Category Archives: Analysis (Market Proposals)

VIDEO – Robotic Mule

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Nigel, you should set up some kind of prediction market about that at HubDub.

Amazing.

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Via the ultra-interesting Robin Hanson &#8212-who, for once, does not write a soporific post.

Un-Important Technical Note: The video above is dated 2008, while Robin Hanson links to a 2006 video, in his post.

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Previous blog posts by Chris F. Masse:

  • This is why I said that those who believe that Hillary Clinton has a chance to be on the Democratic ticket are “clueless”.
  • WEB EXCLUSIVE: — The annoted, historical, compound chart that those triple morons at the BetFair blog are hiding from their readers’ view. — It is located in a secret cache, linked to behind a picture of Hillary Clinton. — Curious place to locate a prediction market chart. — I bet nobody downloaded that chart. —
  • Knows the similarity between Google, Craig’s List, and the Drudge Report?
  • “Listening to each other is core to our culture, and we don’t listen to each other just because we’re all so smart. We listen because everyone has good ideas, and because it’s a great way to show respect. And any company, at any point in its history, can start listening more.”
  • 2 days after my ringing the alarm bell… THE FREE FALL
  • Tech News Of The Day — Friday Morning Edition
  • VIDEO: Why Hillary Clinton will never be the Vice President of the United States of America.

OLYMPICS BETTING: BetFair is fun, while InTrade is boring like hell -and TradeSports, inexistent.

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BetFair&#8217-s prediction markets, on which country will get the most medals &#8212-it&#8217-s China, but the U.S. is not far behind.

InTrade&#8217-s prediction markets, on the boring boycott thing.

TradeSports is AWOL.

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A proposal: Will the Olympics get derailed by air pollution?

99 days to go!

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Previous blog posts by Chris F. Masse:

  • The CFTC is going to close the comments in 11 days. We have 11 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges, and counter the evil petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowitz, the bright masterminder of the Iraq war).
  • The definitive proof that FOR-PROFIT prediction exchanges (like BetFair and InTrade) are the best organizers of socially valuable prediction markets (like those on global warming and climate change).
  • Fairness Doctrine prediction markets
  • 2 MILLION TRADES LATER: Inkling’s play-money prediction markets are accurate —too.
  • Web Forums on Prediction Markets
  • Jason Ruspini will answer SOME of these CFTC questions. — 12 days left, Jason.
  • QUIZZ OF THE DAY: Which blog is the most open minded?

Katie Couric prediction markets are urgently needed, mister InTrade.

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Matt Drudge&#8217-s headline:

NYT: COURIC PALS SAY ANCHOR EXIT POSSIBLE IN FEW WEEKS&#8230-

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Previous blog posts by Chris F. Masse:

  • If Midas Oracle were to meet, would we use Huddle, and why?
  • WORLD’S SUCH A SMALL PLACE: Smarkets meet HubDub.
  • 50% of our prediction market luminaries have a MacBook.
  • STRAIGHT FROM OUR TRUISM DEPARTMENT: Money buys happiness.
  • Ron Paul (R) and Barney Frank (D) ally together to attack “the practical hurdles of the federal law, known as the Unlawful Internet Gambling Enforcement Act, rather than its legitimacy”.
  • Clicking on the “SPHERE: RELATED CONTENT” button, at the bottom of each Midas Oracle post, will bring you a list of external webspots.
  • FRIGHTENING: Jed Christiansen’s prediction market blog was briefly overtaken by web spammers, who inserted invisible links to their commercial sites so as to game the Google PageRank system.

Will HedgeStreet USA, the hypothetical InTrade USA, and the hypothetical TradeFair USA, be regulated in the future by a merged SEC+CFTC regulatory structure?

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No GravatarThat sounds like a good prediction market proposal. :-D

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As you all know:

  • The SEC regulates the securities markets (which support capital formation).
  • The CFTC regulates the futures markets (which exist to discover prices).
  • The SEC is rules based, meaning it sets regulations that institutions must follow, while the CFTC is principles based, in that it sets broad parameters under which the regulated entities try to operate.

