Max Keiser: Cantor Exchange and Media Derivatives Exchange would be an insiders/traderss paradise.

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Max Keiser &#8211- 12:00 into (17,000 views already):

I disagree with Max that a prediction market quote can change perceptions that much.

Tobin Tax = a tax on financial transactions

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Sounds like Jason Ruspini shouldn&#8217-t lose sleep over it &#8212-it won&#8217-t happen:

Previously:

Paul Krugman Tries to Foist Specious Argument in Tobin Tax Debate.

Jason Ruspini is against the Tobin Tax.

At inception, I created an Internet usability category, and, since, I have published many Jakob Nielsen stories. Many wondered why I would bother. Now, the Midas Oracle readers can understand why.

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These traders are talking down the newly redesigned Hollywood Stock Exchange website.

[They guy above has misspelled, two times. He meant: “unusable“.]

Previously: #1 – #2#3#4

UPDATE: Traders talk on Twitter about HSX.

Thanks to the HubDub guy for the tip.

With regard to the 2008 US elections, both Justin Wolfers and Robin Hanson implied that BetFair is not as predictive as it should be.

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Previously: About Justin Wolfers&#8217-s column

Justin Wolfers&#8217- Freakonomics post (which suggests that BetFair would have a better predictive power if US traders could use it).

Do the top brass really tell everything to the trading employees? Do the EPM traders have access to all the primary indicators?

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Prediction markets: the future of decision-making – Companies are now making business decisions based on information employees provide via internal trading systems. – The Times of London – 2008-09-04

&#8220-We use them [“them” = the enterprise prediction markets] as another point in the decision-making process, alongside asking experts and other business leaders,&#8221- said Christina LaComb, a computer scientist in the R&amp-D lab at GE.

OK. You&#8217-re using enterprise prediction markets- you&#8217-ve gotten your name in the newspapers- you&#8217-re &#8220-cool&#8221-.

And our good friend David Perry&#8217-s gotten your money.

But do your event derivative traders have the same access as you do to &#8220-experts&#8221- and other &#8220-business leaders&#8221-?

Or do you leave them in the dark? In that case, your enterprise prediction markets would be clueless, useless, and worthless.

Prediction Markets in the Classroom: Inkling Markets

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hile prediction markets have been in the spotlight this year, they are still unfamiliar to many folks. As one small step towards improving their visibility, along with my colleague James Lemieux I ran a prediction market at the University of Kansas School of Business. The markets ran for three and a half months and almost all traders were undergraduate business majors (you can see the very end stages of the market at: http://kufin400.inklingmarkets.com, username: myfoxkc and password: myfoxkc).

These markets were quite popular. The 475 traders made over 27,000 transactions in the 139 available markets. As a matter of reference, that is about 200 transactions per market while in Google&#8217-s market this ratio is 260.

There was a mix of both socially redeeming topics (issues of interest to the Business School such as how many internships the undergrads would get this school year) and others designed to attract interest (politics, sports, entertainment, finance). I was surprised to see that passions&#8211- and trade volume&#8211- ran quite high even in the more serious markets. For example, one contract&#8217-s expiry was based on whether the XM-Sirius merger would be consummated by March. When the DOJ announced its approval at the end of that month, there was only a small price increase. As the comments below suggest, this was not because the traders were asleep at the wheel but rather because they had a good understanding of the regulatory environment.

Inkling Markets provided the platform for our markets (if you are unfamiliar with Inkling, they have active public markets which you can sample). Inkling&#8217-s software and support is really ideal for classroom markets. There are nice features for both the people running the markets (James and I) as well as for traders (the students).

For the market admin:

– it is a snap to set-up and administer new contracts

– Adam Siegel and Nate Kontny are very responsive to questions, often responding within the hour

For traders:

– an intuitive trade interface, which is accessible even for those without experience with financial markets (though this can be a drawback if you would also like students to become familiar with order books)

– lots of goodies (customizable profile pages, market-specific discussion boards, graphs) leads students to visit the market a lot

– the daily/weekly top traders list encourages participation

I would strongly recommend others give prediction markets in the classroom a try. I found them to be both a great pedagogical tool and also one which the students really, really like. Students learned first hand about the role of information discovery as well as the biases often seen in prediction markets (though I will add it was difficult to illustrate the home town bias given the success of the athletic teams at my school this year). Feel free to get in touch with me if you have questions about how to set-up your own classroom markets.

