The Internet is dismembering everything in little bits. We’re living in a period of intense changes.

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Credit: Washington Post

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UPDATE: Jimmy Carter on Dick Cheney…

You know he’s been a disaster for our country. I think he’s been overly persuasive on President George Bush and quite often he’s prevailed.

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The Economist #1:

Hillary Clinton
Ready to run the movie again?

Oct 4th 2007 | WASHINGTON, DC
From The Economist print edition
The betting is that the Clintons will follow the Bushes back into the White House

[SECOND PARAGRAPH] [...] Mrs Clinton is way out in front of the Democratic field. The latest Washington Post/ABC News poll puts her 33 points ahead of Barack Obama and 40 points ahead of John Edwards. She raised $22m in the last quarter—more than Mr Obama at $19m and much more than Mr Edwards at $7m. The once-mighty Republican Party is a shadow of its former self, divided not only about who should lead it but also about where it should go. Intrade, a pay-to-play prediction market, shows a 36% chance of the Republicans holding the White House alongside a 12% chance of them taking the House and a 7% chance they might take the Senate. [...]

The Economist #2:

Polls and elections
One man, one decision

Oct 4th 2007 – [BY A UK-BASED TEAM OF JOURNALISTS, I SUPPOSE]
From The Economist print edition
Public-opinion surveys cannot tell the prime minister when to go to the country

[LAST PARAGRAPH] In 2005 the most accurate predictions came not from the opinion polls but from online betting markets. This time, says Leighton Vaughan Williams of Nottingham Trent University’s Betting Research Unit, an election before Christmas is odds on and Labour is hot favourite to win the most seats. But the odds that Labour will get an overall majority are just slightly better than even. “So,” asks Mr Vaughan Williams, “is the prime minister willing to risk his majority on the toss of a coin?”

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- INTERESTING OBSERVATION: Right away, in the first paragraph, the US-based journalists inform their audience with a combo of polls and probabilistic probabilities from the most liquid betting exchange in America (InTrade). Whereas the UK-based journalists will give, in the last paragraph, a bit like an anecdote you tell to your friends at the end of a good lunch, some vague indications given by the “betting markets” (not well defined). [*]

- ANALYSIS & REMEDY: My hunch is that the UK-based journalists have not been spinned well enough by the prediction market economists. The remedy is that the British journalists (news writers, reporters, columnists, bloggers, etc.) should be exposed to the wisdom-of-crowds science in events or press conferences.

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[*] ADDENDUM: Professor Leighton Vaughan-Williams‘ e-mail to me…

In the ‘Economica’ article reference is made to the 2005 British election. For that election I used exchanges (notably, but not exclusively, Betfair and Intrade), the Cantor Spreadfair ‘spread betting’ exchange, spread bookmakers, notably IG Index and Sporting Index, and to a lesser extent fixed-odds bookmakers like Ladbrokes and William Hill.

In reference to the next election, the odds quoted were those quoted on Betfair at 9.30 am (UK time) yesterday.

BetFair does not cover it yet. Neither does NewsFutures.

Thank God we have inTrade-TradeSports.

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Sergei Ivanov to win 2008 Russian Presidential Election

Very few trades, as of today.

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Washington Post

Sergei Ivanov – Wikipedia

The economists Justin Wolfers and Eric Zitzewitz have pointed out that Hillary Clinton’s chances of becoming president, as predicted by one betting market, InTrade, started to climb dramatically mid-May, topping 40 per cent after months of fluctuating between 20 and 30 per cent. Her odds of winning the Democratic nomination stayed around 50 per cent, implying that if nominated, her chance of then winning the presidency would be about 80 per cent. You can’t get much more electable than that. So is someone in Hillary’s camp trying to boost her chances by manipulating the market into a self-fulfilling prophecy? Or is it a rival candidate trying to make her look like a manipulator? [...] But it’s hard to manipulate markets for long. [...]

Robin Hanson and Ryan Oprea, economists at George Mason University, argue that manipulators can actually increase the accuracy of prediction in markets: by making big, unprofitable bets they are effectively subsidising the market and paying other traders to pay attention. [...]

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BetFair – Hillary Clinton as the Democratic Presidential Nominee -

BetFair – Winning Party: Democratic -

BetFair – 2008 Election – Female President -

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NewsFutures – Hillary Clinton will be the Democratic Presidential Nominee in 2008.

© NewsFutures

NewsFutures – A Democrat will be elected President in 2008.

© NewsFutures

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Previous: Intrade: Obama and Clinton at near-parity – by Alex Forshaw + There’s a deep-pocket Clinton pal who is pushing her event derivative way up. + Who could have masterminded the alleged manipulation of the Hillary Clinton prediction market??? + Manipulation can affect prices. – by Eric Zitzewitz + Is there manipulation in the Hillary Clinton Intrade market? – by Koleman Strumpf + Is there manipulation in the Hillary Clinton Intrade market? Redux. – by Justin Wolfers + Hillary Rodham Clinton – Event Derivatives & Prediction Markets – InTrade-TradeSports + BetFair + NewsFutures = the market-generated probabilities across the different real-money and play-money prediction exchanges + Win Justin’s Money? (re: Is there manipulation in the Hillary Clinton Intrade market? Redux.) – by Koleman Strumpf

Vic Gold’s book: Invasion of the Party Snatchers: How the Holy-Rollers and the Neo-Cons Destroyed the GOP

Washington Post’s dossier on VP Dick Cheney

Part 1: Working in the Background
A master of bureaucracy and detail, Cheney exerts most of his influence out of public view.
Part 2: Wars and Interrogations
Convinced that the “war on terror” required “robust interrogations” of captured suspects, Dick Cheney pressed the Bush administration to carve out exceptions to the Geneva Conventions.
Sidebar: Cheney on Presidential Power
Part 3: Dominating Budget Decisions
Working behind the scenes, Dick Cheney has made himself the dominant voice on tax and spending policy, outmaneuvering rivals for the president’s ear.
Sidebar: Expanding Authority for No. 2 Spot
Sidebar: Taking on the Supreme Court Case
Part 4: Environmental Policy
Dick Cheney steered some of the Bush administration’s most important environmental decisions — easing air pollution controls, opening public parks to snowmobiles and diverting river water from threatened salmon.
Sidebar: Maintaining Connections

Vice President Cheney, standing behind the president’s desk during a July 2003 meeting, circumvented Secretary of State Colin L. Powell in 2001 on the military commissions order:

Credit: Washington Post

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JFK got killed, but Dick Cheney gets to live.

