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InTrade-TradeSports has a web server misconfiguration problem, and CEO John Delaney has a character problem.

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As I wrote at the time, the InTrade-TradeSports websites were unavailable, last Friday, August 29, 2008, during a good part of the morning.

InTrade-TradeSports is not only an event derivative exchange, but also a webspot that non-trading people often consult to get the latest market-generated probabilistic predictions. Last Friday, in addition to the traders, many people visited InTrade just to see what their prediction markets were saying about who would be John McCain&#8217-s pick as Republican vice presidential nominee. InTrade-TradeSports CEO John Delaney has said that that Friday saw 10 times more web visitors than any usual peak day, and that their server bandwidth was not large enough to cop with all solicitations. It is well known in the media business that servers should be configured many times bigger than for the normal usage &#8212-so as to accommodate exceptional peak times, when some impacting news break. My sentiment is that the InTrade-TradeSports technical team has probably not fully anticipated the growth of the InTrade-TradeSports followers.

As the result of this black Friday, some traders complained. One trader (Todd) started a thread on the InTrade e-mailing list. Unfortunately, Todd spiced his message with sarcasm. Which immediately irked John Delaney, who responded to the complaint, but also added a twisted line in effect inviting Todd to close his InTrade account.

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That remark offended another InTrade-TradeSports trader (Lucy Vega), who talked back to John Delaney:

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BetFair and InTrade-TradeSports are de facto monopolies (with 95% of the total business on their geographical zone, according to my estimation), and their direct competitors have far less liquidity, thus making them uninteresting for the big traders like Todd.

If John Delaney were really sincere in his wish to see the US public prediction market industry becoming legalized and experiencing a big growth in the coming decade, he should refrain from making offending remarks to his customers &#8212-even when those clients started the feud with some sarcasm of their own. This kind of bullying behavior could attract the attention of the US regulators in a negative way, which is exactly the reverse of what is needed at this time.

I can understand that John Delaney is sometimes upset by some of his ultra-demanding and sarcastic customers. However, as I said, the real-money prediction exchanges are in a situation of being de facto monopolies, where their market-generated information is of high social utility, which creates a social responsibility for the executives and managers of these prediction exchanges. You don&#8217-t insult and castigate a blogger who exposes a scandal. You don&#8217-t censor the CNBC reports. You don&#8217-t ask a complaining customer to close his / her account. All those things are big no-nos.

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UPDATE

I am re-publishing an old post of mine, as an appendix, to respond to some comments:

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Dan Laffan of InTrade has just given me permission to republish his e-mail(s) to Todd Griepenburg:

Todd,

We will absolutely not continue to be part of or facilitate any further diatribe with you on these issues.

If you are not satisfied that we
1. Have listened to your comments
2. Have replied to same and
3. Will take or have taken whatever corrective action is within our power and/or appropriate
then we reluctantly suggest that you consider closing your account on the exchange (or cease using it until our service meets your expectations). We say “reluctantly” as we do not wish to see any member leave, but we seem to be causing you immense dissatisfaction which is not our intention.

We will promptly close your account and return any funds you have in your account at your request. We await your decision and instruction.

Best regards,
Dan

Previous: A Big Trader’s Open Letter to TradeSports-InTrade + Second E-mail to InTrade-TradeSports + Third E-mail to InTrade-TradeSports + InTrade-TradeSports to Todd Griepenburg: GO TO HELL.

Dan Laffan to Todd: #1 – #2

InTrade to Todd

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UPDATE #2

For the full information of my readers, InTrade-TradeSports&#8217-s behavior is not the worst behavior that a prediction exchange can have towards an annoying customer. I am aware of another real-money prediction exchange who does close the accounts of the customers whom they view as problematic (and that, without citing any reason) &#8212-as opposed to just asking somebody to leave.

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UPDATE #3:

Todd&#8217-s new message to John Delaney

The InTrade .NET charting system is a great improvement for prediction market journalism.

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One word: FANTASTIC.

Much improved.

  1. A prediction market blogger can hot-link to the advanced chart.
  2. The advanced chart is the by-default chart &#8212-both prices and volumes are chartered. [Thin volumes don’t appear, though.]
  3. The advanced chart is of the right width &#8212-not too small, not too big.

