Maybe a non-profit organization should sponsor PunditWatch.

Robin Hanson (mister “Track Records”), take notice.

That’s key to see whether his flavor of prediction market journalism (heavily based on a single technique called prediction market event study) can take off. As I said in yesterday’s blog post, even though his work is interesting, he is up against formidable competitors. Political analysts like Lawrence O’Donnell, Eleanor Clift, Mort Zuckerman, Pat Buchanan, Radley Blako, etc. –to name a few pundits (left and right)– produce riveting content. Can Justin Wolfers, as a political analyst using a prediction market analysis tool, break through this competitive pack? As of today, Justin Wolfers’ journalistic work is artificially subsidized (so to speak), because the WSJ wants to launch and establish a play-money prediction sub-exchange. A step in the forward direction would be to see the big political blogs like InstaPundit or DailyKos stealing Justin Wolfers’ method, and boosting their pageviews thanks to that. We will see. I’m not holding my breath.

The criteria that I would use to assess prediction market journalism are professional credibility, webpage popularity, the quantity and quality of the blog reactions, the amount of visitors sent to the discussed prediction market(s), and the number of journalists who ultimately embrace this method. See another criterion?

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In his book, Plight of the Fortune Tellers, Riccardo Rebonato describes how an invitation to bet can be used to separate cheap talk from truly held beliefs (and, in the process, ruin an otherwise engaging dinner conversation).

In the early to mid 1990s in the United Kingdom and in other European countries a widespread fear developed that a variant form of CJD might spread to humans. CJD is a fatal illness—also know as “mad cow disease”—that is well-known to affect bovines. The variant form was thought to have contaminated human beings via the ingestion of beef from cattle affected by the disease. … When the first human cases appeared scientists did not know whether they were observing the tip of an iceberg or whether the relatively few observed cases, tragic as they were, constituted a rather limited and circumscribed occurrence. “Expert scientists” were soon willing to go on record with statements to the effect that “it could not be excluded” that a catastrophe was unfolding. The nonscientific press was all too eager to jump on the bandwagon, and extravagant claims were soon presented, such as that hundreds of thousands, or perhaps even millions, of lives could be lost over the next decade. Specific probabilities were not stated, but the prominence of the reporting only made sense if the possibility of this catastrophic event was nonnegligible: the newspapers, at least judging by the inches of column space devoted to the topic, were not talking about a risk as remote as being hit by a meteorite.

As the months went by … the number of cases did not significantly increase…. Looking at the data available at the time with a statistical eye, I was becoming increasingly convinced that the magnitude of the potential effect was being greatly exaggerated. At just the same time, a well-educated, but nonscientist, friend of mine (a university lecturer) was visiting London and we decided to meet for dinner. As the conversation moved from one topic to another, he expressed a strong belief, formed by reading the nonscientific press, that the spread of CJD would be a major catastrophe for the U.K. population in the next five to ten years. He was convinced, he claimed, that “hundreds of thousands of people” would succumb to the disease. … I challenged him to enter a bet, to be settled in ten years’ time, that the number of occurrences would not be consistent with a major epidemic. My friend refused to take me up on my offer, despite my very attractive odds (attractive, that is, given his stated subjective probabilities). He claimed that “one does not bet on these things”; that he found my proposal distasteful; that, anyhow, he was not a betting man; and so on. I explained that I was not trying to gain material advantage from a possible human disaster, but I was simply probing the strength of his convictions on the matter. Ultimately, the bet was not entered, and the evening was rather spoiled by my proposal.

Julian Simon’s bet with Paul Erhlich is perhaps the most famous example of the use of a bet to test the strength of convictions. Robin Hanson has done a substantial amount of work on the foundations of such “Idea Futures” mechanisms. A similar concept underlies Long Bets and the Simon Exchange.

At Long Bets they say, “Long Bets is about taking personal responsibility for ideas and opinions.” That is the basic idea I had in mine when I suggested that “it would be a real public service to run well-conceived prediction markets based on the grandiose political pronouncements of the ‘chattering classes’.” It is all about an author taking personal responsibility for the opinions he publishes by, in effect via the prediction market, offering to fund countering opinions on well-defined claims if and only if those countering opinions turn out to be true.

