode corresponds to a continuous auction, a generalization of the continuous double auction mechanism of the stock market.

Each order consists of a price, a quantity, and an outcome bundle. Traders can just as easily bet on single outcomes, negations of outcomes, or sets of outcomes (e.g., all Western Conference NBA teams). Every order goes into the same pool of liquidity no matter how it is phrased.

Price quotes are queries to the linear program of the form “at what price p will this order be accepted in full?” (I believe that bounds on the dual variables of the LP can be interpreted as bid and ask price quotes.) [...]

Go reading all the post. There is a bunch of good comments… the best was submitted by Mike Giberson…

Todd’s trades on NHL games was reversed by TradeSports under Contract Rule 1.2 (“unrepresentative price”).

_NHL.CAL@SJS.OVER5.5_ (mailto:NHL.CAL@SJS.OVER5.5)

Sold 40 contracts at a price of 38.0 at: 05:32:27 AM GMT 01/04/08

Pre-game orders failed to cancel and were later filled at unrepresentative prices.

All pre-game market maker orders that were matched in-game were reversed for all customers – this included winning and losing trades.

Todd’s e-mail #1 to TradeSport:

Subject: Re: NHL Games – Reversed Trades
From: Todd73NJ—–aol—com
Date: Fri, 4 Jan 2008 19:54:40 EST
To: help@tradesports.com

TS -

Straight up – this is bullshit. No other way to put it.

You explain to me how this is an unrepresentative price?? The game is tied 2-2 at the 2nd Period intermission – The total is 5.5. I sold the over to someone at 38. Therefore more than 72% of the total has been achieved in 66% of the game. If ANYTHING the advantage was given to the person I sold the [event derivative] over to. In addition, as anyone who gambles knows, in 1 goal games – an empty net goal is a possibility of over 60% – giving a complete advantage to the person holding the over contract. Had ONE goal been scored in 19 minutes of action (After having 4 in 40 Mins of action) – there would have been a 60% chance of an empty net goal in the FINAL 1 MINUTE of play.

The only person who gets screwed here is me. I GAVE AWAY advantage selling this line because I wanted action in the final game of the night. And now your pulling this bullshit?? I want a $152 trading credit – and there is no alternative resolution. You are STEALING money from me that I won fair and square. I risked $248 to win $152 on a contract that should have been 50/50. Do the math yourselves.

If an NBA team leads by 3 going to the 4th qrtr and is a 4 point favorite – ask your MMers what the price should be. 75. If an even money pre game line is tied at half time or at the end of the 3rd qrtr and it right on pace for hitting the line – line is 50. THIS GAME WAS AHEAD OF PACE FOR THE OVER AND I SOLD THE OVER TO SOMEONE AT PLUS VALUE!

You need to change your action on this event immediately. This is a fraud to help your market maker - as had it gone the other way – first off, I would have NEVER asked for an over turn – and secondly this conversation wouldn’t even take place. I have never asked for a sports over turn on a misrepresentative price. Someone I’ll sell a position at a disadvantage just to have action and have something to watch – JUST AS I DID last night…

And now what happens? You take the $$ from my account. It’s fraud – it’s theft – call it what you want – but this is DEFINITELY NOT a misrepresentative price. And correct me if I’m wrong but doesn’t a misrepresented price need to be 20 points from actual??? So your saying actual value of this over was 17?? I’ve talked to many high volume traders and the price range they give me is from 55-80 as fair value.

This is straight up bullshit. Look at the facts. You STOLE money from me.

Todd

Todd’s e-mail #2 to TradeSports:

Subject: Re: NHL Games – Reversed Trades
From: Todd73NJ——-aol—com
Date: Mon, 7 Jan 2008 20:59:02 EST
To: help@tradesports.com

I don’t care about win or lose – $152 is meaningless to me.

So does this mean if I accidently leave up an order pre game that is matched in game I can get my trades reversed?

I’m not exactly sure what rational your company uses anymore. When I come onto live help to ask how to get a MMer to come back to a featured event – I am told “We have nothing to do with the market makers’ making markets”. So shouldn’t the same policy be in effect if a market maker leaves me hanging with a position I don’t want because YOU advertise it as inrunning. So does that mean youll refund me? You are so one-sided in these issues it’s disgusting.

