Now that Joe Biden is the Democratic vice president nominee, what to think of Justin Wolfers August 1st column for the WSJ?

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The good point is that he dealt well with the fact that the VP prediction markets fed on primary indicators that are less reliable than the ones used for the political elections.

The bad point is that, at the time he wrote up his column, Virginia governor Tim Kaine was the favorite of the InTrade VP prediction markets. The others were, in decreasing order, Evan Bayth, Kathleen Sebelius, and then&#8230- Joe Biden. So, the critic reading his column today could say that the prediction markets are oversold to a gullible public and that a prediction market bubble ready to pop up is forming under our very nose.

– Now, we know that Barack Obama made his decision while vacationing in Hawaii (less than 2 weeks ago). That&#8217-s only from that date that the VP prediction markets started generating probabilistic predictions worth quoting. The trick is that Justin Wolfers (and the other prediction market analysts) didn&#8217-t know that, on August 1st. (PDF file)

– I don&#8217-t regret my decision not to publish about the VP prediction markets. I&#8217-d look like an idiot today.

The vetting of the many potential Democratic vice president nominees was not as secretive as I thought. – Bo Cowgill was right, in hindsight.

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The New York Times has a recount on how Barack Obama reached his decision on Joe Biden. The final decision was probably made 10 days ago, while Barack Obama was vacationing in Hawaii.

[…] Mr. Obama’s decision had as much to do with Mr. Biden’s appeal among white working-class voters and compelling personal story, and his conclusion that the Delaware senator was &#8220-a worker.&#8221-

The important information in the NYT piece is that Barack Obama personally called governor Bill Richardson &#8220-late last week&#8221- to announce him that he was not considered anymore. That&#8217-s around the time the Joe Biden rumor began to have more weight in the media circles &#8212-see the InTrade chart below.

Bo Cowgill, back in May 2008 (when I started to act as a prophet of doom):

This is dumb. Cover them if something interesting happens. Maybe your theory will turn out to be wrong. Anyhow: Although the decision is made in secrecy, the Presidential nominees have a number incentives which we have plenty of information about. Specifically:
* They want someone who will balance their tickets in terms of geography, race and class.
* They want someone who will help with weak areas of their campaigns.
* They want someone who will be a good campaign surrogate — giving good speeches and attacking the opponents effectively.
* They want to avoid a VP who will de-motivate or offend the base.
* They want to avoid someone with a bunch of skeletons in the closet such as angry ex-wives, out-of-wedlock kids, etc.
* Etc etc.
Anyhow, I don’t see any reason to ignore these markets in case something interesting happens. I read Midas Oracle so that I don’t *have* to read a whole bunch of other websites!

Bo Cowgill was on the right track, now that I think of it &#8212-in a society where everything leaks out.

On the opposite of the spectrum, Tom Snee was too much extreme in his view:

According to Tom Snee of the Iowa Electronic Market, at Iowa University, futures markets need more hard information than they get in the veepstakes, to reliably predict a result.

Markets are very good at predicting elections, he says – but not choices being made inside Barack Obama&#8217-s or John McCain&#8217-s head.

Justin Wolfers was more measured.

So, Bo Cowgill and Justin Wolfers are the winners, on that one.

I was partially wrong. I am a bit too extreme, sometimes. (Did someone else notice that? :-D ) I need to learn more about&#8230- granularity.

PS: On the Republican side, now&#8230-

Price for 2008 Republican VP Nominee (others upon request)(expired at convention) at intrade.com

Who will be the Republican Vice Presidential Nominee?

Barack Obama + Joe Biden – THE PREDICTION MARKETS NAILED IT… triple alas (for my reputation as a world-wide prediction market pundit, and for the debate on the different quality of the various primary indicators out there).

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“Friend &#8212- I have some important news that I want to make official. I’ve chosen Joe Biden to be my running mate.”

Some blogger says his wife is fantastic.

New York Times portrait of Joe Biden.

UPDATE: Barack Obama&#8217-s speech + Joe Biden&#8217-s speech

I think it is the worst pick ever. What a blunder. Joe Biden (a D.C. insider) is unpopular and gaffe prone. Plus, that choice shows that Barack Obama is insecure when it comes to foreign policy. An emphasis on the economy and, thus, on a successful gubernatorial experience would have been better.