(See also Chris Masse’s post. I’m not claiming any originality on my part here, I’m just trying to nudge the idea closer to common practice by suggesting a potentially interesting and fruitful area of application.)

Naomi Klein? Ann Coulter? Pat Buchanan? Michael Moore? Maybe they believe what they write, and would be willing to subsidize a prediction market out of their book royalties to demonstrate the strength of their convictions. Or how about the books from the current crop of U.S. presidential candidates—I wonder if these books contain any claims that are specific and substantive enough to be either true or false.

If such punditry-based prediction markets were common, mistaken-but-honest demagogues (those pundits who actually believe what they write, and are willing to stand behind it) would end up subsidizing more thoughtful analysts participating in the markets; correct honest demagogues would end up taking home larger financial rewards; and dishonest demagogues would dissemble, seek to avoid being pinned down on specific claims, and when pressed for actionable claims they would run and hide.

[Cross posted at Knowledge Problem.]

It would be a real public service to run well-conceived prediction markets based on the grandiose political pronouncements of the ‘chattering classes.’ Get the book author to cooperate in specifying a handful of significant, meaningful, testable claims that are discussed in the book. Get the publisher to subsidize the market maker (on the theory that the resulting publicity will sell more books). Let the author put his money where his mouth is. Assume Buchanan expects to make in excess of $100,000 in royalties from his book. Can he find 10 well-defined claims that he is willing to bet, say, $2,000 on? Even if his book is complete nonsense and he turns out wrong on every single one of his 10 claims, he’d still have over $80,000 in income from his nonsensical ramblings about “loss of sovereignty” and manufacturing jobs “vanishing”.

If I understand well, Mike Giberson is talking here about subsidized prediction markets. One could go further with decision-aid markets or decision markets…

UPDATE: Mike Giberson comments…

To be clear, when I refer to “his nonsensical ramblings about ‘loss of sovereignty’ and manufacturing jobs ‘vanishing’ “, I am speaking hypothetically (I.e. subsuming the “nonsensical ramblings” description under the “Even if…” clause at the beginning of that sentence. I haven’t read the book under discussion, and so am not (at this time) claiming Buchanan’s latest book is in fact nonsensical rambling. The point is that the offers implicit in a well-defined prediction market provide the opportunity for pundits of all stripes to “put their money where their mouth is” and thereby provide a test of the strength of their commitment to their claims.

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Drudge Report:

• Pax Americana, the era of U.S. global dominance, is over. A struggle for global hegemony has begun among the United States, China, a resurgent Russia and radical Islam.
• Bush’s invasion of Iraq was a product of hubris and of ideology, a secular religion of democratism, to which Bush was converted in the days following 9/11.
• Torn asunder by a culture war, America has now begun to break down along class, ethnic and racial lines.
• The greatest threat to U.S. sovereignty and independence is the scheme of a global elite to erase America’s borders and merge the USA, Mexico and Canada into a North American Union.
• Free trade is shipping jobs, factories and technology to China and plunging America into permanent dependency and unpayable debt. One of every six U.S. manufacturing jobs vanished under Bush.
• Sovereign Wealth Funds, controlled by foreign regimes and stuffed with trillions of dollars from U.S. trade deficits, are buying up strategic corporate assets vital to America’s security.
• As U.S. wages are stagnant, corporate CEOs are raking in rising pay and benefits 400 to 500 times that of their workers.
• The Third World invasion through Mexico is a graver threat to our survival as one nation than anything happening in Afghanistan or Iraq.
• European-Americans, 89% of the nation when JFK took the oath, are now 66% and sinking. Before 2050, America is a Third World nation.
• By 2060, America will add 167 million people and 105 million immigrants will be here, triple the 37 million today.
• Hispanics will be over 100 million in 2050 and concentrated in a Southwest most Mexicans believe belongs to them.

There’s matter here for long-term prediction markets.

Previous: Under this hypothetical scenario, the money would support a targeted advertising campaign to sell an Electoral College strategy to voters.

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The McLaughlin Group (MP4 file):

MR. MCLAUGHLIN: Issue Four: Back to Bloomberg.