What remains to be improved:

  1. InTrade should publish chart widgets, so that the weblink to the prediction market webpage is automatically embedded in the chart.
  2. InTrade should publish expired charts of the closed prediction markets. Discussions about accuracy should be supported visually.
  3. InTrade should develop dynamic compound chart widgets with customizable news markers.

I hope we will get improvement on these fronts, soon.

How do InTrades prediction markets work, and are they really accurate?

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Thanks to the InTrade person who uploaded the first CNBC segment on YouTube, and fixed the initial technical problem.

I renew my asking for the second CNBC segment to be uploaded at YouTube, too. [If someone else than InTrade does it, please hit me with the YouTube URL. Thanks.]

My analysis:

  1. InTrade-TradeSports CEO John Delaney does a good job explaining the mechanism of the wisdom of crowds.
  2. They cut professor Justin Wolfers too short. It&#8217-s a nuclear disaster &#8212-once again. Justin Wolfers is an admirable and ultra friendly person, a great prediction market researcher, a good prediction market analyst, and a wonderful blogger, but his TV appearances are, so far, totally crappy. The guy needs to hire a publicist who will teach him to flatten his Australian accent and to talk straight and plain &#8212-to go to the point real quick.
  3. &#8220-It seems like someone at CNBC decided at some point that they would NEVER address the legality issue.&#8221- – Dixit Deep Throat.
  4. After the broadcast of the video shot in Ireland, the camera goes back to the TV set, and, at this point, the comments from the journalists and the guest (Steve Forbes) show that they still don&#8217-t understand fully the prediction markets. They don&#8217-t have the right facts, and their analysis is not crystal clear.
  5. Overall, a good explainer on the prediction markets &#8212-taken into account that CNBC is an entertainment media. For deeper explainers, see the Wall Street Journal, the Financial Times, or Midas Oracle.

YouTube video (the last part was censored by InTrade-TradeSports CEO John Delaney – PRECISION: the discussion between the journalists and the guest on the TV set was suppressed)

APPENDIX: CNBC video + CNBC video #2

UPDATE: The second CNBC video segment that TradeSports-InTrade CEO John Delaney does not want you to see on YouTube

Now that Joe Biden is the Democratic vice president nominee, what to think of Justin Wolfers August 1st column for the WSJ?

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– The good point is that he dealt well with the fact that the VP prediction markets fed on primary indicators that are less reliable than the ones used for the political elections.

– The bad point is that, at the time he wrote up his column, Virginia governor Tim Kaine was the favorite of the InTrade VP prediction markets. The others were, in decreasing order, Evan Bayth, Kathleen Sebelius, and then&#8230- Joe Biden. So, the critic reading his column today could say that the prediction markets are oversold to a gullible public and that a prediction market bubble ready to pop up is forming under our very nose.

– Now, we know that Barack Obama made his decision while vacationing in Hawaii (less than 2 weeks ago). That&#8217-s only from that date that the VP prediction markets started generating probabilistic predictions worth quoting. The trick is that Justin Wolfers (and the other prediction market analysts) didn&#8217-t know that, on August 1st. (PDF file)

– I don&#8217-t regret my decision not to publish about the VP prediction markets. I&#8217-d look like an idiot today.

The vetting of the many potential Democratic vice president nominees was not as secretive as I thought. – Bo Cowgill was right, in hindsight.

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The New York Times has a recount on how Barack Obama reached his decision on Joe Biden. The final decision was probably made 10 days ago, while Barack Obama was vacationing in Hawaii.

[…] Mr. Obama’s decision had as much to do with Mr. Biden’s appeal among white working-class voters and compelling personal story, and his conclusion that the Delaware senator was &#8220-a worker.&#8221-

The important information in the NYT piece is that Barack Obama personally called governor Bill Richardson &#8220-late last week&#8221- to announce him that he was not considered anymore. That&#8217-s around the time the Joe Biden rumor began to have more weight in the media circles &#8212-see the InTrade chart below.

