Boom and Bust of Prediction Markets

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The boom of public and private prediction markets started after the 2004 US elections. InTrade claimed to have nailed &#8220-all 50 states&#8221-. InTrade&#8217-s performance in the 2008 US elections was less stellar, and in line with polls. Hence, the bust we are in.

If true, the good performance of HubDub in the Oscars 2009 forecasting race could lead to a small boom. We will see. We should first analyze the HubDub data. Nigel, care to share?

15 thoughts on “Boom and Bust of Prediction Markets

  1. Caveat Bettor said:

    I’m not sure the liquidity recession Intrade is due primarily to the latest election tracking error.

    My hypothesis is that it is because of legislation enforcement risk, and the closing down of Tradesports.

  2. Chris F. Masse said:

    Cav,

    “liquidity recession Intrade”

    In my mind, I was talking about the lack of media coverage after the last US elections. The lack of interest from the Press and the people for the prediction markets. Nobody cares anymore, it seems.

    http://www.chrisfmasse.com/3/3/news/

  3. Chris F. Masse said:

    Guessing all the frontrunners correctly is something to brag ONLY if the reported confidences are high enough. If they are not and you get them all correctly, then the markets have biases and are NOT accurate.

    http://behind-the-enemy-lines……ilure.html

  4. Daniel Horowitz said:

    I’m somewhat surprised you’ve never mentioned incentives. Clearly if liquidity were greater, then the markets would be more efficient. (financial incentive)

    While 5/6 Oscars may be the median or mode, we also expect the market to often come up with 4/6 or 6/6 some percentage of the time so the point is really we can’t predict future market accuracy based on a small set of prior predictions. Panos is certainly onto something…

  5. Jason Ruspini said:

    The lack of media coverage again has something to do with the general market meltdown, Chris.

  6. Chris F. Masse said:

    “lack of media coverage”

    Hummm…

    But have Britney Spears and Paris Hilton disappeared from the headlines because of the banking crisis?

    http://www.wesmirch.com/

    There is a sudden lack of media coverage because the PMs on the 2008 US elections were not lucky this time.

  7. Daniel Horowitz said:

    My sense was that the MSM regarded the 2008 election markets as successful? Do you have data indicating otherwise?

  8. Daniel Horowitz said:

    And this lack of coverage is evidence that they consider the markets to have been wrong? That is quite a leap Mr. Masse.

  9. Chris F. Masse said:

    The 2008 PMs were aligned with the polls. They were not stellar. They did not “nail all 50 states”. So there is no juicy stories to publish about PMs.

  10. behind-the-enemy-lines.blogspot.com/ said:

    @Daniel: “While 5/6 Oscars may be the median or mode, we also expect the market to often come up with 4/6 or 6/6 some percentage of the time so the point is really we can’t predict future market accuracy based on a small set of prior predictions.”

    Absolutely correct. I just want to point out the self-contradiction of expecting the probabilistic frontrunners to be *always* the winners. This event itself is *not* the probabilistic frontrunner!

  11. Jason Ruspini said:

    “disappeared from the headlines”

    Huh?

    It’s not about being pushed off the front page, it’s about guilt by association. You think people are especially well-disposed towards “derivatives traders” now?

  12. Chris F. Masse said:

    I told you 10 times. You see them as event derivatives, and they see them as betting markets. It’s betting, Jason, it’s not high-flying finance. Come up.

  13. Jason Ruspini said:

    Everyone sees them as markets and that’s bad enough these days.

  14. Medemi said:

    Betfair seem to be doing ok… despite all the mistakes they made.

    6 posts made on the soccer forum alone in the last 15 minutes. And it’s 4 am here…

    Looks like sports betting could be an outlet for people.

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