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BetFair:

Improvements to Betfair’s bet matching logic today, Monday 14th July:

What’s changing?
We’ve improved the code that matches bets. As well as matching backs against lays as we’ve always done, we’ll also try to match your bet against bets on other selections in the market. We‘ll give you an improvement over the price you‘ve requested where possible, and we‘ll match you against whichever bets get you the best price.

For example in a tennis market:

Roger Federer is 1.9 to back, 2.1 to lay.
Rafael Nadal is 1.8 to back, 2.0 to lay.

If you try to back Federer at 1.9 or less, previously we would have matched your bet against the customer looking to lay Federer at 1.9. Both bets would have been matched at 1.9, even if you‘d asked for a shorter price. In theory we could do even better than that though: we could match you against the customer trying to back Nadal at 2.0 (backing one player at 2.0 is of course the same as laying the other player at 2.0). Our new bet matching process will see which match gets you the better price. In this case we would get you 2.0 by matching you against the Nadal backer (who is offering a better price than the layer of Federer).

When placing a new bet you will only ever be matched by the new process if doing so gives you a better price than you would otherwise have got. We will match your bet at the best price possible that’s a valid increment on Betfair’s odds ladder, as we explained in our update of 6th June.

Does this only work for 2-runner markets like tennis?
No. The new matching logic works for any number of runners in a market. An example with a 2-runner market is probably easiest to understand, but the principle is the same for markets with 3 runners or more. For example if a football market looked like this:

Spain 2.3 to back, 2.5 to lay
Germany 3.9 to back, 4.0 to lay
The Draw 2.9 to back, 3.0 to lay

Then if you want to back Spain we could match you with customers looking to back Germany and the Draw at 4.0 and 3.0 respectively, which would result in you being matched at 2.4, a better price than you would have got had we matched you against Spain layers (who are only offering 2.3).

Which markets will this affect?
We’ll introduce the new code on Monday 14th July, but initially matching will be done exactly as before. As explained earlier in the year, introducing best execution across selections wasn’t possible without significant change to the existing code that matches backs and lays, so we will need verify that performance is as expected for the existing matching process before enabling the new functionality. All being well we’ll enable the new code for a small number of markets to ensure that everything is as it should be later on Monday. We’ll announce which markets on Monday. Again if all is well we’ll roll out to a wider range of markets on Tuesday.

We’d expect to match across selections on the same range of markets as we currently do:

Match Odds in Basketball, Boxing, Cricket, Ice Hockey, Rugby League, Rugby Union, Snooker, Tennis and Volleyball, Greyhounds win markets, Darts match odds, correct score and handicaps and Soccer match odds, HT/FT, correct score and unders/overs.

Horse racing will not be covered for now, due to the possibility of non-runners, and the new process isn’t applicable to markets where runners can be added (for example “Next manager” markets), where runners listed might not take part (e.g. First Goalscorer) or where the runners in a particular “market” are treated independently (e.g. Accumulators).

What about bets placed in error?
We’re aware of a concern that this change might make it more likely that customers would match bets placed in error, for example asking for 1.2 when you really wanted to back at 2.2. One consequence of the change we’re making is that any bet you place is more likely to get matched – making it easier to get a match is the whole idea. Being realistic though, if you had placed a bet in error like that in the past, in the vast majority of cases you would have been matched (against lays on that selection). There’ll now be far, far more circumstances where you would have been matched anyway , but instead you’ll now get a better price, than situations where your bet would have been unmatched and you might have had the chance to cancel. On average we would expect customers who place bets in error to be better off as a result.

On a related point, we’d also expect this change to make it more difficult for people who place “trap bets” to get matched (a trap bet is an offer that is only likely to be matched if another customer places a bet in error). While putting up “trap bets” is against Betfair’s terms and conditions and we close the accounts of persistent offenders, on an exchange where any customer can ask for any price it’s difficult to eradicate this practice. In most instances where a trap bet is the best price available on a selection, customers will in future be matched at better prices against bets on other selections rather than matching the trap bet.

How will the change affect liquidity?
We would expect the change to be beneficial to liquidity. Obviously if we have opposing customer bets in the system that could be matched, whether on the same selection or across different selections, the best thing for liquidity is to match them.