Bo Cowgill, back in May 2008 (when I started to act as a prophet of doom):

This is dumb. Cover them if something interesting happens. Maybe your theory will turn out to be wrong. Anyhow: Although the decision is made in secrecy, the Presidential nominees have a number incentives which we have plenty of information about. Specifically:
* They want someone who will balance their tickets in terms of geography, race and class.
* They want someone who will help with weak areas of their campaigns.
* They want someone who will be a good campaign surrogate — giving good speeches and attacking the opponents effectively.
* They want to avoid a VP who will de-motivate or offend the base.
* They want to avoid someone with a bunch of skeletons in the closet such as angry ex-wives, out-of-wedlock kids, etc.
* Etc etc.
Anyhow, I don’t see any reason to ignore these markets in case something interesting happens. I read Midas Oracle so that I don’t *have* to read a whole bunch of other websites!

Bo Cowgill was on the right track, now that I think of it &#8212-in a society where everything leaks out.

On the opposite of the spectrum, Tom Snee was too much extreme in his view:

According to Tom Snee of the Iowa Electronic Market, at Iowa University, futures markets need more hard information than they get in the veepstakes, to reliably predict a result.

Markets are very good at predicting elections, he says – but not choices being made inside Barack Obama&#8217-s or John McCain&#8217-s head.

Justin Wolfers was more measured.

So, Bo Cowgill and Justin Wolfers are the winners, on that one.

I was partially wrong. I am a bit too extreme, sometimes. (Did someone else notice that? :-D ) I need to learn more about&#8230- granularity.

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PS: On the Republican side, now&#8230-

Price for 2008 Republican VP Nominee (others upon request)(expired at convention) at intrade.com

Who will be the Republican Vice Presidential Nominee?

Barack Obama + Joe Biden – THE PREDICTION MARKETS NAILED IT… triple alas (for my reputation as a world-wide prediction market pundit, and for the debate on the different quality of the various primary indicators out there).

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“Friend &#8212- I have some important news that I want to make official. I’ve chosen Joe Biden to be my running mate.”

Some blogger says his wife is fantastic.

New York Times portrait of Joe Biden.

UPDATE: Barack Obama&#8217-s speech + Joe Biden&#8217-s speech

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I think it is the worst pick ever. What a blunder. Joe Biden (a D.C. insider) is unpopular and gaffe prone. Plus, that choice shows that Barack Obama is insecure when it comes to foreign policy. An emphasis on the economy and, thus, on a successful gubernatorial experience would have been better.

Kathleen Sebelius was the one to pick. She is my vice president. (And Ron Paul is my president. :-D )

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I have over-estimated the secretiveness of Barack Obama&#8217-s decision process. The chart above obviously shows that the Joe Biden narrative leaked out to reporters was beamed out for a purpose: testing the Obama-needs-a-VP-who-is-strong-in-foreign-policy argument, and letting the Press do the final vetting on gaffe-prone Joe Biden.

InTrade CEO John Delaney (along with the HubDub and BetFair people) will now brag on his marketing material that his prediction exchange did forecast Joe Biden as the Democratic vice president nominee.

What&#8217-s bad in all that (other than I have an egg on my face [*] ) is that we won&#8217-t have a public debate on the different quality of the various primary indicators, and how that conditions the accuracy of the prediction markets.

[*] I have an egg on my face, but Caveat Bettor has a whole omelet on his. :-D

While InTrade CEO John Delaney is deceiving the journalists to sell his wares, Tom Snee of the Iowa Electronic Markets is telling them the truth: BEWARE THE VP-CANDIDATE PREDICTION MARKETS, THEY JUST AGGREGATE RUMORS.

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BBC News:

According to Tom Snee of the Iowa Electronic Market, at Iowa University, futures markets need more hard information than they get in the veepstakes, to reliably predict a result.

Markets are very good at predicting elections, he says – but not choices being made inside Barack Obama&#8217-s or John McCain&#8217-s head.

Thank God for the BBC.

Thank God for the Iowa Electronic Markets.

Shame on John Delaney &#8212-over 3 generations of Delaneys.

Other than Tom Snee (the IEM spin doctor), Chris Masse and Justin Wolfers are the only prediction market analysts to have sent out warnings about the VP-candidate prediction markets.

