Platform Metrics (More Soon)
Platform operational: Since 2001
Total Predictions: 619,141,899
Average Daily Predictions: 169,589

This is just a preposterous misrepresentation of the volume of activity on the site.

The average number of contracts traded per day for the year to date is 9k, with a median of 8k. Those numbers are way up from 2010, before the change from high transaction fees to a small, flat monthly fee.

Since there is someone on both sides of each trade, it’s could be fair to say that each trade represents two predictions so you can double the trading volume if you are counting “predictions” instead. But counting predictions raises another problem.

If I think Sarah Palin will run and I place an order to buy 100 contracts, I have not made 100 predictions. I have made one prediction. (Even if I place an order today, and another order tomorrow, unless I am buying or selling at a very different price from the first order it’s a stretch to say that I’m making new predictions with every order.)

So there are at least two problems:

One is that it’s silly to call every contract a separate prediction when a single person, acting on a single point of view (e.g., Palin has a 25-30% chance of running) can buy or sell many individual contracts (buying at 24, selling at 31, for instance, without changing their “prediction” at all). And of course these trades often happen in blocks of 10 or 100 or 1000 contracts anyway.

Two is that whether you are counting, trades, contracts traded, or “predictions” you don’t get anywhere near the 170k daily “somethings” that Intrade is claiming. Unless…

Perhaps they are not only counting each contract as a separate “prediction,” even if a single order is for many contracts. Perhaps they are also counting every order, whether it is executed or not. That is, I put in an order to buy 100 contracts of Palin at 24, and they count 100 “predictions.” Then I put in an order to buy 500 at 10, and another for 1000 at 1, and another for 5000 at .1, and a sell for 1000 at 99… and by Intrade’s math I’ve just made nearly eight thousand predictions. and when I change the order for 100 at 24 to 100 at 24.1, that’s another 100 predictions. And when some bozo puts in an order to buy 5000 shares of something for a penny after the event has already happened, that’s 5k more “predictions.”

The urge to publish big, impressive numbers about activity on Intrade is understandable. Venturing into fantasyland to get there is just embarrassing.

Speaking of math, my very rough estimate is that Intrade is collecting twice as much per month in fees via the $5/month charge than they would have been based on the pre-2011 transaction fees.

This is good for Intrade, good for active traders, and horrid for smaller accounts. It’s also a short-term situation with a bad ending. Once the small accounts are mostly closed out or leeched down to a zero balance, then what? How many mid- or large-sized, reasonably active accounts are there? Within 2-3 years can one really expect there to be more than a few thousand accounts left? Some new big players may come into the mix if they see the good deal, but each one is only worth $60/year.

Even if you think Intrade will have 15k active accounts in a few years (which I don’t), that’s still less than a million dollars of top line revenue. Larger traders will probably tolerate an increase in fees at some point, but still I do not see how Intrade gets from the current situation to a future as a solid, profitable, growing company that is more than a flea compared to BetFair.

American Civics Exchange:

Having just executed an initial round of closings for the funding we’ve been raising, we’re entering the final run-up to our real-money trading launch. With that in mind, we’ve launched a community feature where prospective traders (and other interested members of the public) can propose political outcomes they’d like to see traded on the exchange.

You can submit your proposals here: http://amciv.com/ideas .

–> Google Prediction API – Machine learning for your business.

I would like to read what Nate Silver thinks of horse racing forecasting.

In part because of disappointing findings such as this, an increasingly popular substitute for expert opinions are so-called “prediction markets,” in which individuals buy and sell contracts on various outcomes, such as football game point spreads or presidential elections. The market prices for these contracts then effectively aggregate the knowledge and judgment of the many into a single prediction, which often turns out to be more accurate than all but the best individual guesses.

But even if these markets do perform better than experts, they don’t necessarily do a good enough job to rely on. Recently, my colleagues have started tracking the performance of one popular prediction market, at forecasting the outcome of weekly NFL games. So far, what they’re finding is that the market predictions are better than the simple rule of always betting on the home team, but only slightly so — which, oddly, is very similar to what Tetlock found regarding his experts. Some outcomes, in other words, and possibly the outcomes we care about the most, simply aren’t “predictable” in the way we would like.

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1. Prediction markets are not “a substitute for expert opinions”. They are a substitute for the averaged probabilistic predictions of a large group of experts polled the traditional way (by phone or by e-mail). In prediction markets, traders (who are not experts, most of the times) collect and aggregate facts and expertise at a lower cost than a poll or survey of experts.
2. In the research cited by Ducan Watts, the prediction markets are slightly more accurate than the competitive forecasting mechanism. Well, that’s something we are used to.
3. What Ducan Watts doesn’t say is that prediction markets integrate facts and expertise faster than the group of experts polled by his researching colleagues —for the very crude reason that it takes a certain time to survey a group of experts (be it by e-mail or by phone).

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If I can count, that’s 3 reasons why prediction markets can bring in business value:

1. lower cost;
2. better accuracy (relatively, and, overall);
3. velocity.

That said, it should be repeated that prediction markets feed on facts and expertise —so the experts remain indispensable in the general forecasting process.

No facts (e.g., political polls) –> No prediction markets.

No experts (e.g., NFL prognosticators) –> No prediction markets.

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Deep Throat is very impressed by how accurate the InTrade-TradeSports CEO’s 2005 prediction turned out to be. According to Deep Throat, the great Irish oracle “accurately predicted back in early 2005 in a PM conference in NY that someday the markets will make a horribly wrong prediction and that the [prediction market] industry will take a lot of s**t for it.”

Hummm….

Deep Throat is easily impressed. What about the prediction below, then:

• One of these days, a powerful hurricane will land in one of the southern states, and make billions of dollars in damage.

Vague and obvious predictions are of little help, here. An interesting thought to have, collectively, is how to prepare well in advance to counter such a backlash —as it is sure to happen again in the coming years. Due to the readers’ new behavior (using the Web to get their info), the conversational aspect of the Web (comments, bloggers responding to their peers), and the velocity of the bloggers (tempests in tea cups spread over one or two days, and then the bloggers move on), the answer is quality, impartial, exchange-independent, science-based, diligent, pro-PM blogging.

You will note that InTrade-TradeSports, BetFair, NewsFutures, and the other PM firms, are completely absent from the dialogue between anti and pro PMs. The BetFair blog has not published anything about the New Hampshire fiasco, and the InTrade bulletin has only put in writing, on a post, the post-NH market-generated probabilities —without adding any bit of analysis. Totally pointless and useless corporate publications.

As for me, I have worked hard to put our group blog, Midas Oracle, on the blogging scene. I will further this endeavor and announce new initiatives in the future —if I am able to do so.

Hollywood Stock Exchange has been providing Prediction Market services for many years. They have been in client negotiations on providing these services since 2001. See the long list of clients on the HSX website.