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US Treasury&#8217-s Blueprint for a Modernized Financial Regulatory Structure (PDF file).

The United States has the strongest and most liquid capital markets in the world. This strength is due in no small part to the U.S. financial services industry regulatory structure, which promotes consumer protection and market stability. However, recent market developments have pressured this regulatory structure, revealing regulatory gaps and redundancies. These regulatory inefficiencies may serve to detract from U.S. capital markets competitiveness.

In order to ensure the United States maintains its preeminence in the global capital markets, the Department of the Treasury (“Treasury”) sets forth the aforementioned recommendations to improve the regulatory structure governing financial institutions. Treasury has designed a path to move from the current functional regulatory approach to an objectives-based regulatory regime through a series of specific recommendations. The short-term recommendations focus on immediate reforms responding to the current events in the mortgage and credit markets. The intermediate recommendations focus on modernizing the current regulatory structure within the current functional system.

The short-term and intermediate recommendations will drive the evolution of the U.S. regulatory structure towards the optimal regulatory framework, an objectives-based regime directly linking the regulatory objectives of market stability regulation, prudential financial regulation, and business conduct regulation to the regulatory structure. Such a framework best promotes consumer protection and stable and innovative markets.

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The CFTC is not that seduced by the idea (PDF file):

Statement of CFTC Acting Chairman Walt Lukken Regarding Department of Treasury’s Blueprint for Modernizing the Financial Regulatory Structure March 31, 2008 Washington, DC

Today, the U.S. Department of Treasury released a regulatory blueprint that includes recommendations to improve the U.S. financial regulatory structure with the goal of enhancing U.S. competitiveness in the global marketplace. Some of the proposals include recommendations related to combining the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). CFTC Acting Chairman Walt Lukken made the following statement in response to the blueprint:

It is essential to examine ways to enhance the competitiveness of U.S. financial markets and seek improvements to the regulatory structure. Policymakers all strive for good government solutions that protect the public, reduce duplication and enhance competition and innovation. While I am still studying the Blueprint’s many recommendations, I applaud Secretary Paulson and the Treasury Department for their work on this critical undertaking and for recognizing the CFTC model of regulation as an advantageous one.

The CFTC utilizes a flexible and risk-tailored approach to regulation aimed at ensuring consumer protection and market stability while encouraging innovation and competition. [*] Congress gave the CFTC these powers with the passage of the Commodity Futures Modernization Act (CFMA) in 2000, which shifted the CFTC’s oversight from a rules-based approach to one founded on principles. This prudential style is complemented by strong enforcement against market abuse and manipulation as evidenced by the $1 billion worth of penalties assessed by the CFTC since the CFMA. [**] The regulatory balance fostered by the CFMA has enabled the futures industry to thrive and gain market share on its global competitors with volumes on the U.S. futures exchanges increasing over 500 percent since 2000. During recent economic stress, these risk-management markets have performed well in discovering prices and providing necessary liquidity.

Although the creation of a new unified regulator for securities and futures could bring efficiencies, the tradeoffs of such a significant undertaking should be weighed carefully given these turbulent economic times and the competitive global advantage currently enjoyed by the U.S. futures industry. The CFTC is a world-class regulator because of its focused mission, market expertise, manageable size, problem solving culture and global outlook—all of which may be jeopardized with the creation of a larger regulatory bureaucracy. Any regulatory reform effort must preserve the benefits of the CFTC’s principles-based model and recognize the distinct functions of the futures markets and mission of the CFTC.

Many of the benefits of a unified regulator can be immediately gained through enhanced coordination and information sharing between agencies. In fact, the CFTC and SEC recently signed a cooperation agreement aimed at addressing cross-agency issues, including the approval of hybrid products that may have otherwise fallen between our jurisdictional divide. These sorts of agreements should be given time to bear fruit. As Treasury recognizes in its Blueprint, the laws that govern the securities markets should be modernized similar to the futures laws before unification is contemplated to improve its chances of success. Unless the securities laws are first rationalized with those governing the futures markets, a merger may ironically make the U.S. futures industry less competitive globally and run counter to the explicit goal of this important endeavor. I look forward to working with policymakers to ensure that these issues are properly debated and addressed.

