Harvard fella says prediction markets are doomed.

No GravatarHe bases his brilliant reasoning on &#8220-rumors&#8221- and total ignorance of the participation inequality law.

Another academic fella who would be better off researching his topic before blogging on something he does not master.

Previous blog posts by Chris F. Masse:

  • Inkling Markets bring in awards, honors, advisors, and new clients —leaving competition in the dust.
  • No need of enterprise prediction markets to boost intra-corporation communication
  • Inkling Markets is included in the 2008 list of “Cool Vendors” by Gartner.
  • 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 ???

3 thoughts on “Harvard fella says prediction markets are doomed.

  1. Michael Giberson said:

    I think you are too hard on Davenport — he was just editorializing based upon a couple of stories, this isn’t a research article.

    But I agree with your hinted-at substantial criticism.  It isn’t number of traders per se, or quantity of trades per se, that matters with prediction markets.

    The primary issue for enterprise prediction markets is net value created – the benefits resulting from the markets, if any, and the costs of generating the benefits.

    Of course his throwaway line about gambling with reference to enterprise prediction markets seems a little stupid.  What could be immoral about paying employees for their contribution to improved corporate performance?

  2. Chris F. Masse said:

    @Michael Giberson: I don’t know of any human activity where *all* the people invited end up contributing. You’ll find some kind of “attrition” everywhere. I’d rather look at the *core* of users: Does it grow over time? Does it allow to generate accurate predictions? In that regard, HSX is doing very well.


    Our source for data on market-wide expectations, the Hollywood Stock Exchange (HSX, http://www.hsx.com), is a popular Internet stock market simulation that revolves around movies and movie stars. HSX has over 520,000 active users, a ‘core’ trader group of about 80,000 accounts, and approximately 19,500 daily unique logins. New HSX traders receive 2 million ‘Hollywood dollars’ (denoted as “H$2 million”) and can increase the value of their portfolio by, among other things, strategically trading ‘movie stocks’. The trading population is fairly heterogeneous, but the most active traders tend to be heavy consumers and early adopters of entertainment products, especially films. They can use a wide range of information sources to help them in their decision-making. HSX stock price fluctuations reflect information that traders privately hold (which is only likely for the small group of players who work in the motion picture industry) or information that is in the public domain – including advertising messages. Despite the fact that the simulation does not offer any real monetary incentives, collectively, HSX traders generally produce relatively good forecasts of actual box office returns (e.g. Elberse and Eliashberg 2003, Spann and Skiera 2003). According to Pennock, Lawrence, Giles and Nielsen (2001a; 2001b), who analyzed HSX’s efficiency and forecast accuracy, arbitrage closure on HSX is quantitatively weaker, but qualitatively similar, relative to a real-money market. Moreover, in direct comparisons with expert judges, HSX forecasts perform competitively.



    Predictive Decisionmaking – by Michael Abramowicz – 2005-04-07

    Davenport has not researched enough before blogging.

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