The Growth of Gambling and Prediction Markets: Economic and Financial Implications

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Bruke Hansen:

[…] The day concluded with three papers covering prediction markets, the first by Robin Hanson, the world&#8217-s leading proponent of prediction markets and former head of DARPA&#8217-s notorious &#8220-terror casino&#8221-. Robin Hanson – futarchist, cryogenic enthusiast, and all around Kool Aid-chugger – is the son of Baptist preacher, and he brings to the cause an eerie religiosity. A former physics student, Hanson admits that he got a PhD in economics so people would take his ideas seriously: truly a cart-before-the-horse moment. One of the original attacks on the &#8220-terror casino&#8221- was that the market was too thin not to be manipulated, and could steer policy in the wrong direction. So what would a true believer do? Of course, Hanson&#8217-s paper claimed that market manipulation actually makes markets more accurate, not less, by increasing the so-called &#8220-noise&#8221- of the market. Of course, like virtually all the presentations at the conference, this was concocted as nothing more than a laboratory experiment. Real statistics from futures exchange Intrade, for example – a conference sponsor, no less – were few and far between.

Totally unfair to Robin Hanson.

#1. Robin Hanson is indeed the world&#8217-s &#8220-reigning expert of the field of prediction markets&#8221-&#8230- FOR ALL THE GOOD REASONS NOT CITED BY THE REGISTER. See the Prediction Markets Timeline for more information.

#2. Robin Hanson is overly optimistic on his concept of &#8220-decision markets&#8221-, that is, complex conditional prediction markets used as a decision tool. Robin Hanson is wrong on the fact that there is a need for market-generated decisions, because the executives and politicians will never be willing to let a machine decide for them. That said, it&#8217-s not much of a problem because all Robin Hanson&#8217-s work on &#8220-decision markets&#8221- can be recycled for the &#8220-decision-aid markets&#8221-, that is, the step above the classic internal prediction markets that we know today.

#3. Yes, Robin Hanson can be out of whack sometimes, but, at the contrary, that&#8217-s a plus: Craziness and creativity go hand in hand. Nobody gives the first fig about what Robin Hanson does on his free time. What we see, in the field of prediction markets, is that he thinks outside the box, being an new institution designer, for the benefit of us all.

#4. The comment on the 2000–2003 US DoD&#8217-s DARPA&#8217-s IAO&#8217-s FutureMAP/Policy Analysis Market project is totally misinformed. The PAM project was sound. The only (very minor) valid criticism to make is that Robin Hanson insisted, wrongfully in my view, to focus on the Mid-East, where it&#8217-s well know that the American traders have few advanced indicators. Other than that, let&#8217-s not forget that PAM gave birth to a new technology, MSR, used today in three public prediction exchanges (Inkling Markets, WSX, and Media Predict) on top of being used at MicroSoft Research and by all Inkling&#8217-s clients.

#5. As a blogger, let me say that Robin Hanson is good material for me. I can sometimes laud his ideas, and at other times ridicule his ludicrous views. Sometimes, I&#8217-m wrong, and at other times, I may score a point against him. I don&#8217-t have this liberty with Justin Wolfers, for instance. The only thing I could criticize in Justin Wolfers was his Australian accent, but I got a boo from my audience for picking him as a target. :)

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