BetFair is experimenting a phenomenal revenue growth with sports prediction markets, as I am typing this post. Maybe our good friend the pragmatist could look into that, and report his research findings to the CFTC. Im sure hell do. The delicious sound of a red-hot cash register, with the dollars (o

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BetFair’s bet matching process stopped for one full hour on May 7, 2008, and their P.R. people are over-apologizing for it. They are apologizing for the problem, and for their slow response to affected customers &#8212-good move. They are also giving out 10 bundles of ?1,000 each to 10 affected traders chosen at random &#8212-a move I have mixed feelings with.

OK. Now, the beef.

General Formula for Equation of Exponential Growth

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].

Three different expontial growth functions

One un-hired job candidate and one HammerSmith employee tell all about BetFair Maltas combo market maker (trading algorithm + human market makers) operating on the multiples.

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Graham “Sharp” Minds, in a comment on Midas Oracle:

I am one of the people who Ed Murray has referred to in this blog. I was interviewed at Hammersmith by Betfair during the summer. For the time being I am going to concentrate on what Betfair has finally admitted from the past, present and future plans that betfair outlined to me.

&#8220-Loki Lab Rat 18 Mar 08:20 I can answer this one quickly. There is a trading team based in Malta which manages the risk around the multiples product. They have software which tells them what the risk is associated with a potential result is and suggests what hedge bets can be placed to mitigate that risk at current exchange prices. They then place the hedge bets to manage the risk. They place the bets using the same software as everyone else using the site and respecting any in-play delays.&#8220-

There is 3 objectives for the &#8220-Maltese&#8221- trading team, &#8220-Maltese&#8221- is in quotation marks because betfair were unclear to me about who and what parts of the trading team were still going to be based in London and those who were going to be in Malta.


i) Hedging
ii) Trading
iii) Arbing

All 3 amount to the same thing, Betfair playing their own markets.

On each of the 3 points

i) Hedging, this is what Betfair has admitted to and has been doing to from day 1 of the multiples. Betfair admit to taking the other side of the bet for the mutiples, so I guess like any other bookmaker it is only natural they &#8220-hedge&#8221- their bets to reduce potential liabilites.

However unlike traditional bookmakers, who will lay off a multiple when one runs up, the bets taken by Betfair multiples are placed directly back into the exchanges before they &#8220-run-up&#8221-.

This is one of the reasons behind the mutliple groups, they look at the back/lays placed on the mutiples for the first match and then the bets are placed into the exchange to reduce the liabilites and to cream off the difference between the price they have offered and that offered on the exchanges.

ii) Trading, this is what betfair are attempting at the moment, albeit unsuccessfully from what I last heard. Betfair have admitted they change their hedging positions, this by definition is trading. however the most serious aspect of their trading, is the in-running trading.

If betfair have accepted liabilities X &amp- Y for events A and B being the outcome of a match, then why would liability X for A or Y for B be no longer acceptable during a match unless there was an advantage to be gained by trading betfair’s position in-running?

Afterall, on betfair’s exchange with a 100% book, whether that 100% book was an efficient or inefficient, the net expectation of betfairs position would remain the same if they were trading hedging positions blindly to &#8220-balance&#8221- the liabilities.

In the instance of an inefficient market, if betfair were blindly trading (i.e. not using odds compilers, traders or other means to form an opinion on the market) in-running then there would be no net gain as betfair would be equally likely to be on the efficient and inefficient prices and the differences would average out.

iii) Arbing, this is betfairs ultimate goal for the multiples. If this new cross-matching bot is being called a superbot, then this will be the hyperbot. A bot which will perfectly arb the mutiple bets into the exchange so betfair can make money from it’s mutiples operation risk free.

