The prediction market industry ditches John Maloney -finally.

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It was about time, and it is good news.

From: Emile Servan-Schreiber, NewsFutures

To: all friends of prediction markets:

A number of us have been talking recently and we are in agreement that the existing forums for prediction market enthusiasts and watchers, owned and controlled by single individuals, are lacking. We think the industry deserves its own independent, open, community-owned discussion forum. As such, we have created a new Google Group dedicated to fostering and furthering high-quality open debate and communication about prediction markets: the R&amp-D, the theory, the practice, the industry developments and upcoming events.

We strive for an open discussion and we commit to run the group with transparency, openness, objectivity, and independence. But we also believe some ground rules are needed to maintain a high quality of conversation that minimizes advertising, second-hand PR, or anyone monopolizing the conversation. We think some vigilance along those lines will make a positive difference in the communication and discussion. We hope you do too!

To join our new discussion group, click here:
http://groups.google.com/group/prediction-markets-open-discussion

Sincerely,

Oliver Bernhard Pedersen
Jed Christiansen
Bo Cowgill
Forrest Nelson
David Pennock
Emile Servan-Schreiber
Adam Siegel
Justin Wolfers

http://www.pmindustry.org/

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The truth about (enterprise) prediction markets

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Paul Hewitt:

[…] In virtually every case, the prediction market forecast is closer to the official HP forecast than it is to the actual outcome. Perhaps these markets are better at forecasting the forecast than they are at forecasting the outcome! Looking further into the results, while most of the predictions have a smaller error than the HP official forecasts, the differences are, in most cases, quite small. For example, in Event 3, the HP forecast error was 59.549% vs. 53.333% for the prediction market. They’re both really poor forecasts. To the decision-maker, the difference between these forecasts is not material.

There were eight markets that had HP official forecasts. In four of these (50%), the forecast error was greater than 25%. Even though, only three of the prediction market forecast errors were greater than 25%, this can hardly be a ringing endorsement for the accuracy of prediction markets (at least in this study). […]

To the despair of the Nashville imbecile, Paul&#8217-s analysis is quite similar to mine (circa February 14, 2009):

The prediction market technology is not a disruptive technology, and the social utility of the prediction markets is marginal. Number one, the aggregated information has value only for the totally uninformed people (a group that comprises those who overly obsess with prediction markets and have a narrow cultural universe). Number two, the added accuracy (if any) is minute, and, anyway, doesn’t fill up the gap between expectations and omniscience (which is how people judge forecasters). In our view, the social utility of the prediction markets lays in efficiency, not in accuracy. In complicated situations, the prediction markets integrate expectations (informed by facts and expertise) much faster than the mass media do. Their accuracy/efficiency is their uniqueness. It is their velocity that we should put to work.

Prediction markets are not a disruptive technology, but merely another means of forecasting.

Go reading Paul&#8217-s analysis in full.

I would like to add 2 things to Paul&#8217-s conclusion:

  1. We have been lied to about the real value of the prediction markets. Part of the &#8220-field of prediction markets&#8221- (which is a terminology that encompasses more people and organizations than just the prediction market industry) is made up of liars who live by the hype and will die by the hype.
  2. Prediction markets have value in specific cases where it could be demonstrated that an information aggregation mechanism is the appropriate method that should be put at work in those cases (and not in others). Neither the Ivory Tower economic canaries nor the self-described prediction market &#8220-practitioners&#8221- have done this job.

Opacity versus Openness

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There is much lying going on in the field of EPM software vendors.

– They lie about the people they hire &#8212-many of the new employees are in fact part-time (at best).

– They lie about their customers &#8212-some of the names you see on their &#8220-clients&#8221- webpages are in fact companies that have abandoned the experiment long ago. By keeping old customers in their listing and adding some brand-new prospects, they create artificially a cumulative effect so as to impress the gullible prospects that they try to hook up at those pitiful $400-a-seat vendor conferences.

– They lie about the benefits of prediction markets. Since (enterprise) prediction markets are just information aggregation mechanisms that can&#8217-t reach omniscience by essence, the only value of (E)PMs comes from the weaknesses of the competitive forecasting tools. Those weaknesses are not that numerous &#8212-hence, the applications of (E)PMs are probably limited.

– They lie about the successes that their customers got. There isn&#8217-t a single detailed business case published about EPMs.

– They lie about the real age of the prediction markets &#8212-they make it like PMs are in childhood, whereas the reality check is that PMs are in adulthood. The first batch of contemporary PMs popped up in 1988 &#8212-that&#8217-s 21 years ago, folks. The starting point of the PM hype was in 2003&#8211-2004 &#8212-that&#8217-s 6 years ago, now. It is not true to say that (E)PMs are a novelty. By now, we should be able to pause, assess their benefits, and tell the world where exactly they can make an impact (if any).

Because the lying is still going on, I have decided to downgrade the prediction market people and the prediction market organizations who are opaque &#8212-and to upgrade the ones who are open. I hope that my tougher stance will incite everyone to be more truthful.