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Further to the above, we’ll be enabling the improved matching on the following markets later today.

Football:

Czech Republic U19 vs. England U19
FC Inter vs. MyPa

Tennis:
Andujar vs. Hanescu
Minar vs. Rochus

Greyhounds:
11:28 Sheffield
11:48 Oxford

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Take a look at the blogroll of the NewsFutures blog, which cites everybody but BetFair:

Recent Posts

UC Riverside’s eLab eXchange : featuring Competitive Forecasting and Idea Pageants
Demise of a Sarko Killer
Results of the Dutch Political Stock Market
Los Angeles conference on collective intelligence networks
Washington DC conference on prediction markets

Blogroll

Midas Oracle
Odd Head
Overcoming Bias

Markets Powered By NewsFutures

Davos Global Risks
eLab eXchange
NewsFutures Exchange
Yahoo! Tech Buzz Game

NewsFutures

Company Website
RSS FEED

Other Public Prediction Markets of Note

Hollywood Stock Exchange
Intrade
Iowa Electronic Markets

Frankly, I do believe that BetFair, the world’s #1 betting exchange, is “of note”, because of its great liquidity.

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Now, seriously, let’s re-read Mike Giberson’s take:

BetFair gives every impression of being a success at sports betting, but sports betting generally doesn’t generate a lot of U.S. press unless corruption of some sort is involved. (And, by the way, BetFair was mentioned in U.S. media in conjunction with the ATP match-fixing suspicions.)

Does BetFair have a Ron Paul contract? I can’t find the political markets on www.betfair.com. Ah, click on “BetFair Sports” scroll down through the list of “All Markets”, and there lies “Politics” between “Rugby League” and “Poker.” Select “USA,” select “Republican candidates.” Aha! There he is at “24” in decimal odds (or, alternately, at 23/1 standard odds). A quick calculation indicates an implied 4.1 percent chance of receiving the GOP nomination.

I suspect American reporters (1) find it easier to locate the American political markets on Intrade, and (2) find prices directly interpretable as probabilities easier to report.

Also, the charts are hard to find (hidden as a link attached to the name, but the name is just black text against a white background and gives no indication that a chart and other information is available by clicking the name). If a reporter finds the market, clicks on the hidden link, and clicks the “Inverse Axis” box under the chart, then finally the reporter gets an easy-to-interpret implied probability chart.

While BetFair obviously works for experienced bettors, inexperienced visitors are given little help in discovering information that readily feeds into news stories. If BetFair wants the free publicity, it will need to be easier for reporters to get what they want.

• QUESTION: Who the hell are you? You came out of nowhere, in June 2007, and in the space of three short months, you’ve become a Midas Oracle fixture. What’s driving you to writing on prediction markets?

I’m an economist with a PhD out of George Mason University. My research at GMU revolved around electric power markets, but while working with Vernon Smith and other experimentalists at ICES, and I was exposed to prediction markets. I write about prediction markets because I think about them, and I think about prediction markets because I find them fun, interesting, and potentially useful.

• QUESTION: I got it that professor Robin Hanson was your next-door colleague, during your stint at George Mason University. How can you describe him, on a personal level? Is he aloof or is a good chap? [chap = British lingo]

After finishing my PhD I had a one-year research position at GMU, and because of space constraints at ICES I was put into one side of Robin Hanson’s office. (This was not his main office on campus, just the one he had on the Arlington campus.) In my experience Hanson is an ordinary and nice person, who also happens to be extremely bright, holds a number of beliefs that many people would find strange, is fairly passionate about his beliefs, and is unusually willing to consider alternatives to those beliefs.

• QUESTION: Please explain Robin Hanson’s invention, the Market Scoring Rules, in 10 sentences maximum.

A “scoring rule” is a formula used to assess the quality of forecasts. Because a scoring rule can be used to assess quality of forecasts, it can also be used to reward forecasters. Hanson realized (i.e., invented the idea) that a group of forecasters could sequentially share a common forecast, with a scoring rule used to reward forecasters for incremental improvements made to the forecast. Hanson further developed his idea by describing how a prediction market could employ a market scoring rule to serve as an automated market maker.

While different market scoring rules are possible, Hanson noted that the logarithmic market scoring rule has a number of desirable properties, and that approach appears to have been most commonly adopted.