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Dick Cheney Resignation

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Dick Cheney will resign as VP before his 2nd term is up.

© NewsFutures

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Static charts (for the blog archives, since the dynamic ones above will disappear after their expiry):

Dick Cheney Resignation

Dick Cheney will resign as VP before his 2nd term is up.

But if that is the case, then why all the gambling/prediction market interest in the fates of two fictional characters – Harry Potter and Tony Soprano – and their equally fictional associates?

These fictional worlds do not produce widely dispersed bits of information that can be usefully aggregated by a market. Careful study of, say, the first six Harry Potter books and reading interviews with J.K. Rowling may produce some sense of what will happen, but ultimately whether “Harry Potter must die” (as Marginal Revolution suggested) or “Harry Potter will NOT die!” (as Chris. F. Masse at Midas Oracle interprets prediction market prices to suggest) will depend on what Rowling wants to say through the book and how she decides to do it.

I don’t think there is sufficient information available to form a good probability estimate. So the betting is all based on emotion, and some bettors will be lucky and others not. An informed insider can enter the market and clean up.

A lot of people enjoy betting on entertainment events (a category broad enough to include everything from the Super Bowl winner to week-end movie box office totals to the survivor/winner in the TV show “Hell’s Kitchen), and far be it from me to want to squash people’s fun. Fun is good (and good for business if you are a prediction market maker).

But if you are an investor trying to maximize long term returns and have no inside information, this is a case where Kelly’s criterion for betting comes into play. Kelly’s criterion for bet size can be described as “edge over odds,” implying, as Wikipedia explains: “If the gambler has no edge, … then the gambler should bet nothing.”

[NOTES: This post is a lightly edited version of "Will Harry Potter Die? Don't Bet on It," originally posted at Knowledge Problem.

The Wolfers and Leigh piece provides a good general background on prediction markets. HT to Midas Oracle for the heads up on the Wolfers and Leigh article.

Also at Marginal Revolution: Tony Soprano must live, citing a Washington Post story among others.]

Release: Nov. 17, 2000
Iowa Electronic Markets name Gore winner in futures payoff

IOWA CITY, Iowa — The presidential election is over, at least in the Iowa Electronic Markets (IEM). The IEM has declared Al Gore the popular vote winner over George W. Bush. Because the IEM follows the percentage of the national popular vote, IEM traders don’t have to fret over recounts, late absentee ballots and legal challenges in Florida to determine the winner of its Electoral College votes. The IEM, the University of Iowa’s real-money market in which traders buy and sell political futures, declared Al Gore the winner based on his winning by a 200,000-vote majority of the popular election as published in the Nov. 10 Washington Post. Following the rules laid out in the market prospectus, IEM directors liquidated two presidential markets on Nov. 10. In the vote-share market, which pays on the percentage of the popular vote, traders were paid .499 cents for Gore contracts, .497 for Bush contracts, and .004 for Pat Buchanan. In the winner-take-all market, the IEM paid $1 for Gore contracts, nothing for Bush and Buchanan contracts. In its New York Senate winner-take-all market, the IEM paid $1 for the winning Hillary Clinton contracts, which had been trading in the 60- to 70-cent range for several weeks leading up to the election. IEM directors have closed their congressional control market, but will delay payoffs until a winner in the state of Washington’s Senate race is officially named. Traders who bought Gore contracts at his pre-election level of 30 cents profited after the $1 payoff in the winner-take-all presidential market. Bush shares had traded at about 70 cents. However, profits were slim in the vote share market, in which the margins between the candidates were narrow, with shares separated by only a few cents during the campaign. While the IEM vote share market showed Bush as the winner on election eve at .514 cents, it was only by a narrow margin — Gore was at .469 cents and Buchanan at .017. Prices had shifted back and forth; on Nov. 5, Gore was leading .498 cents to .485 for Bush. Since it started operating in 1988, the market has had an average prediction error of 1.37 percent, including this year’s race, in which the average prediction error was 1.96 percent, according to Tom Rietz, UI associate professor of finance and IEM co-director. The IEM had 7,000 traders and more than $210,000 in equity. For an investment of as little as $5 or as much as $500, trading in the markets was open to participants worldwide. Six faculty members at the University of Iowa Tippie College of Business operate the markets as a research and teaching tool. See the markets online at http://www.biz.uiowa.edu/iem for more information or contact Jeanine Alcocer, IEM Operations Manager at (319) 335-0794.

The Iowa Electronic Markets exchange administrators made a big mistake. The designed an event derivative that was not meaningful. Nobody cares about who will win the popular vote; the key question is who will be the next US President, and that’s what traders should speculate on.

No wonders IEM has only a bunch of traders and pocket money invested in their markets.

Previous: The Philadelphia Inquirer + Iowa Electronic Markets + Iowa Electronic Markets (IEM) is a bad US monopoly on political event derivatives / prediction markets. + Iowa Electronic Markets hypocrisy