ADDENDUM

An uncertain future – A novel way of generating forecasts has yet to take off. – by The Economist – 2009-02-26

It is not about Midas Oracle… It is about taking part of the conversation about (enterprise) prediction markets on the Web.

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As an addendum of my recent post, let me clarify something. I was not talking about posting or commenting on Midas Oracle. I was talking, more generally, about prediction market consultants issuing statements (posted anywhere on the Web, and linked to from Midas Oracle) about the current state of the field and industry of prediction markets.

  1. If you are an economist, and have nothing to say about the current banking, financial and economic crisis (the worst in our generation), then you don&#8217-t matter anymore.
  2. If you are a prediction market consultant, and have nothing to say about the negative piece from The Economist, then you don&#8217-t matter anymore.

It is a tough reality&#8230- get used to it, folks.

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Google rewards those who take part in web conversations about (enterprise) prediction markets.

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Scanning the results for the query on &#8220-prediction markets&#8221-, I see that, focusing on the software vendors and prediction market consultants incorporated after the 2003&#8211-2004 starting point (hence, excluding pioneer NewsFutures), Inkling Markets is ranked much higher than Consensus Point.

  1. No need to wonder why. Adam Siegel (the Inkling Markets CEO) is an active participant in the discussion &#8212-thru his blog, thru comments on Midas Oracle, and thru private e-mails. (I told many times Dave to catch up. Pissing in a violin in order to compose a symphony would have been more fruitful.)
  2. Having a prestigious &#8220-Chief Scientist&#8221- is not such a determinant. It only impresses a few young, inexperienced and gullible spotty collegians. What makes the difference on the Web is your openness &#8212-more exactly, how much high-quality information you are willing to publish, free of charge, free of advertising, and free of copyright. Take a look at Inkling Markets. Adam Siegel has made the hell of an effort to make available many explainers and case studies on enterprise prediction markets. I don&#8217-t agree with everything he says, but I reckon that he is the only one to make the effort to reach out to web readers.

In the end, whether the judge is Google or Chris Masse, the passing of time is important. It allows us to see thru prediction market people. There are those who matter &#8212-and those who don&#8217-t.

UPDATE:

Google PageRank:

Inkling Markets: 6 / 10
Consensus Point: 5 / 10

Transparency is an Imperative, but so are Speed, Access and Understanding.

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InTrade:

Transparency is an Imperative, but so are Speed, Access and Understanding

Tuesday, Oct 14, 2008

TRANSPARENCY IS AN IMPERATIVE, BUT SO ARE SPEED, ACCESS AND UNDERSTANDING
Prediction Markets Have a Big Role to Play

Historic volatility, unprecedented coordinated bailouts, nationalizations, and bankruptcies of some of the doyennes of the financial elite are just some of the new realities we are all faced with.

Many may well be impressed with the speed and scope of the response to this crisis. I am, but it seems to me that Intrade and all in the prediction market industry have an increased obligation and opportunity to contribute to solutions in avoiding future crises.

Since Enron, WorldCom, Tyco et al and again since this crisis ignited we are being told that maximum transparency, disclosure, and better risk management tools are the answer. These solutions are exactly what prediction markets look to and can deliver.

But is something really transparent if it is buried within a 200 page document or if you need a degree in accounting to decipher it? Likewise, if the costs of producing or gaining access to the information is such that only a few benefit, is that maximum transparency and disclosure?

The Sarbanes-Oxley Act (SOX) introduced after the Enron / WorldCom debacles is considered a success by most. However, in light of recent events and comments from Henry Paulson, John Thain and even former AIG chief Hank Greenberg, who all believe SOX threatens the US competitive position in the global marketplace, it hardly seems a panacea.

This is where prediction markets can really help now and in the future. We offer real-time aggregated collective intelligence that is easy to access and interpret. E.g. recession, tax rates, unemployment, offshore drilling, OPEC actions, bank failures, etc. Prediction markets provide a single number &#8212- the probability or risk of something happening. Right now there seems to be a 75% probability that the US will be in recession in 2009.

To get the best predictive information barriers to entry for participants and providers must fall so that adoption and diversity can grow. To contribute their maximum to society (which we expect will befit Intrade and other leaders in our industry) prediction markets need to be embraced, encouraged, and considered part of a solution to managing risks and change. Only when this happens will there be such diversity and adoption that the markets can reach their full potential in aggregating information on the most important issues.

In addition to new and revised regulations, the time is right for expanded coverage of those regulations to include prediction markets and the innovative solutions they offer. If ever there was a time to embrace innovative solutions for assessing and managing risk it seems that time came before I started to write this short note.

Prediction markets are far from perfect, but they typically deliver incentivized real-time, efficient, aggregated probability estimates on uncertain future risks and events. They have never had a more important role and potential than right now.

I welcome your comments.

John Delaney

CEO

Intrade

john.delaney@intrade.com

Previously: What John Delaney told the CFTC.

InTrade-TradeSports has a web server misconfiguration problem, and CEO John Delaney has a character problem.

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As I wrote at the time, the InTrade-TradeSports websites were unavailable, last Friday, August 29, 2008, during a good part of the morning.