• QUESTION: Are you paid by Adam Siegel (the Inkling CEO) to blog about their prediction exchange (betting exchange)?

Unfortunately no, I’m an amateur. (Maybe someday someone will pay me for this stuff. Make me an offer.) I blog about Inkling because I use Inkling and I try to blog about what I know.

(I also blog about economics, energy regulation, music, technology and many other topics at Knowledge Problem.)

• QUESTION: Why do you prefer speculating on Inkling Markets as opposed to NewsFutures or the play-money InTrade-TradeSports?

I think a couple of things attract me to Inkling – I like that it uses a LMSR-based automated market maker, I like the user interface (or at least, I did up until Friday morning; not too sure about the recent changes). To some extent, that fact that I’ve been somewhat successful keeps me coming back – if I fell off the “all time” top ten list at Inkling, maybe I would devote more energy elsewhere. I guess social rewards work. But I like the “do it yourself” aspect a lot, it gives the place something of a bazaar atmosphere.

Probably, I should venture out more and expand my horizons.

• QUESTION: I am very reluctant to cite any of the Inkling prediction markets on Midas Oracle, as long as I’m uncertain of the reputation of who expire those event derivatives. Agree, disagree?

I agree. Expiration and poor contract definition and market abandonment are all problems that trouble the markets. (Some of these problems are not exclusively the province of the do-it-yourselfers.) I’m beginning to agree with you that Inkling should adopt some sort of reputation or reward system for market managers. Maybe a ‘top ten’ managers list ranked by activity. At the least, Inkling could append a list of current and expired markets at the bottom of the market manager’s user profile page. I’ve noticed a few users that manually list their markets on their profile page, and that is a start.

• QUESTION: I believe that there are two big conspiracies in America. Number one, they want to silence Ron Paul. Number two, they’ll do everything they can to avoid citing BetFair, the world’s biggest prediction exchange (betting exchange). I’m asking you, if BetFair gets the second most liquidity on US political prediction markets, why doesn’t BetFair get cited just after InTrade-TradeSports (the market leader in North-America)? BetFair is never mentioned anywhere. Not fair.

BetFair gives every impression of being a success at sports betting, but sports betting generally doesn’t generate a lot of U.S. press unless corruption of some sort is involved. (And, by the way, BetFair was mentioned in U.S. media in conjunction with the ATP match-fixing suspicions.)

Does BetFair have a Ron Paul contract? I can’t find the political markets on www.betfair.com. Ah, click on “BetFair Sports” scroll down through the list of “All Markets”, and there lies “Politics” between “Rugby League” and “Poker.” Select “USA,” select “Republican candidates.” Aha! There he is at “24” in decimal odds (or, alternately, at 23/1 standard odds). A quick calculation indicates an implied 4.1 percent chance of receiving the GOP nomination.

I suspect American reporters (1) find it easier to locate the American political markets on Intrade, and (2) find prices directly interpretable as probabilities easier to report.

Also, the charts are hard to find (hidden as a link attached to the name, but the name is just black text against a white background and gives no indication that a chart and other information is available by clicking the name). If a reporter finds the market, clicks on the hidden link, and clicks the “Inverse Axis” box under the chart, then finally the reporter gets an easy-to-interpret implied probability chart.

While BetFair obviously works for experienced bettors, inexperienced visitors are given little help in discovering information that readily feeds into news stories. If BetFair wants the free publicity, it will need to be easier for reporters to get what they want.

• QUESTION: The PopSci PPX betting exchange has plenty of technology and science prediction markets. I love them. Do you foresee the generalist prediction exchanges taking on science and technology, one day? If yes, why, and, if not, why not.

Science and technology markets are harder to do than sports or election picks. Expiration can be difficult, because science is naturally messy. Lots of gray areas will have to be sorted out in the contract well in advance. In addition, interesting science and technology questions often will play out over years (or decades). It is not obvious that such markets would offer a money making opportunity for a prediction exchange, nor sustain active trader participation.

But PPX is experimenting in a play money environment in which it is cheap to explore and discover what works and what doesn’t. I suspect that the generalist exchanges will continue to try out new ideas too. Maybe these fine people will sort it out. I don’t think it will become a big business for anyone anytime soon.

