A self-described pragmatist is somebody who lost his/her political compass.

The real pragmatist is the one who tells the truth:

1. Americans (including Robin Hanson, who signs Bob’s petitions) want to bet on sports.
2. Betting on sports is not “gambling”. – (PDF file)
   
3. There are ways to fight the problems associated with sports betting and Internet betting —see a little UK firm called BetFair.
4. We should favor the development of for-profit companies operating in the prediction market industry.
5. Adding sports prediction markets to the offerings is the only way to achieve profitability for prediction exchanges. What would be InTrade without TradeSports?
6. Sport is good for one’s health; sports betting is good for sports.

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Don’t you rate me as a “pragmatist”, doc?

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OK. Now, the beef.

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During the same period we’ve continually seen record volumes of bets. For example, the value of bets placed on Betfair last week was greater than for any previous week including Cheltenham or Aintree [which are big British horse racing events].

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My short thoughts on the CFTC announcement:

1. Nothing new..
2. No good. Sports prediction markets won’t be allowed by the CFTC (no matter), and, thus, the US-based event derivative exchanges will never be profitable. (Remember that HedgeStreet V1 went into bankruptcy, even though they were well funded.)
3. Going forward, we are going to see an opposition between people (like me) who favor prediction markets on all topics (including sports), and people who want the term “prediction markets” to define the socially valuable event derivative markets, only.
4. Speaking of differences of opinion, I was agreeably surprised by the liberalism of Joyce Berg of the Iowa Electronic Markets. “She said some guidance is definitely needed to make a distinction between these markets and gambling, but doesn’t want to see such markets regulated out of existence.” Great. Deep respect for Joyce Berg, after that.
5. Interesting people to listen to, with attention, in the coming weeks: Tom W Bell (who opposed CFTC regulation from the start), on one hand, and, on the other hand, Koleman Strumpf and Steve Levitt (who are both libertarian when it comes to gambling and betting). Event derivative trader Caveat Bettor will also be someone whom we expect comments from. [UPDATE: I forgot to add BetFair's Mark Davies in the list, and some others.]
6. Developing…

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UPDATE: See David Pennock’s comment, just below…

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Robin Hanson on “silly” research topics:

[M]ost people think futarchy (government by [prediction] markets) is silly, even though most think it has a decent chance of performing well [...].

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Decision markets and decision-aid markets are 2 great concepts pushed by Robin Hanson, the world’s #1 researcher in the field of prediction markets. But they are just inventions, not innovations. What is important is to find out which population segment or which class of business executives find this stuff productive and helpful.

In that perspective, his presidential prediction markets at InTrade are good ideas, and the liquidity there (helped by an AMM) is decent enough. But they are just betting supports, right now. I haven’t seen any opinion leaders taking them as a trusted source of information, which is the damn goal. We will see whether that comes true in the future.

If Robin Hanson were really serious in finding a killer app for his concept of decision-aid markets, he would of course come up with conditional prediction markets in the realm of sports, which is the most popular topic in the real-money prediction markets. Alas, I often have the impression that the academics in the field of prediction markets have profound disdain for sports prediction markets.

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Robin Hanson on seeking decision advice:

[...] We rarely seek out advice, and when we do it is usually on much smaller decisions. [...] One reason we avoid getting advice is that it lowers our status relative to those who give advice. Of course this is also makes asking for advice a good way to flatter and supplicate. Not sure if this explains the puzzle though. But all this doesn’t seem to bode well for fielding decision markets on the biggest organizational decisions.

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Allow me to digress from there. I think that the reading from the prediction markets is like an advice —in that you have to accept the market message as an authority. If you are an expert with direct access to primary sources of information, I don’t think you’d rely on the message from the public prediction markets (which are information aggregation laggards). The big mistake from Robin Hanson and the others has been to sell the public prediction markets as tools for the decision makers. That could happen, but marginally, I believe. Experts and decision makers will firstly want to rely on their primary sources of information and on their analysis.

I think that the population segment which is the more likely to appreciate the consumption of market-generated probabilities would be composed of people who want a chopper view of world events. Prediction market journalism should satisfy this dashboard need.

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[Please note that the thoughts expressed above refer to the public prediction markets (as stated in the post title --think BetFair-TradeFair, InTrade-TradeSports, Betdaq, HubDub, NewsFutures, and Hollywood Stock Exchange) ---not the enterprise prediction markets, which is a horse of another color.]

