2008 US electoral college: What I am betting on.

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I like the way they color this electoral college map &#8212-with 5 colors only (simplicity is good). It is very clear and usable, I believe. You can see 6 states in gray (&#8221-too close to call&#8221-). I am heavily betting on Barack Obama for Florida and North Carolina. There will be a good payoff, next Tuesday &#8212-maybe. :-D

Price for Alabama - Florida at intrade.com

Price for New Jersey - Rhode Island at intrade.com

Who will win Florida in the 2008 Presidential Election?

Who will win North Carolina in the 2008 Presidential Election?

Explainer On Prediction Markets

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 can be interpreted as the objective probability of the future outcome (i.e., its most statistically accurate forecast). A 60% probability means that, in a series of events each with a 60% probability, then 60 times out of 100, the favored outcome will occur- and 40 times out of 100, the unfavored outcome will occur.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism &#8212-with or without an automated market maker.

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. These event derivative traders feed on the primary indicators (i.e., the primary sources of information), like the polls, for instance. (Garbage in, garbage out&#8230- Intelligence in, intelligence out&#8230-) Armed with these bits of information, the speculators then trade based on their anticipations, which will be either confirmed or infirmed. Hence, the prediction markets (which are more than just an information aggregation mechanism) are a meta forecasting tool.

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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