“-The last thing our country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us much closer to a government takeover of our health-care system. Instead, we should be trying to achieve reforms by moving in the opposite direction—toward less government control and more individual empowerment.”-
Prediction markets can yield valuable insight into the dynamics of political campaigns, a conclusion we’-ve drawn from years of intensive study and research. We’-ve even proselytized about the value of these markets, extolling their ability to yield sharper insights than pundits or polls. [...]
If this statement were true,
- Justin Wolfers’- columns at the WSJ would have been linked to by the blogging political experts. They never were.
- The blogging political experts would have adopted the prediction market tool (over than just quoting the InTrade prices out of curiosity). They never did.
Both the mystification of the prediction markets (mudding the primary indicators into commentary- suggesting that the traders’- anticipations are always sound) and their demystification (listing the primary indicators) don’-t do the trick: Economic science should be able to tell us whether the prediction markets on 2008 US elections are of high social utility, and whether other kinds of prediction markets are of higher social utility. I am not satisfied by what I have been reading, as of today. The prediction markets are rather a tool of curiosity, as of today, not much a tool of forecasting. The prediction markets are not used as a tool by the experts —-by “-the experts”-, I mean all the experts but the prediction market experts (who are expert in nothing else than pumping up the prediction markets): the political experts, the financial experts, the management experts, the oil production experts, the credit experts, the health care system experts, the automobile market experts, the wine market experts, the web technology business experts, the web advertising experts, the medical drug experts, the foreign affairs experts, the military experts, the aviation industry experts, the condom industry experts, the restaurant industry experts, etc.
[I]nfo value  is the added accuracy the markets provide relative to other mechanisms, times the value of accuracy in improved decisions, minus the cost of maintaining the markets, relative to the cost of other mechanisms. A highly accurate market has little value if other mechanisms can provide similar accuracy at a lower cost, or if few substantial decisions are influenced by accurate forecasts on its topic.
PREVIOUSLY: See Robin Hanson’-s take on Google’-s enterprise prediction markets.
- 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…- 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’-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’-t know that, on August 1st. (PDF file)
- I don’-t regret my decision not to publish about the VP prediction markets. I’-d look like an idiot today.
How could that “-exemption”- guy have climbed to the top of Memeorandum even though there are no blogs listed that have discussed that WSJ piece?
Previous blog posts by Chris F. Masse:
- In a blow to the French, BetFair choose Bastille Day to premiere the revised version of the bet-matching logic of their prediction markets. — IMPROVEMENT MEANS BETTER LIQUIDITY FOR THEIR EVENT DERIVATIVE TRADERS.
- InTrade Spotting — Monday Morning Edition
- Forecasting Principles should index BusinessWeek.
- Caveat Bettor…
- Yet another prediction market newbie who should be meeting with Robin Hanson one on one to get a little injection about conditional prediction markets and how they could be useful for BOTH private decision makers AND public policy makers.
- We are now awaiting the CFTC’s decision on “event markets” (prediction markets)…
- Why Midas Oracle will have to drop InTrade
Considering that he is the #2 researcher in our field, that he issued bold statements on the use of market-generated predictions by journalists (”-2020″-), that the WSJ is the premier business publication, then that’-s bad omen for prediction market journalism —-well, at least, for the version that he has put out. The feedback of the Blogosphere is clear: WE COULDN’-T CARE LESS.
JW + WSJ
Very simple. The WSJ is free if you come from big news content aggregators (like Digg or Google News). If you can manage to have your browser produce artificially a Digg or Google News referral, then you’-re permitted to enter the WSJ paid content for free.
- Download RefSpoof, which is an add-on for Mozilla FireFox-
- Type “-digg.com”- in the RefSpoof entry box-
- In the “-R”- drop menu, on the right, check “-static”-.
- Go to the Wall Street Journal, and click on a story. (You’-ll hit the pay wall.)
- Click on “-spoof”-, which is located at the left of the RefSpoon entry box. (That will create the false referral.)
- You’-ll see that the Wall Street Journal story reloads and that the pay wall has disappeared, freeing the content.
The guy who published that trick says it’-s all ethical to him. (Hummm…-)
NEXT WEEK, we’-ll show you how to speculate on BetFair-TradeFair and InTrade-TradeSports event derivative markets…- FOR FREE. Just kidding.
Justin Wolfers investigated the Rudy Giuliani free-fall thru the prism of the InTrade prediction markets in the Wall Street Journal (PDF file).
All told, prediction market data tend to confirm that Mr. Giuliani’-s recent decline is due to a poor campaign, rather than a poor strategy.
I have just read the 3-page New York Times story on Rudy Giuliani’-s “-dizzying free-fall”- (who has not yet dropped out and endorsed John McCain, as I write this). And, as I understand the two NYT writers, they attribute his failure to both a strategic mistake and a poor campaign.
- “-many advisers and political observers point to the hubris and strategic miscalculations that plagued his campaign.”- …- “-a fateful decision”- …- “-skipping the first four or five caucuses and primaries”- …-
- “-he in fact competed hard in New Hampshire, to remarkably poor effect.“-
As of today, I am not yet convinced that Justin Wolfers saw something in the prediction markets that the political analysts didn’-t see in the polls and in the votes. Thus, I will find other Giuliani reports. I’-ll see. What is needed is an independent judgment on this.
Read the previous blog posts by Chris. F. Masse:
- Gary Flake to David Pennock: Come on board… or die.
- Technology Futurism
- Trade on BetFair-TradeFair as you would trade on TradeSports-InTrade, thanks to order-entry software BinarySoft.
- Pervez Musharraf prediction markets –Eric Zitzewitz Edition
- The Over-Round Explained
- WHY THE PREDICTION MARKETS WILL LIKELY F**K UP SUPER TUESDAY 2008.
- Still unconvinced by prediction market journalist Justin Wolfers
Not his best piece.
I’-m sure he’-ll produce a better piece on Freaknomics, or Marginal Revolution, later on. Or in one of his papers.
Previous blog posts by Chris F. Masse:
- Last year’s best April Fool’s Day Joke had something to do with the Wisdom Of Crowds.
- Will HedgeStreet USA, the hypothetical InTrade USA, and the hypothetical TradeFair USA, be regulated in the future by a merged SEC+CFTC regulatory structure?
- WORST THAN ELIOT SPITZER (if it were possible): Formula One boss, Max Mosley, had sado-masochist sex with 5 prostitutes, for 5 hours (!!), reenacting a concentration camp scene (!!) in which he played the role of both Nazi guard and inmate.
- Is BetFair Poker a booby trap for the gullible novices? Does The Sporting Exchange (the operator of the BetFair brands) help gangs plucking down innocent recreational poker players?? To get an inkling, don’t read The Guardian, seeded by the BetFair spin doctor- read Midas Oracle.
- The video that the technologically retarded BetFair spin doctor should watch.