[*] Quite true.

[**] Which includes the fining of InTrade.

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CME Group

Chicago Tribune

The Wall Street Journal

Via mister Jason Ruspini

Previous blog posts by Chris F. Masse:

  • If I had to guess, I would say about 50 percent of the “name pros” you see on television on a regular basis have a negative net worth. Frightening, I know.
  • You can’t measure the usefulness of a system by how many resources it consumes.
  • STRAIGHT FROM THE DOUBLESPEAK DEPARTMENT: NewsFutures CEO Emile Servan-Schreiber, well known to chase tirelessly the Infidels who dare calling “prediction markets” their damn polling system, is eager to sell the confusion to his clients and whomever would listen.
  • John Delaney is such a poor marketer that he is willing to outsource the making of InTrade’s next logo (a company’s most important visual message) to the first moron met over the Internet who is stupid enough to work for a bunch of figs.
  • ProKons strongly believe that (play-money) prediction markets are bozo immune.
  • REBUTTAL: SalesForce, StarBucks and Dell demonstrate that enterprise prediction markets as intra-corporation communication tools (as opposed to forecasting tools) are overhyped by the prediction market software vendors and a little clique of uncritical courtisans.
  • Comments are often more interesting than the post that ignited them.

Work for free for InTrade -and become famous (a little bit).

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InTrade embraces &#8216-crowd sourcing&#8217-:

Intrade is looking for New Market Ideas!

Friday, Jan 25, 2008

What uncertain event are you interested in trading? What uncertain event are you interested in getting predictive information on from the Intrade community? Please let us know by mailing [email protected].

By suggesting a new market* and agreeing to be cited you will be joining an impressive list of luminaries from Academia, Business, and Government.

Here is just a small sample of those who have previously suggested markets that Intrade has listed?

  • Robin Hanson (Prof.)
  • International Strategy &amp- Investment Group
  • Peter McCluskey
  • David Pennock (Dr.)
  • Mark Perry (Prof.)
  • Koleman Strumpf (Prof.)
  • Justin Wolfers (Prof.)
  • Eric Zitzewitz (Prof.)

Before we list any new market we [endeavor] to ensure the following:

  1. The market will be easily understood and capable of definitive settlement.
  2. Market is based on an event that is of significant economic, social, or public interest.
  3. Typically be defined as a yes or no (0-100) proposition.

Ensuring your suggestion complies with the above criteria [maximizes] the chance we will list your suggestion for free. In other circumstances we may still list your suggestion for a fee.

*A market that we list and had not previously listed or considered.

They should look in the direction of PopSci PPX for new ideas. [And they should look for a Merriam-Webster dictionary to write the North-American English correctly. I have corrected them two times.]

Yahoo! Research scientist David Pennock&#8217-s prediction market proposals for InTrade are great.

And what about a prediction market on whether North Korea will soon launch an intercontinental missile? :-D

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NEXT: I recommend that you read the comments on David Pennock&#8217-s post.

Read the previous blog posts by Chris. F. Masse:

  • Why you should launch your brand-new prediction exchange at a conference
  • Why Indian Software Outsourcing Companies are Outsourcing to China
  • Midas Oracle is the only popular, independent, exhaustive, multi-author, multi-exchange, Web-based resource on prediction markets.
  • Here’s an example of the total crap that the BetFair blog is publishing.
  • P(election) = P(nomination) * P(election conditional on nomination)
  • Journalism Failures — Big Time
  • South Carolina showdown: Barack Obama vs. Hillary Clinton

CEO Termination prediction markets, anyone??

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New York Times&#8217- Andrew Ross Sorkin:

Betting on the Next Wall Street C.E.O. Exit

[…] Paddy Power, the Irish gambling site, has decided to tap the wisdom of crowds and set odds on who the next C.E.O. casualty will be. […]

Andrew Ross Sorkin does not know what he is talking about. PaddyPower is a bookmaker (which does not prove to us that it balances its book on those CEO Termination betting lines), and not a prediction exchange like InTrade (which, indeed, taps &#8220-the wisdom of crowds&#8221- and is wide open about it).