InTrade-TradeSports is not only an event derivative exchange, but also a webspot that non-trading people often consult to get the latest market-generated probabilistic predictions. Last Friday, in addition to the traders, many people visited InTrade just to see what their prediction markets were saying about who would be John McCain&#8217-s pick as Republican vice presidential nominee. InTrade-TradeSports CEO John Delaney has said that that Friday saw 10 times more web visitors than any usual peak day, and that their server bandwidth was not large enough to cop with all solicitations. It is well known in the media business that servers should be configured many times bigger than for the normal usage &#8212-so as to accommodate exceptional peak times, when some impacting news break. My sentiment is that the InTrade-TradeSports technical team has probably not fully anticipated the growth of the InTrade-TradeSports followers.

As the result of this black Friday, some traders complained. One trader (Todd) started a thread on the InTrade e-mailing list. Unfortunately, Todd spiced his message with sarcasm. Which immediately irked John Delaney, who responded to the complaint, but also added a twisted line in effect inviting Todd to close his InTrade account.

That remark offended another InTrade-TradeSports trader (Lucy Vega), who talked back to John Delaney:

BetFair and InTrade-TradeSports are de facto monopolies (with 95% of the total business on their geographical zone, according to my estimation), and their direct competitors have far less liquidity, thus making them uninteresting for the big traders like Todd.

If John Delaney were really sincere in his wish to see the US public prediction market industry becoming legalized and experiencing a big growth in the coming decade, he should refrain from making offending remarks to his customers &#8212-even when those clients started the feud with some sarcasm of their own. This kind of bullying behavior could attract the attention of the US regulators in a negative way, which is exactly the reverse of what is needed at this time.

I can understand that John Delaney is sometimes upset by some of his ultra-demanding and sarcastic customers. However, as I said, the real-money prediction exchanges are in a situation of being de facto monopolies, where their market-generated information is of high social utility, which creates a social responsibility for the executives and managers of these prediction exchanges. You don&#8217-t insult and castigate a blogger who exposes a scandal. You don&#8217-t censor the CNBC reports. You don&#8217-t ask a complaining customer to close his / her account. All those things are big no-nos.

UPDATE

I am re-publishing an old post of mine, as an appendix, to respond to some comments:

Dan Laffan of InTrade has just given me permission to republish his e-mail(s) to Todd Griepenburg:

Todd,

We will absolutely not continue to be part of or facilitate any further diatribe with you on these issues.

If you are not satisfied that we
1. Have listened to your comments
2. Have replied to same and
3. Will take or have taken whatever corrective action is within our power and/or appropriate
then we reluctantly suggest that you consider closing your account on the exchange (or cease using it until our service meets your expectations). We say “reluctantly” as we do not wish to see any member leave, but we seem to be causing you immense dissatisfaction which is not our intention.

We will promptly close your account and return any funds you have in your account at your request. We await your decision and instruction.

Best regards,
Dan

Previous: A Big Trader’s Open Letter to TradeSports-InTrade + Second E-mail to InTrade-TradeSports + Third E-mail to InTrade-TradeSports + InTrade-TradeSports to Todd Griepenburg: GO TO HELL.

Dan Laffan to Todd: #1 – #2

InTrade to Todd

UPDATE #2

For the full information of my readers, InTrade-TradeSports&#8217-s behavior is not the worst behavior that a prediction exchange can have towards an annoying customer. I am aware of another real-money prediction exchange who does close the accounts of the customers whom they view as problematic (and that, without citing any reason) &#8212-as opposed to just asking somebody to leave.

UPDATE #3:

Todd&#8217-s new message to John Delaney

InTrade DOT NET – www.intrade.net

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This post is a very short review of their new website. I might publish a deeper review, later on.

The log line is that InTrade CEO John Delaney has ingested all the innovations that HubDub has brought to the prediction market scene since January 2007 (e.g., long and rich prediction market webpages that are indexed by the search engines, and use of social networking to boost trading) and has asked his technological team to clone those innovations for InTrade. This is great. I also appreciate that their charting system is satisfying. (The advanced charts seem to be of the right size, I have noticed. Neither too small, nor too big.)

On the negative side, the execution is not as good as it should be &#8212-and I&#8217-m polite. But to be fair with them, they say their website is still in &#8220-beta&#8221- &#8212-so let&#8217-s give them time to improve their work.

Overall, it&#8217-s a good move, and it shows, as I have said for months, that Nigel Eccles of HubDub is having a profound impact on the prediction market industry.

UPDATE: I forgot to mention that InTrade.net presents probabilities expressed in percentage, not prices, which they also took from HubDub.

Presumptuous

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Jed Christiansen will never be a cheerleader for the prediction market industry as long as he holds those wrong views about betting on sports.

InTrade-TradeSports CEO John Delaney and HubDub CEO Nigel Eccles might be seen as &#8220-prediction market gurus&#8221-, at least by some &#8212-I doubt very strongly that many industry people will add Jed in the list, after they have read the conformist bullshit that he sent to the CFTC.

We are still waiting Jed&#8217-s reaction on Sean Park&#8217-s comment. Cat got your tongue, Jed? At other times, we couldn&#8217-t stop you.