• QUESTION: The Sim Exchange has recently stated that it will open product quality prediction markets, using MetaCritic as expiry source. What kinds of quality prediction markets would be socially valuable? Any ideas?

I like SimExchange, they seem to be working pretty hard (and pretty smart) to make their business work. The quality markets struck me as a great idea. If I had half a clue about video games, I’d trade there.

Ideas for socially valuable quality markets? Are you assuming that improving video game industry forecasts is not socially valuable? I would suggest, in addition to improving video game industry forecasts, maybe Chinese toy manufacturing quality markets would be useful. Maybe U.S. toy executives would like to set up product recall prediction markets.

Actually, product recall markets may be useful, though since they involve very low probability events, some thought would have to be put into the design to make them interesting and potentially rewarding to traders.

• QUESTION: What’s your definition of a prediction market (betting market)? Of a prediction exchange (betting exchange)?

I don’t have a good answer here. What makes a good definition depends on the purpose you have at hand.

• QUESTION: What’s the best academic paper you’ve ever read on prediction markets? What’s the most didactic paper on prediction markets you’ve ever read?

I like both Hanson’s “Combinatorial Information Market Design” and the Rhode and Strumpf work on historical markets and manipulation. But like a good definition, a good academic paper depends on the purpose you have at hand. “Best” to me depends on what issues I’m thinking about at the moment.

On the other hand, maybe someone like George Tziralis who has made an effort to do a literature review could provide an answer. I’ve read too narrowly.

• QUESTION: Do you really think that the economists have made the case that (non-sports) prediction markets are socially valuable? Don’t you think that more comparisons are needed, especially in specific instances where the other tools could be dysfunctional? [WARNING: Biased question that takes the view that we need more special prediction markets, e.g., on project management or on some areas of demand forecasting, that can show a macro difference with the predictions from the other tools.]

I certainly am of the view that more comparisons are needed.

And by the way, did I mention that I work for an economic consulting firm? You can send us money and we will do analysis. So far we specialize in energy markets, but, you know, make me an offer.

• QUESTION: If you were at the helm of Midas Oracle (thank God and all the Saints of Christianity, you’re not), what would you do to improve the coverage on prediction markets?

I think readers would benefit from a somewhat more postings offering substantive engagement with issues and somewhat fewer postings that lack prediction market substance. (When I say “readers would benefit”, what I mean is “I want.”) Not every post needs to be a Chris Hibbert explainer, but judging from the comments on Hibbert’s most recent posting there is an audience ready for high level substance.

I’d also like to see more practical reports. We need to entice users of internal corporate prediction markets (and other approaches to aggregating information) to tell us their stories. For how many more years will we have to link to Bo Cowgill’s September 2005 blog post?

What works, what doesn’t, what is hard to get right, what problems are people having, and so on. Of course, people in the business of selling solutions generally don’t want to admit to having problems. Still, if we are going to push the frontier of knowledge forward, we’ve got to know where the frontier is.

• QUESTION: Do you have a visionary thing to say about prediction markets? Some kind of formal pronouncement we will re-read here in two or three years to see whether it has stood the test of time (and, hence, whether you’re a real thinker who matters, like Robin Hanson).

I think it is likely that within three years the signers of the Hahn-Tetlock letter will get what they’ve asked for. There is still political and bureaucratic work to be done to get it accomplished, but I think that effort will succeed. While personally I’d favor a much bolder proposal, it will be hard enough for American politicians to sign on to something like Hahn-Tetlock.

By the way, this is another reason ordinary companies doing ordinary business things like forecasting sales should report publicly on their experiences. Prediction markets need demystification.

As a share holder of Betbrokers, I find some of the comments made unfair and untrue. True, Betfair does have better prices than the norm but what if I want £2,000 on a horse at the 3.30, the show might be 7/4 and the price on Betfair is trading 2.72 – 2.74. My £2k will be done at about 6/4. One call to Betbrokers they will get me the price to my size by using the 100+ layers they have. My bet may be done in 200 £10 but I don’t care as I get the return I want at the price I want. I also like betting on NFL and Rugby Union and RugBY League total points markets. Their is no liquidity on these markets on the exchanges, I like to bet in £5,000 on these markets but find it hard to get on to the amount and size I want I have yet to have a problem getting these number of with Betbrokers.