But if betfair are denying that they never form an opinion to a market and place bets accordingly and they have no plans to do this in the future either. Then why are they covertly recruiting academics from universities, odds compilers from the bookmakers and recognised traders from their own customer base?

If betfair are playing their own markets, then what is to stop them abusing the position they have by owning the exchange. Having worked for several bookmakers in the past, I have yet to know one who would voluntarily wait 5 secs to place their &#8220-hedges&#8221-, wait in the queue like everyone else, make trading decisions according to the flow of money or not use their &#8220-warm sources&#8221- wisely.

Via Dave, Loki Lab Rat:

I can answer this one quickly. There is a trading team based in Malta which manages the risk around the multiples product. They have software which tells them what the risk is associated with a potential result is and suggests what hedge bets can be placed to mitigate that risk at current exchange prices. They then place the hedge bets to manage the risk. They place the bets using the same software as everyone else using the site and respecting any in-play delays. The line about &#8216-opportunities in-play&#8217- refers to the match situation and is nothing to do with beating the delay.

For example, when just about every favourite won their international Euro 2008 qualifiers in early June last year (known as &#8216-Black Wednesday&#8217- in some quarters), Moldova scored late-ish against Greece to square the match. The multiples team heavily laid the draw as the match drew to a close as it was a much better potential result than a Greek win. That meant that when Greece did score with the last kick of the game, our losses were mitigated to some extent by the hedge bets placed in-running.

The multiples product is run under Betfair&#8217-s Maltese bookmaking license and is regulated by the LGA there. Therefore the team has to be based in Malta. The operation is an arms-length operation &#8211- there is no special access to any functionality or data from the exchange.

Loki Lab Rat:

frog2, It is best I leave questions on cross matching for the Q &amp- A. I am not really that close to the project. I just thought I would answer the one on the multiples team to prevent any speculation getting out of hand.

Rab Bibater in a comment on Midas Oracle:

It is also pertinent that this team operates under Maltese jurisdiction- which of course puts it outside the scrutiny of the UK’s Gambling Commission!

However, I think there is also another issue that needs to be explored, and that is the general efficacy of a policy that allows Betfair’s own employees to trade on their exchange. Many people within Betfair have access to historical trading data unavailable to the broader betting public- such as what stables are backed and when- the significance of early money for particular horses etc- some are also able to access the betting records of individual persons. I specifically remember a comment made on Betfair radio concerning the boys in the office and how they had mopped up all the value regarding a particular horse from a gambling yard. The problem for Betfair, and one that is not likely to go away, is that nobody is sure any longer as to who it is they are actually trading against.

BetFair will answer some of Ed Murrays questions on Wednesday evening, March 19, 2008, between 6pm and 7pm (UK Time).

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Forum Q&amp-A Session

Betfair Customer Services 17 Mar 11:21

As announced last week we’ll be hosting a Q&amp-A session on the forum this Wednesday evening (19th March) between 6pm and 7pm (UK Time). The purpose of this Q&amp-A session is to answer questions regarding Betfair’s new bet matching logic. To help us get through as many questions as possible you can send them in advance to livechat@betfair.com. Unfortunately it is not possible for us to respond to each email individually but we will attempt to answer all questions raised via the live Q&amp-A session.

We realise that customers would appreciate the chance to have questions answered on other topics too, but we want to focus this initial session on just the new bet matching logic to ensure that we answer as many questions as possible. For those customers who have questions for Betfair that aren’t related to this topic we’ll be reintroducing regular forum Q&amp-A sessions over the coming weeks. We’ll post more information about those sessions nearer the time.

We hope you find this session helpful and informative.

Previous blog posts by Chris F. Masse:

  • Robin Hanson wants to rule the world —just as CEOs and heads of states do for a living.
  • Predictify got funded… Great for those who will be hired… But is it a good thing, overall?
  • Nassim Nicholas Taleb likens modern-day financial markets to medicine in the 1800s, when going to a hospital in London or Paris multiplied your risk of death by four times, he says. Similarly, quants increase risk by deploying flawed financial tools designed to reduce it, he argues.
  • TradeSports-InTrade — Check Deposits
  • BetFair Australia fought for free trade across Australian state boundaries… and won.