Kathleen Sebelius was the one to pick. She is my vice president. (And Ron Paul is my president. :-D )

I have over-estimated the secretiveness of Barack Obama&#8217-s decision process. The chart above obviously shows that the Joe Biden narrative leaked out to reporters was beamed out for a purpose: testing the Obama-needs-a-VP-who-is-strong-in-foreign-policy argument, and letting the Press do the final vetting on gaffe-prone Joe Biden.

InTrade CEO John Delaney (along with the HubDub and BetFair people) will now brag on his marketing material that his prediction exchange did forecast Joe Biden as the Democratic vice president nominee.

What&#8217-s bad in all that (other than I have an egg on my face [*] ) is that we won&#8217-t have a public debate on the different quality of the various primary indicators, and how that conditions the accuracy of the prediction markets.

[*] I have an egg on my face, but Caveat Bettor has a whole omelet on his. :-D

Never trust a politician.

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While InTrade CEO John Delaney is deceiving the journalists to sell his wares, Tom Snee of the Iowa Electronic Markets is telling them the truth: BEWARE THE VP-CANDIDATE PREDICTION MARKETS, THEY JUST AGGREGATE RUMORS.

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BBC News:

According to Tom Snee of the Iowa Electronic Market, at Iowa University, futures markets need more hard information than they get in the veepstakes, to reliably predict a result.

Markets are very good at predicting elections, he says – but not choices being made inside Barack Obama&#8217-s or John McCain&#8217-s head.

Thank God for the BBC.

Thank God for the Iowa Electronic Markets.

Shame on John Delaney &#8212-over 3 generations of Delaneys.

Other than Tom Snee (the IEM spin doctor), Chris Masse and Justin Wolfers are the only prediction market analysts to have sent out warnings about the VP-candidate prediction markets.

ENDLESS VEEPSTAKES: Why you should never trade on VP prediction markets, and why their probabilistic predictions are as stochastic as Paris Hiltons daily dress picks.

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As I explained in early June 2008, the VP speculations that appear in the Press should never be taken seriously. Most of them (and you don&#8217-t know which ones) are a big orchestration of pure lies aimed at creating publicity, or wicked lies in the form of trial balloons. The aims of the political campaigns are to:

  • creating suspense (sometimes false) so as to generate free publicity-
  • sending a positive message to the supporters of each VP candidate-
  • letting the Press do the vetting of the VP candidates-
  • flattering the political journalists by leaking to them-
  • sending out false leaks so as to preserve the surprise for the scheduled announcement day-
  • sometimes, buying time to impose the head of the VP search committee as the most serious VP candidate (remember Dick Cheney in 2000). [Psstt… Funny enough, in the 2008 election, Michael Moore is pulling for Caroline Kennedy. :-D ]

All that means that there are no good primary indicators for the prediction markets on the Democratic and Republican VP-candidate selections.

I want to offer 6 remarks:

  1. Not all prediction markets are created equal. Some have good primary indicators (e.g., the prediction markets on the presidential elections, thanks to polls), while some other prediction markets have unreliable primary indicators (e.g., the prediction markets on who will be on the ticket).
  2. The prediction exchange executives (like InTrade-TradeSports CEO John Delaney) will never tell you that, because their job is to sell their wares, of course.
  3. The public needs prediction market analysts, who can judge the quality of the primary indicators of one particular prediction market, so as to separate the grains from the shaft &#8212-reliable prediction markets from unreliable prediction markets. (A prediction market analyst has also other functions, which I will blog about later on.)
  4. A prediction market analyst should have a dual competency &#8212-in a vertical (in our example, US politics), and in prediction markets.
  5. The expertise in the vertical (here, politics) should be a major, and the expertise in prediction markets should be a minor. Take a look at these 2 mainstream media news stories: the one written Jack Shafer in Slate (which I linked to at the top of this post), and the one written by Justin Wolfers in the Wall Street Journal. Obviously, the one that shows the most mastering is the one written by Jack Shafer, an American professional journalist who follows US politics for a living.
  6. The consequence of that for prediction market journalism is that the writer should be an expert in a vertical, and the editor should be an expert in prediction markets &#8212-and not the other way around.

That said, I wish the very best of luck to our good friends Caveat Bettor (who is betting on Tim Kaine) and Nigel Eccles (who is predicting Joe Biden). :-D

UPDATE: My (informal) Democratic VP-candidate bet is on Kathleen Sebelius. Hint, hint.

UPDATE: Gawker says that Joe Biden would be a horrible choice. I agree. Plus, he has denied to be the pick. He could have lied to reporters, though.

UPDATE: New York Times publishes portraits of all VP candidates.