Mayor of New York Mike Bloomberg may run for U.S. president as an independent. The political consequences of that option are more in focus this week. Mayor Bloomberg, by his social policy, is clearly seen to be that of a Democratic liberal. Bloomberg is pro-choice, pro-gun control, pro-gay rights, anti-Iraq and pro-immigration.

That being the case, Bloomberg will draw from the same well as Hillary. So if Hillary gains the Democratic nomination, she would find it very hard to win the general election. Bloomberg will be in the race, and Bloomberg will do to her what independent Ralph Nader in 2000 did to Al Gore; namely, take a decisive chunk from the Democratic candidate.

Lawrence O’Donnell, a committed champion of Hillary, what can Hillary do now to shield herself from the fatal damage that Mike Bloomberg could inflict on her?

MR. O’DONNELL: I’m a friend of all Democrats, not just Hillary. Listen –

MR. MCLAUGHLIN: Are you trying to ease out of the Hillary commitment?

MR. O’DONNELL: Hillary is not the one who has a problem with Bloomberg. Rudy Giuliani’s candidacy, if he’s the nominee, would be destroyed by Bloomberg. Bloomberg’s done a better job as mayor. And Giuliani also would lose support on the right, and then he’d have nothing left. And Bloomberg, by the way, could win the thing if he gets in there in a three-way race. He’s no Nader.

MR. MCLAUGHLIN: Republicans could vote for Giuliani and take the wind out of Bloomberg’s sails.

MR. BUCHANAN: John, Bloomberg will not win a single state. He does put New York State –

MR. O’DONNELL: Bloomberg can win New York. Bloomberg can win California.

MR. MCLAUGHLIN: We’re not talking about that.

MR. BUCHANAN: You think he’s going to beat Hillary in New York State? Are you kidding? He’ll draw off a million or 2 million votes. He’ll cede the state to the Republicans.

MR. MCLAUGHLIN: I want to know — but my question is, what is the story on Hillary in this? How does she evolve if Bloomberg gets in the race in July of next year?

MR. BUCHANAN: She can’t debate. She cannot have him in the debate with her and with the Republican because Bloomberg will kill her. She will not debate if he’s in the debate.

MS. CLIFT: I have enough confidence in Michael Bloomberg that if he thinks he’s going to be a spoiler and a Ralph Nader, he will not get into the race. That is not his purpose.

MR. MCLAUGHLIN: I know it’s not his purpose.

MS. CLIFT: Well, and it’s –

MR. MCLAUGHLIN: But it’s a de facto occurrence.

MS. CLIFT: No, it’s not, because –

MR. O’DONNELL: No, he can win.

MR. BUCHANAN: (Laughs.)

MS. CLIFT: — the party that’s cracking up is the Republican Party.

MR. MCLAUGHLIN: Where are you hearing that?

MR. O’DONNELL: Bloomberg can win.

MR. MCLAUGHLIN: He can enter the race and win the election?

MR. O’DONNELL: Look at the electoral map. Bloomberg can win California.

MR. BUCHANAN: He’s hearing it up in New York, John.

MR. O’DONNELL: He can win New Jersey. He can win New York. He can win all sorts of states –

MR. MCLAUGHLIN: Against the Democratic candidate?

MR. O’DONNELL: — that these other third-party candidates never could.

MR. BLANKLEY: Look, the thing you want to pay attention to in a third-party race is not necessarily the votes they get, but how they change the dynamic of a campaign. Perot didn’t take enough votes away to make a difference, but he changed the dynamic to the benefit of Clinton.

MR. MCLAUGHLIN: Do you think –

MR. BLANKLEY: And let me just finish the thought. Bloomberg spending a $1 billion could change the dynamic in ways we can’t imagine.

MR. O’DONNELL: Right.

MR. MCLAUGHLIN: Do you think it’s incumbent upon Hillary to do something to shield herself from Bloomberg? And, if so, what is it? Or do you need help? Lawrence O’Donnell?

MR. O’DONNELL: She doesn’t have to do anything now. Bloomberg has to make his decision. What she needs to do now is run the best possible campaign she can run so that her numbers –

MR. MCLAUGHLIN: But she must be distracted by Bloomberg.

MR. O’DONNELL: She just needs to keep her numbers up so that they intimidate Bloomberg.

MR. MCLAUGHLIN: But she knows that he could inflict fatal damage on her if he enters the race, the same way that Nader did.