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Robin Hanson on decision-aid markets:

I don’t recall ever turning down a chance to consult on prediction markets for a Fortune-500 company. If you know of an opportunity that I’m missing, do let me know.

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Doc, are there more Fortune-500 executives and managers attending a conference on extra-terrestrials or a conference on finance?

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… asks ABC News (4 pages):

[...] NewsFutures creator Emile Servan-Schreiber believes that prediction markets like his are the “future of journalism.” [*] “It gives people the news of today and lets them give you the news of tomorrow in a probabilistic fashion by asking them to take bets on what is going to happen,” Servan-Schreiber said. [...]

While the money earned on NewsFutures isn’t real, Servan-Schreiber argues that prediction markets are an incredibly valuable tool. “I think of them as a brain,” he said. “You take a bunch of individually stupid neurons and put them together. Through massive interaction emerges intelligence. It’s the same thing with the market.” “The market really is smarter than the average player in there, and sometimes smarter than anyone in there, even the best player,” he said. This aggregation of many people’s opinions, Servan-Schreiber argued, produces an “incredible probability that the market prices really corresponds to the probability [of the event occurring].” [...]

“If you know nothing, you don’t participate,” he said. “It’s self-selection all the way. If you think you know something, and you don’t, you get eliminated very quickly.” [...]

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[*] Prediction markets are one of the many futures of journalism, I would say. Like Emile, I’m bullish on prediction market journalism. But, as I implied in my previous post (where I cited extensively the meager but smiling Mike Linksvayer), PMJ is not for everyone —it should be the response to specific needs.

An other little remark. If I agree that prediction market journalism has a future, I would say that it won’t pass by the so-called “mainstream media”. Indeed, look at their first page, where they cited prediction markets and their prices/probabilities: ABC News didn’t link to those prediction markets.

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Here’s my own short selection of NewsFutures prediction markets…

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Some delegates from FL or MI will be seated at the Democratic Convention.

© NewsFutures

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CERN will find the Higgs particle first.

© NewsFutures

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Microsoft will buy Yahoo! in 2008.

© NewsFutures

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Plenty of sports prediction markets here: baseball, basketball, hockey, auto-racing, American football, golf, tennis and soccer.

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#2. A sportsbook-like user interface (in addition to the 0–100 event futures interface) —a response to MatchBook (the darling of MajorWager).

Q: Briefly, what is Intrade?
A: InTrade is a marketplace, just like eBay or the NYSE, that provides innovative markets to trade, and the best darn predictive information on uncertain future events bar none!

InTrade is a prediction exchange (betting exchange) that organizes the trading of event derivatives. It specializes in non-sports prediction markets. (For sports prediction markets, see its sister site, TradeSports.)

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John Delaney:

A: [...] We listed a market on whether the U.S. Government would formally report that North Korea tested a missile in a certain manner. While the media reported that North Koreans did test a missile, it was not confirmed in an official U.S. Government release as was required in the market rules, so we settled the market according to the strict interpretation of the rules and not the understood intention of the market. This was understandably a real issue for some of our members and also for Intrade. It was a bad situation for everyone, really. We have learned from it.

The North Korea Missile prediction market has been the biggest scandal in this young industry.

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Event derivative trader “Vancheeswaran”:

BULLSHIT.

Bryan Whitman (Bryan.Whitman@osd.mil) explicitly stated in print, in press conferences, and by email that North Korea fired multiple missiles into the Sea of Japan.

For instance, “North Korea fired a long-range Taepodong-2 missile and six short- and medium-range Scud and Nodong missiles. All landed in the Sea of Japan without incident.”

National Security Advisor Stephen Hadley, in a press conference at the White House, stated that the missiles “went out about 275 miles” into the Sea of Japan.
http://www.whitehouse.gov/news/releases/2006/07/20060704-1.html

There are many other examples of the U.S. military and government (not just the press) confirming that the missiles were launched and approximately where they landed.

John Delaney is completely misrepresenting what happened, just as he did at the time of the launches.

Market Suspended – Martin Arguello v Nikolay Davydenko

Betfair Customer Services 02 Aug 18:45
Betfair has suspended settlement of the betting markets on this afternoon’s second round match of the ATP Orange Prokom Open in Poland between Martin Arguello and Nikolay Davydenko, pending investigation and consultation with relevant regulatory authorities. Betfair has had a Memorandum of Understanding with the ATP since 2003, and will use it to exchange information should it become necessary.