ENDLESS VEEPSTAKES: Why you should never trade on VP prediction markets, and why their probabilistic predictions are as stochastic as Paris Hiltons daily dress picks.

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As I explained in early June 2008, the VP speculations that appear in the Press should never be taken seriously. Most of them (and you don&#8217-t know which ones) are a big orchestration of pure lies aimed at creating publicity, or wicked lies in the form of trial balloons. The aims of the political campaigns are to:

  • creating suspense (sometimes false) so as to generate free publicity-
  • sending a positive message to the supporters of each VP candidate-
  • letting the Press do the vetting of the VP candidates-
  • flattering the political journalists by leaking to them-
  • sending out false leaks so as to preserve the surprise for the scheduled announcement day-
  • sometimes, buying time to impose the head of the VP search committee as the most serious VP candidate (remember Dick Cheney in 2000). [Psstt… Funny enough, in the 2008 election, Michael Moore is pulling for Caroline Kennedy. :-D ]

All that means that there are no good primary indicators for the prediction markets on the Democratic and Republican VP-candidate selections.

I want to offer 6 remarks:

  1. Not all prediction markets are created equal. Some have good primary indicators (e.g., the prediction markets on the presidential elections, thanks to polls), while some other prediction markets have unreliable primary indicators (e.g., the prediction markets on who will be on the ticket).
  2. The prediction exchange executives (like InTrade-TradeSports CEO John Delaney) will never tell you that, because their job is to sell their wares, of course.
  3. The public needs prediction market analysts, who can judge the quality of the primary indicators of one particular prediction market, so as to separate the grains from the shaft &#8212-reliable prediction markets from unreliable prediction markets. (A prediction market analyst has also other functions, which I will blog about later on.)
  4. A prediction market analyst should have a dual competency &#8212-in a vertical (in our example, US politics), and in prediction markets.
  5. The expertise in the vertical (here, politics) should be a major, and the expertise in prediction markets should be a minor. Take a look at these 2 mainstream media news stories: the one written Jack Shafer in Slate (which I linked to at the top of this post), and the one written by Justin Wolfers in the Wall Street Journal. Obviously, the one that shows the most mastering is the one written by Jack Shafer, an American professional journalist who follows US politics for a living.
  6. The consequence of that for prediction market journalism is that the writer should be an expert in a vertical, and the editor should be an expert in prediction markets &#8212-and not the other way around.

That said, I wish the very best of luck to our good friends Caveat Bettor (who is betting on Tim Kaine) and Nigel Eccles (who is predicting Joe Biden). :-D

UPDATE: My (informal) Democratic VP-candidate bet is on Kathleen Sebelius. Hint, hint.

UPDATE: Gawker says that Joe Biden would be a horrible choice. I agree. Plus, he has denied to be the pick. He could have lied to reporters, though.

UPDATE: New York Times publishes portraits of all VP candidates.

DEVELOPING&#8230-

NEXT: While InTrade CEO John Delaney is deceiving the journalists to sell his wares, Tom Snee of the Iowa Electronic Markets is telling them the truth: BEWARE THE VP-CANDIDATE PREDICTION MARKETS, THEY JUST AGGREGATE RUMORS.

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Arbitrage in the InTrade Dem VP Market

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There has been an unexploited arbitrage opportunity in the Intrade Democratic VP market (&#8221-2008 Democratic VP Nominee (others upon request)&#8221-). As the attachment shows, you can sell the slate of candidates for 123.2 (just sum the bids) while you will only have to payout 100. This possibility has existed for at least three weeks, and is particularly puzzling now given that the announcement is likely to occur this week.

What is also a bit odd is that Intrade has another market (&#8221-2008 Democratic Vice-Presidential Nominee (with Field contract)&#8221-) on the same outcome which includes a catch-all field contract which does not have the same arb&#8211-again see the attachment below. It is substantially cheaper to buy the field contract in the second market than the omitted candidates (Kaine, Sebelius, Hagel, Schweitzer, Gephardt, Kerry, and others) in the first market.

Any thoughts on why this is occurring?

attachment: intradedemvp_summedbidsexceed100.pdf