MS. CLIFT: Hillary Clinton is a pro.

MR. O’DONNELL: Giuliani is in a panic over Bloomberg.

MS. CLIFT: Hillary –

MR. MCLAUGHLIN: Who?

MR. O’DONNELL: Giuliani is in a panic over Bloomberg.

MR. MCLAUGHLIN: Forget Giuliani. Let’s think about Hillary.

MR. BUCHANAN: Giuliani isn’t going to be the nominee.

MS. CLIFT: Hillary Clinton is a pro, and she knows there are a lot more twists and turns before Michael Bloomberg raises his hand.

MR. MCLAUGHLIN: Why can’t Hillary preempt Bloomberg?

MR. BUCHANAN: Romney or –

MR. MCLAUGHLIN: Why couldn’t [Hillary Clinton] put Bloomberg on her ticket?

MR. BUCHANAN: Another guy from New York? You’d lose the electoral votes of New York.

MR. MCLAUGHLIN: Would Bloomberg run as vice president?

MR. BUCHANAN: You’d lose the electoral votes of New York if you got two from the same state, John. This would elect Romney or it would elect Fred Thompson.

I think, with regard to Rudy, I think that would be a mess, because I don’t think Rudy –

MS. CLIFT: I love the way –

MR. MCLAUGHLIN: The fog is not clearing here. The fog is not clearing. What does Hillary do?

MS. CLIFT: She pays no attention to Pat Buchanan, for starters. And second, I love the way everybody has a scenario that works out so that their side wins. And now there’s a fly on Lawrence’s head — (laughs) — to complete the picture.

MR. BLANKLEY: It’s Bloomberg, the fly in the ointment (Laughs).

MR. MCLAUGHLIN: Exit question: Will Bloomberg, in 2008, be the political equivalent of Ralph Nader in ’00, a spoiler for the Democrats? Pat Buchanan.

MR. BUCHANAN: If he runs, he could finish off the Democrats.

MR. MCLAUGHLIN: Eleanor.

MS. CLIFT: He doesn’t get into the race if that’s what it looks like. And he’s too smart. He’ll make the right assessment.

MR. BLANKLEY: He has an extraordinarily high regard for himself. He might get in thinking he can win, and it could adversely affect the Democrats.

MR. MCLAUGHLIN: You sound as though you don’t care for his candidacy.

MR. BLANKLEY: No, I would never vote for him.

MR. MCLAUGHLIN: No conservative would vote for him.

MR. BLANKLEY: He’s a nanny stater. I don’t like nanny staters.

MR. BUCHANAN: No conservative would vote for him.

MR. MCLAUGHLIN: Are you sure of that?

MR. BUCHANAN: Yeah.

MR. BLANKLEY: He’s against trans fats, smoking.

MR. MCLAUGHLIN: He’s an extremely good and successful administrator. He has this program for New York that he brought forth a few months ago.

MR. BUCHANAN: Look, he’s against the burger Whopper, he’s against Winchester rifles and he’s against Winston cigarettes.

MR. O’DONNELL: Bloomberg is no Ross Perot.

MS. CLIFT: My kind of guy. (Laughs.)

MR. MCLAUGHLIN: Do you think –

MR. O’DONNELL: Bloomberg is no Ross Perot. He’s much better than Perot. Perot got 19 percent. Bill Clinton won the presidency in a three-way race at 43 percent. Bloomberg doesn’t have to get 50 –

MR. MCLAUGHLIN: Do you think –

MR. O’DONNELL: — he can win with 40 percent.

MR. MCLAUGHLIN: Do you think the Democrats are figuring out how to destroy Bloomberg?

MR. O’DONNELL: They will do that if it comes to it.

MR. MCLAUGHLIN: How will they do that? How will they do that –

MR. O’DONNELL: Well, they’ll try, but it will not work.

MR. MCLAUGHLIN: — when he’s got $5 billion?

MR. O’DONNELL: It won’t work. He’ll be impervious.

MR. BLANKLEY: He’s got more than $5 billion.

MR. O’DONNELL: He’s impervious to attack.

MR. MCLAUGHLIN: He’s impervious. You mean they can’t reach him?