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All bets are void in Davydenko v Arguello match

Betfair Customer Services 03 Aug 11:46
Following consultation with the men’s professional tennis tour, the ATP, Betfair has decided to void all bets [*] placed on Thursday’s 2nd round match between Nikolay Davydenko and Martin Vassallo Arguello at the Orange Prokom Open. Betfair suspended settlement of bets at the conclusion of the match yesterday because of concerns over irregular betting patterns. The company has taken this action in the interests of maintaining integrity and fairness in all our markets.

[*] First time in the history of BetFair.

Times – Telegraph

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BetFair (which is a regulated betting exchange) has signed agreements with over 25 sports bodies and has an internal team looking for foul betting. TradeSports-InTrade (which is an unregulated betting exchange) has none. Thus, it is quite possible that some sports prediction markets at TradeSports are rigged. You will notice that nobody in America asks this tough question. (All US-based prediction market conferences being sponsored by InTrade-TradeSports, and all the US-based researchers being depend on InTrade-TradeSports data, no wonder.)

Midas Oracle and CFM are the only publications that tell you the whole truth about the prediction markets:

• the good side,
• and the dark side.

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ADDENDUM: The BetFair people do not send anonymous insults sent from fake e-mail accounts. They are professional and ethical people.

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Previous: BETFAIR DOES FIGHT VIGOROUSLY ANY ATTEMPTS AT MONEY LAUDERING. + BetFair on Responsible Gambling

NEXT: BetFair has an anti-fraud team whereas InTrade-TradeSports has none.

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#1. Great.

- Great for InTrade (TradeSports’ sister exchange). A good line on their resume.

- Great for the field of prediction markets: it brings additional credibility. If the prestigious Financial Times got into play-money prediction markets, then the choices made by a) other media/publishers b) a bunch of corporate beta testers (the big bank of A, the big retailer capital “Bs”, etc.) of internal prediction markets… are validated. Prediction markets (CDA or MSR) are not a fad, in my view. [DISCLOSURE: The author of the last sentence is biased like Hell. ] Accuracy reports and business cases should be coming, in the months and years to come.

- Great for the play-money traders: they get the quasi-equivalent of the real thing (InTrade-Tradesports, BetFair, and more generally, the futures exchanges) without taking financial risks.

- “Organic” CDA is their aim. Great. Down with the undisclosed automated market makers and algorithms!!! Down with proprietary, unpublished mechanism designs, like NewsFutures’ competitive forecasting!!! (Two remarks. NewsFutures uses CDA with AMM for its main prediction exchange, though. And MSR is great for the unsophisticated bettors, which is obviously not the case with the users of the Financial Times website.)

- The play-money traders get to use the best trading software for prediction markets (InTrade-TradeSports). And I hope that, later on, they will be using the InTrade API and thus be able to employ their order-entry and analysis software for prediction markets. That would be giant.

- The prize is huge. $25,000 (a global cruise for two) is quite a huge prize. Huge. Huge.

- My slightly-informed-but-not-documented impression is that The Financial Times is pretty serious about prediction markets, long term.

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#2. Not So Great.

- It’s only play money. – [For now. As I said above, I feel that The Financial Times is serious about prediction markets, long term. They need time to experiment and think it through.]

- The technology of play-money economies and exchanges is quite crude and unsophisticated. Number one, play money attracts cheaters, and exchange administrators deal with these cheaters manually. There is not efficient automatism to squash these thugs. Number two, handing out a small sum to traders makes no sense at all. A high-tech, play-money prediction exchange should be able to grant billions to each of their traders, so each of them could feel like a hedge fund manager. (David Pennock should have worked on that. )

- No sports. I regret this decision. The (play-money) sports prediction markets (from TradeSports) could have displayed, too —but separated from the game (and the $25,000).

- Impossible to embed dynamic charts into a blog post.

- InTrade-TradeSports has a history of customer dissatisfaction. They are used to mistreat complaining traders and critical bloggers. Todd Griepenburg was asked to go to Hell. As for me, I received a flurry of e-mailed insults from Ireland after that I had exposed the NKM scandal.

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.

- No DIY prediction markets. (Again, they could be separated from the game.)

- The use of the “predictive markets” keyword. Absurd. ALL markets are predictive. The right keyword is “prediction markets”.