I bought a position at a MORE than fair price. Canceling my trade is stealing money from me. I’ve lost before on markets that appeared to be left up – and those weren’t reversed. Tradesports owes me $152 and needs to clarify its rules so everyone understand the market maker protection.

And clarify this for me please. When I see a market posted at halftime in a game… how do I know if it’s from pre-game or not?? I sold my lots to someone for a bargain price – and now you screw me.

There is no rational to your decisions, and I do not plan to let this one go.

You and the MMers are either partners or you’re not. If you protect them – hold them accountable. Don’t just do it when it’s convenient for both of you.

$25,000 + in fees later – and I’m still getting screwed.

Todd

I’ve very slightly edited Todd’s e-mails.

Why Hedgestreet Will Fail

They lead the prediction market field in generation of press releases, but their volumes and fees are abysmal. They are in an imaginary niche. The big boys play at the CME. The little guys want somewhere to bang out a few day trades on the Dow and then bet the NBA that night. A stand alone that does only financial contracts will have a very tough time surviving because so many better alternatives already exist.

Their EUR/USD contract is one example. Anyone can already trade the spot market with 200:1 leverage 24 hours a day. Traders can use the futures as well. No trader in his right mind will go to an illiquid market with high fees. Same for gold, silver, etc.

A trader gives up a lot to go on HedgeStreet, the only “benefit” (that I see) being regulation. But the regulation also makes it a huge pain to open the account, Proof of Residence, Government ID, etc., stuff that TradeSports users don’t have to deal with…

Friday, June 02, 2006

17 months after Steve Roman’s pronouncement, HedgeSteet bellied up.

[Y]ou need to understand the nature of academic research. As professors of economics we have a tremendous amount of freedom. We are asked to do research, but choice of topic is up to us (the only requirement is that what we study has to be published at some point in a peer-reviewed economics journal). Given this freedom, how do we choose our topics?

The chief motivation is your personal interest. Of course, I hear people asking: But aren’t you likely to be interested in something that will provoke a reaction?

Okay, here is the little known secret about academic research. Almost all of it provokes no reaction from anyone, including other economists. In other words, if you are looking for a reaction, you are likely to be disappointed. Given this reality, I am quite skeptical of the notion that Price and Wolfers began their study of NBA referees to provoke David Stern (or anyone else) or “make a name for themselves.”

Well, let me amend that last statement. They were seeking to “make a name for themselves” but only with their respective tenure committees. Both Price and Wolfers are assistant professors trying to secure tenure. Research that lands in top journals (journals that most economists, again, never read) is necessary to get tenure at their respective schools. Provoking David Stern or being featured in a magazine is not going to help Price or Wolfers get tenure.

And I would add, such attention is probably counter-productive. Your colleagues are human beings, and it’s not unheard of to find senior people reacting negatively when a junior professor gets a great deal of attention for their work. In sum, although I don’t think Wolfers avoids the spotlight [ ], I find it hard to believe he chooses his research projects in terms of what is going to provoke the most reaction from non-economists.

How we choose our topics is not the only aspect of academic research that I think is poorly understood. I have seen non-academics describe their work on the Internet as being “on the cutting edge” or “proving” this or that. [...]

Although sports economists have written many, many, many articles on competitive balance, the one conclusion that “most of us” would agree on is merely “tentative.” Now one could argue that sports economists are on the “cutting edge” of competitive balance research. Certainly we talk about it quite a bit. But we don’t refer to our work in terms of “being on the cutting edge” and “proving” something.

A better picture of research is to think of it as a conversation. From this perspective, the purpose behind peer reviewed (and by peers, we mean other people with your level of training and expertise in a subject) is to determine whether or not someone is making a legitimate contribution to the conversation.

Ultimately, the purpose behind this conversation is to improve our understanding of the world. And over time, as we carefully and methodically go through the evidence, I think our work does advance our understanding of the world. At least, that would be my tentative conclusion.

[...] I take the position (PDF) that, while point shaving in amateur sports may be somewhat more common than previously believed, the suspicious statistical trend that he identifies (heavy favorites win yet fail to cover the spread more often than expected) is unlikely to arise primarily from widespread corruption.

I base my opinion on the observation that the same statistical pattern also appears in NBA and NFL game outcomes, yet athletes in major professional leagues are unlikely to engage in point shaving. [...]

Does anybody know whether Justin Wolfers has responded to this argument? If yes, then please, give me the link in the comment below. Thanks.