MR. O’DONNELL: He’s not going to duck. He’s not going to hide on the issues. And there’s no horrible background story to try to tell about him.

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NEXT: Is it time to buy some Michael Bloomberg event derivatives?

Comprehensive Immigration Reform Act 2007 to be passed by House and Senate on/before 31 Dec 2007

MR. MCLAUGHLIN: So what’s the verdict on the surge strategy, to clear this up? Is it working or is it failing? Be brief, please. Pat Buchanan.
MR. BUCHANAN: It is not succeeding, but it has not yet failed.
MR. MCLAUGHLIN: Eleanor.
MS. CLIFT: It was never going to succeed, and it has failed.
MR. MCLAUGHLIN: John.
MR. PODHORETZ: It has not failed, but it is not yet succeeding. (Laughter.)
MR. O’DONNELL: I agree with John [Podhoretz] completely –
MS. CLIFT: (Inaudible.)
MR. O’DONNELL: I agree with that completely, and would phrase it as it is continuing to fail as of now.
MR. MCLAUGHLIN: The surge strategy is a failure. It’s not a state of suspended animation, as you say, John [Podhoretz].

Iraq – U.S. Troops will begin leaving Iraq soon.

© NewsFutures

[...] Lest we forget, Osama bin Laden was among the mujahideen whom we, in the Reagan decade, were aiding when they were fighting to expel the Red Army from Afghanistan. We sent them Stinger missiles, Spanish mortars, sniper rifles. And they helped drive the Russians out. What Ron Paul was addressing was the question of what turned the allies we aided into haters of the United States. Was it the fact that they discovered we have freedom of speech or separation of church and state? Do they hate us because of who we are? Or do they hate us because of what we do? Osama bin Laden in his declaration of war in the 1990s said it was U.S. troops on the sacred soil of Saudi Arabia, U.S. bombing and sanctions of a crushed Iraqi people, and U.S. support of Israel’s persecution of the Palestinians that were the reasons he and his mujahideen were declaring war on us. Elsewhere, he has mentioned Sykes-Picot, the secret British-French deal that double-crossed the Arabs who had fought for their freedom alongside Lawrence of Arabia and were rewarded with a quarter century of British-French imperial domination and humiliation. Almost all agree that, horrible as 9/11 was, it was not anarchic terror. It was political terror, done with a political motive and a political objective. What does Rudy Giuliani think the political motive was for 9/11? Was it because we are good and they are evil? Is it because they hate our freedom? Is it that simple? Ron Paul says Osama bin Laden is delighted we invaded Iraq. [...]

BetFair static chart for Giuliani:

© NewsFutures

The two-sentence excerpt run by NBC News (Brian Williams – Thursday, May 17, 2007):

They attack us because we’ve been over there. We’ve been bombing Iraq for 10 years.

And then Alan Greenspan’s spouse cut Ron Paul abruptly to give air time to Rudy Giuliani, who caricatured Ron Paul’s views and crashed him like he was aiding and abetting a Mid-East terrorist or something.

—

What Ron Paul really said:

They attack us because we’ve been over there. We’ve been bombing Iraq for 10 years. We’ve been in the Middle East [for years]. I think (Ronald) Reagan was right. We don’t understand the irrationality of Middle Eastern politics. Right now, we’re building an embassy in Iraq that is bigger than the Vatican. We’re building 14 permanent bases. What would we say here if China was doing this in our country or in the Gulf of Mexico? We would be objecting.

Ron Paul:

I believe very sincerely that the CIA is correct when they teach and talk about blowback. When we went into Iran in 1953 and installed the shah, yes, there was blowback. A reaction to that was the taking of our hostages and that persists. And if we ignore that, we ignore that at our own risk. If we think that we can do what we want around the world and not incite hatred, then we have a problem. They don’t come here to attack us because we’re rich and we’re free. They come and they attack us because we’re over there. I mean, what would we think if we were – if other foreign countries were doing that to us?

I am happy to see that both Donald Luskin (“in all seriousness”) and Pat Buchanan (who views him as a “serious” contender) like Ron Paul’s ideas. See the “Ron Paul 2008″ site for their reaction.

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- Ron Paul on CNN responding to Rudy Giuliani

- Ron Paul on Blowback