DEVELOPING&#8230-

NEXT: While InTrade CEO John Delaney is deceiving the journalists to sell his wares, Tom Snee of the Iowa Electronic Markets is telling them the truth: BEWARE THE VP-CANDIDATE PREDICTION MARKETS, THEY JUST AGGREGATE RUMORS.

Share:

Dont trade on the VP predictions markets. – Dont bet on Hillary Clinton as VP. – Dont listen to betting bloggers who tell you that Hillary Clinton has a chance to be on the Democratic ticket. – Dont believe in vice presidential selection committees. – Select well your primary, advanced indicators. –

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The topic of this post is:

Betting &amp- Information

#1. Don&#8217-t trade on the VP predictions markets.

I have stong reservations about those VP prediction markets. Only 2 men in the world know what is going to happen: Barack Obama, and John McCain.

You can&#8217-t divine their final thoughts.

Politicians often lie about their intentions &#8212-they also change mind, frequently.

The decision to name one VP nominee could be made in secret &#8212-without any early warnings.

Surprise is a card that Barack Obama and John McCain could play. Don&#8217-t bet against their final will.

#2. Don&#8217-t believe in &#8220-vice presidential selection committees&#8221-.

Last time, in 2000, a man named Dick Cheney was appointed to head George W. Bush&#8217-s vice presidential selection committee.

He was supposed to scout around to find and assess good candidates.

Surprise, surprise, that fake committee ended up putting Dick Cheney on the Republican ticket &#8212-and the rest is history (Iraq war, etc.).

#3. Don&#8217-t bet on Hillary Clinton as VP.

She does not have the slightest chance.

It&#8217-s highly unlikely that Barack Obama selects her on the Democratic ticket.

Hillary Clinton as VP nominee (and as VP) would present many quasi insurmountable problems.

#4. Don&#8217-t listen to betting bloggers who tell you that Hillary Clinton has a chance to be on the Democratic ticket.

They are clueless.

Don&#8217-t read clueless people. They are a waste of time.

#5. Select well your primary, advanced indicators.

  1. Go to the sources of information. Discard filters. Your insatiable curiosity should drive your search for information.
  2. Use technology to select the best news articles out there. Bookmark Memeorandum for US politics (and TechMeme for information technology) &#8212-they use bloggers&#8217- links to select what&#8217-s hot, a bit like Google&#8217-s PageRank does.
  3. Use the crowd to sense what&#8217-s hot or to discover marginally interesting tidbits. I have 56 friends on Google Reader who share their best items with me. I got many interesting stories that way, every day, from sources I would have never known about, otherwise. (Plus, I receive many e-mails each day from potential sources.)

#6. Choose your bets (and trades) carefully.

Just because an event derivative is cheap doesn&#8217-t mean that it&#8217-s a good bet.

Don&#8217-t pluck down money on a bet unless you&#8217-ve seriously researched the topic by yourself &#8212-and possesses some expertise or experience in that field.

FOLLOW-UP POST: 2 days after my ringing the alarm bell… THE FREE FALL

InTrade

Democratic Vice President Nominee

Price for 2008 Democratic Vice-Presidential Nominee at intrade.com

Price for 2008 Democratic Vice-Presidential Nominee at intrade.com

Price for 2008 Democratic Vice-Presidential Nominee at intrade.com

Price for 2008 Democratic Vice-Presidential Nominee at intrade.com

Republican Vice President Nominee

Price for 2008 Republican Vice-Presidential Nominee at intrade.com

Price for 2008 Republican Vice-Presidential Nominee at intrade.com

Price for 2008 Republican Vice-Presidential Nominee at intrade.com

Price for 2008 Republican Vice-Presidential Nominee at intrade.com

BetFair

Next Vice President:

Democratic Ticket

Democratic Vice President Nominee

Republican Vice President Nominee

NewsFutures

Barack Obama will pick a woman as running mate.

© NewsFutures


Explainer On Prediction Markets

Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that traders bring when they agree on prices. Prediction markets are meta forecasting tools that feed on the advanced indicators (i.e., the primary sources of information). Garbage in, garbage out&#8230- Intelligence in, intelligence out&#8230-

A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays $100 only if candidate X wins the election, and $0 otherwise. When the market price of an X contract is $60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative can be interpreted as the objective probability of the future outcome (i.e., its most statistically accurate forecast). A 60% probability means that, in a series of events each with a 60% probability, then 6 times out of 10, the favored outcome will occur- and 4 times out of 10, the unfavored outcome will occur.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism.