James Surowiecki, author of The Wisdom of Crowds, talks to the Midas Oracle readers.

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James Surowiecki – Short video

Previous blog posts by Chris F. Masse:

  • The FaceBook profiles of the 2 most important men of the field of prediction markets
  • THE HUMAN GADFLY WHOSE OBJECTIONS ROBIN HANSON IS DUCKING…???…
  • Google now considers Midas Oracle as a major blog.
  • Horizon 2015: A long-term strategic perspective for the real-money prediction markets
  • Join our group at LinkedIn to have your “Prediction Markets” badge on your profile. It’s ‘chic’. (“Groups” info should be set as “visible”, in your profile options.) We are 63 this early Saturday morning —keeps growing.
  • If you have been using PayPal to fund your InTrade, TradeSports or BetFair account, please, check that horror story.
  • 48 hours after the launch of the “Prediction Markets” group at LinkedIn, we have already 52 members —both prediction market luminaries and simple people (trading the event derivatives or collecting the market-generated probabilities).

James Surowiecki was in Texas (Michael Gibersons new land), yesterday, spinning educators (interested in technology) about prediction markets and collective intelligence.

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National Educational Computing Conference (&#8221-the premier forum in which to learn, exchange, and survey the field of educational technology&#8220-)

Classic stuff about the wisdom of crowds, but people enjoyed it.

Previous blog posts by Chris F. Masse:

  • The FaceBook profiles of the 2 most important men of the field of prediction markets
  • THE HUMAN GADFLY WHOSE OBJECTIONS ROBIN HANSON IS DUCKING…???…
  • Google now considers Midas Oracle as a major blog.
  • Horizon 2015: A long-term strategic perspective for the real-money prediction markets
  • Join our group at LinkedIn to have your “Prediction Markets” badge on your profile. It’s ‘chic’. (“Groups” info should be set as “visible”, in your profile options.) We are 63 this early Saturday morning —keeps growing.
  • If you have been using PayPal to fund your InTrade, TradeSports or BetFair account, please, check that horror story.
  • 48 hours after the launch of the “Prediction Markets” group at LinkedIn, we have already 52 members —both prediction market luminaries and simple people (trading the event derivatives or collecting the market-generated probabilities).

Yet another guy, writing about prediction markets in the mainstream media, who does not master what he is talking about.

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Via Adam Siegel of Inkling Markets,

John McQuaid of Wired.

  1. It&#8217-s incoherent to start a rant against prediction markets by this upbeat line, &#8220-Prediction markets can be spookily accurate.&#8221-
  2. He blames the New Hampshire upset on poor liquidity. Where is the scientific evidence of that? Total invention by our good friend Barry Ritholtz. The New Hampshire prediction markets were wrong because the advanced, primary indicators (the polls) were wrong. As simple as that. [For why the polls were wrong, see: The New York Times, Zogby, Rasmussen, Gallup…]
  3. Prediction markets &#8220-have a lot of political junkies but few real insiders or outsiders, so they&#8217-re not very good at catching something the polls might miss.&#8221- Hummm&#8230- Most of the &#8220-real insiders&#8221- don&#8217-t keep scoops for themselves (if and when they have some), they are too happy to act as a source for some thirsty journalists or bloggers, so as to have their name printed somewhere. Hence, the political junkies would be able to aggregate any kind of extraordinary information &#8212-if that were to happen.
  4. How could the prediction markets &#8220-get out ahead of conventional wisdom&#8221-? It&#8217-s impossible, other than by reversing our psychological arrow of time (remembering the future, instead of the past). At the contrary, the job of the prediction markets is to quantify exactly that so-called &#8220-conventional wisdom&#8221-. They won&#8217-t go further, and we&#8217-re happy to run with that, because, that way, we are not prisoner of the bias of a handful of experts. Plus, prediction markets give us an objective probability of event outcome &#8212-a thing that individual experts can&#8217-t give us.

The excerpt below is good enough, though:

[…] But forecasting also needs more so-called noise traders, who do business with almost no information. Noise traders boost accuracy by increasing volume and the potential profits of informed traders. Diversity helps, too. If you can get different types of people to play, experts say, not only do you get a bigger pool and more information, but differing random guesses will cancel each other out, leaving real signals to rise above the noise. Plus, if you have a critical mass of investors with a variety of backgrounds, locations, and interests, they are less likely to move as a herd. […]

Previous blog posts by Chris F. Masse:

  • A second look at HedgeStreet’s comment to the CFTC about “event markets”
  • Since YooPick opened their door, Midas Oracle has been getting, daily, 2 or 3 dozens referrals from FaceBook.
  • US presidential hopeful John McCain hates the Midas Oracle bloggers.
  • If you have tried to contact Chris Masse thru the Midas Oracle Contact Form, I’m terribly sorry to inform you that your message was not delivered to the recipient.
  • THE CFTC’s SECRET AGENDA —UNVEILED.
  • “Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S & P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”
  • Meet professor Thomas W. Malone (on the right), from the MIT’s Center for Collective Intelligence.

Robust, the prediction markets are the best mechanism for aggregating information. Thus, companies should use them for assessing strategy and hedging risks.

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Via Emile Servan-Schreiber of NewsFutures, John Auters in the Financial Times.

[…] This leads to [Justin Wolfers]&#8216- claim that [prediction markets] are the best way to aggregate information. This is true of any given amount of information. Take three economists and make them trade out a market over their predictions for next month&#8217-s inflation number, he suggests, and they will arrive at a more accurate prediction than a poll of the same three economists. In a market, those with stronger conviction (or inside information) can express that conviction- those less confident will not be willing to stake money. […]

Prediction markets remain subject to the same weaknesses as other markets. The principle of &#8220-garbage in, garbage out&#8221- [*] applies. If there is only poor information to aggregate, they will be as wrong as everyone else. […]

It would make sense to incorporate these odds when making investments. […]

Excellent.

(I don&#8217-t get his micro slam against the wisdom of crowds. Anyway.)

[*] As explained in the prediction market explainer published on the frontpage of Midas Oracle.

ABC 20/20 – A good (but servile) explainer on the wisdom of crowds and the prediction markets

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ABC 20/20 featuring InTrade – (May 9, 2008)

Foretelling The Future: Online Prediction Markets &#8212- (4 pages in all)

ABC video

YouTube video

  1. Not a single word about InTrade-TradeSports fucking up its traders during the North Korea Missile episode.
  2. Although James Surowiecki is a great thinker overall, I&#8217-m not happy he served InTrade&#8217-s past forecasting successes in absolute terms &#8212-and not in terms of probabilities. That shows James Surowiecki can&#8217-t be the ultimate leader of the field of prediction markets. Robin Hanson, Justin Wolfers, Koleman Strumpf, Eric Zitzewitz, or even Emile Servan-Schreiber, would have not made that mistake.
  3. All prediction markets are not created equal. Spot that they go too far, saying terrorism prediction markets or earthquake prediction markets could serve a societal purpose. That is complete bullshit. That is pure hype. As I said yesterday, an analyst should check whether a given prediction market is really able of aggregating important information. Just because John Delaney wants to create a betting market to get money doesn&#8217-t mean that that given prediction market will be able to give sound forecasts. Otherwise, we would have prediction markets about future lottery outcomes and we would make a fortune out of that. :-D
  4. Spot that they put the emphasis on the easy translation between the 0&#8211-100 prices and the 0&#8211-100 probabilities. That puts BetFair&#8217-s model (based on those damn digital/decimal odds) out of the picture.

Charles Plott (a big-shot economist) condemns all the hype surrounding the prediction markets and the wisdom of crowds.

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California Institute of Technology economist Charles Plott:

What you&#8217-re doing is collecting bits and pieces of information and aggregating it so we can watch it and understand what people know. People picked this up and called it the &#8216-wisdom of crowds&#8217- and other things, but a lot of that is just hype.

Collecting bits and pieces of information, and aggregating it, so we can understand what people know.

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Charles Plott has nailed it.

I would lay out this dichotomy:

  • Some of our academics, consultants, and exchange executives have sold the prediction markets as the ultimate forecasting tool &#8212-which is true, but people translated that as &#8220-this is an omniscient tool for forecasting&#8221-
  • The best usage of the prediction markets is that they do average what the experts think (see Justin Wolfers&#8217- mention of a &#8220-useful counterweight&#8221-) &#8212-but that&#8217-s a far cry from being an omniscient oracle (which is what people are expecting).

Some people would enjoy the usage of a &#8220-useful counterweight&#8221- &#8212-but not that many.

The &#8220-useful counterweight&#8221- thing is not a hot-selling proposition.

You don&#8217-t draw crowds with that.

You draw crowds with an over-selling proposition.

You draw crowds by manufacturing hype.

As a result of the collective intelligence of more than 77,000 bettors on Intrade, the prices on the site may be a good way to predict the outcome of current events &#8212- more accurate than some polls and pundits. In 2004, the market odds on Intrade predicted the presidential vote of every state but Alaska. In 2006, the odds correctly indicated the outcome of every Senate race.

Our 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.

Previous blog posts by Chris F. Masse:

  • Become “friend” with me on Google E-Mail so as to share feed items with me within Google Reader.
  • Nigel Eccles’ flawed “vision” about HubDub shows that he hasn’t any.
  • How does InTrade deal with insider trading?
  • Modern Life
  • “The Beacon” is an excellent blog published by The Independent Institute.
  • The John Edwards Non-Affair… is making Memeorandum (twice), again.
  • Prediction Markets = marketplaces for information trading… and for separating the wheat from the chaff.

The Rise of Crowdsourcing: Creative Wisdom of the Crowd – Tuesday, May 20th, 2008 at 6:00pm – @ Bo Cowgills Alma Mater

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The Rise of Crowdsourcing: Creative Wisdom of the Crowd – @ Stanford Business School, Stanford University, California, U.S.A. – 2008-05-20

&#8211-&gt- Predictify &amp- Cambrian House

Via Daniel Horowitz (Business and Technology Consultant)

Collective Error = Average Individual Error – Prediction Diversity

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The Brain has a comment on Scott Page&#8217-s presentation [PPT file] about his book, The Difference:

One question is whether there is a way to usefully systematize that principle by trader selection or via something other than a strict market such as an (incentivised) weighted average system like HP’s BRAIN. The latter type of system will work better in some domains but in general might be less robust because it constantly runs the danger of being overfit to past trader correlations (or apparent expertise, risk appetites, etc). In general, trader self-selection and self-weighting might be more accurate. If you have some metric of “fundamental” trader similarity like proximity, org chart relations, demographic data – as opposed to past trading correlations only, that might work better in terms of expert-selection/expert-weighting.

The Difference

Previous blog posts by Chris F. Masse:

  • BetFair-TradeFair has won its second Queen’s Award for Enterprise in its eight-year history.
  • Inkling Markets is one of the “Hot Companies To Watch In 2008”, according to Forrester.
  • Plenty of great news coming from Inkling Markets in the coming weeks
  • ??? charity-driven prediction markets OR social issue prediction markets ???
  • That can’t be Nigel Eccles of HubDub.
  • The Marketing Of The Reading Of The Public Prediction Markets = What Robin Hanson has deep trouble with, and what the prediction exchanges (e.g., InTrade-TradeSports, BetFair-TradeFair) haven’t fully computed yet
  • In 2013, Enterprise 2.0 will be a $4.6 billion industry. Good. But they forgot to mind the enterprise prediction markets.

La Sagesse Des Foules

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Good news this week for French-speaking Midas Oracle readers: The French version of Surowiecki&#8217-s book has at last been released. Here&#8217-s wishing it the success it deserves! Early reviews are very positive: One reviewer writes poetically about &#8220-crowds so wise that they become revolutionary.&#8221- Cute, and telling: As the country celebrates the student uprisings of April-May 1968, when Mao&#8217-s little red book was a must read, Surowiecki&#8217-s manifesto is indeed perfectly timed to launch a new cultural revolution.

La Sagesse des Foules