The TradeSportss NKM scandal vs. the BetFairs 2006-Senate case

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JC Kommer was prompt to comment on my 2006-Senate piece:

Double standard Mr Masse.
Betfair is doing exactly the same thing that Tradesports in the NKM “scandal”, going for the literal reading of the rules as they should.

My Answer To JC Kommer:

I disagree.

NKM Scandal: TradeSports made two grave errors. Number one, they engraved in marble that they would rely ON A SINGLE SOURCE OF INFORMATION (the US DOD) for the expiry of the contract. This is totally crazy. The truth should be established using as many reliable sources as possible or appropriate (including second-hand but reliable sources like the White House, which is fed by the DOD on military issues). What matters is the truth, gathered from multiple sources, not one particular source that could have an irrational or secretive behavior at some specific times. Number two, while establishing this one-single-source-for-expiry contract, TradeSports was not aware of the well known and public fact that the US DOD never issues detailed statements on North Korea matters. Information about North Korea is “-classified”-. Logically, the US DOD did not confirm directly and in a very formal way that North Korea fired missiles. (Note that a case can be made that the US DOD did indeed confirm the North Korea firing of missiles, directly and in an elliptic way, which many observers found it satisfying enough for expiry purpose). So, in my view, as I have described above, TradeSports made two grave errors. They apologized to their traders, but they did not take action to compensate the victims of their two errors. The victims here are the “-yes”- speculators on the NKM prediction market. They were correct in their prediction, but they lost their shirt in the end. Note that the “-yes”- bettors and virtual speculators at BoDog and NewsFutures were justly gratified for their accurate prediction on the NKM topic. Which shows once again that the problems originated from TradeSports, and not from the “-yes”- speculators. TEN CEO John Delaney (managing TradeSports) should have compensated the victims. Instead of that, the first action he took on the Monday when the scandal broke was to retaliate against Chris Masse, who gave airtime to the screwed-up “-yes”- speculators.

2006-Senate Case: There are no “-victims”- here, since BetFair sticks with the ORIGINAL contract —-as CLEARLY written ON DAY ONE on their “-RULES”- tab, and as understood correctly by everybody who can read plain English. NO SURPRISE, NO CONTROVERSY. “Which of these parties will have MORE SEATS in the US Senate following the 2006 US Senate Elections?” is a very different question than “-Which of these parties will CONTROL the US Senate?“-. There is no ambiguity in the first question. In the second question, it’-s understood that you could control the US Senate with your allies (the Independents).

Justin Wolfers cant believe that prediction markets dont show already a clear win for the Dems in the 2008 presidential election.

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How Much Do Election Shakeups Affect the Nation’-s Economy? – [US politics &amp- financial markets] – by Justin Wolfers and Mark Thoma – 2006-11-03

[Justin Wolfers] And the major puzzle that I currently see? The past two years have clearly been terrible for Republicans, with Iraq deteriorating, Katrina undermining the public trust, and corruption scandals aplenty. And consequently their chances of keeping control of the House have fallen precipitously ( charts here). But the real surprise? Prediction markets tell us that the odds of Republicans winning the White House in 2008 remain virtually unchanged. Neither the incumbency advantage coming from victory in the 2004 elections, nor the subsequent declines in Republican fortunes have shifted the odds (chart: here), and the 2008 Presidential election remains a coin flip. Stay tuned: It looks like Tuesday will be a long night. And when the counting ends, the two-year campaign for the White House begins.

My Take: Our good doctor Justin Wolfers takes his Democratic dreams for the reality (all that said in all due respect for this bright researcher). We’-re two years away from the November 2008 presidential election. The margin of error is still enormous, so today’-s market-generated probabilities (Dems: 48.6% – GOP: 48%) for the 2008 presidential race mean strictly nothing. Plus, at times, a US presidential candidate can get substantial votes from the other camp (e.g., Ronald Reagan seducing many Democratic voters, etc.).

Addendum: Mike Linksvayer has an interesting comment, attached below this blog post.

Addendum 2 (November 04): Professor Justin Wolfers has responded, in the comment area, below this blog post. (And his paper is excerpted here, on Midas Oracle.)