CEO Resignations

UPDATE: Niall O&#8217-Connor&#8230-

The over-round on Power&#8217-s market is 154.8. This means that they expect to pay out 100 for every 154.8 that they take in- yielding an expected profit of 54.8/154.8 = 35.4%. This is of course a disgrace. It reflects the fact that the market is nothing more than a gimmick – as soon as they catch sight of anybody looking to get a decent bet on, it is likely that they will simply close the book. A clear case of tapping into the wisdom of fools!

Markets for Telling CEOs to Step Down

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Robin Hanson (back in April 1996):

One of the biggest problems with existing corporate capitalism is keeping CEOs (chief executive officers) accountable to their shareholders. Unaccountable CEOs can give themselves huge salaries and perks, discriminate freely in hiring and promotion, and build empires rather than shareholder value.

In theory, boards of directors oversee CEOs, and can be sued by shareholders should they fail in that task. But in practice such failure is hard to prove, board members are often nominated by the CEO, and CEOs often put each other on their boards. In theory shareholders can dump the current board or CEO at annual meetings, but a commons greatly reduces the incentives for any one shareholder to mount an expensive campaign to find and convince other shareholders. In principle someone could buy out the whole company, dictate changes, and then sell the better-run company at a profit, but existing law and CEOs now lay many obstacles in this path.

The biggest problem with unaccountable CEOs is that they don&#8217-t know when to step down and let someone else run the company. The value of companies often jump when such a CEO dies. So a recent &#8220-Just Vote No&#8221- campaign focuses on this problem, and proposes that dissatisfied shareholders withhold their vote in a certain way, in order to signal they think the current management should step down. The companies with the highest no votes are then publicized, to try and shame management into action.

The main proponent of this Vote No campaign thinks the following proposal of mine has promise. I propose to create, for each stock, a separate market in that stock for trades which are &#8220-called-off&#8221- if the CEO does not step down in the next year. The price of the stock in this market should indicate the market&#8217-s expectation of the value of that company with a different CEO. If that stock price is consistently and significantly higher than the ordinary stock price, that should be a clear market signal, from informed traders, for the CEO to step down. (If there is no price, because there is no trading, then there is no signal.)

Ordinarily CEOs respond to statistics showing how poorly their company is fairing relative to similar companies by explaining how they are really different. And they respond to statistics of unhappy shareholders by pointing out how little incentives any one of them has to become well informed. These excuses should be blunted by my proposal, and board members may more plausibly fear legal action for ignoring these market signals.

This proposal is an example of a more general concept of policy markets.

Robin Hanson&#8217-s comment on my previous blog post:

You make a valid point about there being a difference between CEO futures and decision markets. It is the board, not the CEO, who we might hope would be willing to overrule the CEO ego. And I&#8217-ve had a web page arguing for CEO decision markets since 1996. [See above.]

Robin Hanson (in Forbes in 2006):

[…] My idea: Set up two new stock markets where investors would be making not outright bets on the future of a company but conditional bets. In one market the trades are consummated only if the current chief executive remains in place at the end of the current quarter. In the other market the trades are consummated only if the incumbent is bounced out by the end of the quarter. The price spread between these two markets would send a signal about whether the boss should stay or go.

Say Eisner is the current boss and you own one share of Disney you want to sell. Instead of selling on the New York Stock Exchange for, say, $30, you could do simultaneous sell orders, each for one share, on the two alternative markets. Perhaps Disney is trading in the Stays Put market at $29 and in the Early Retirement market at $31. If Eisner does keep his job, only the first trade becomes valid: You give up your share and get $29. If he gets the ax, only the second trade is valid and the buyer (probably a different buyer) gives you $31.

Just as the $30 price on the Big Board reflects the collective wisdom about the value of Disney, the $29 Stays Put and the $31 Early Retirement prices would reflect the collective wisdom about relative values under different management scenarios. Spreads would open up because sellers (or buyers) in the alternative markets would often do only one of the two trades. If you happen to think Disney is worth $30 a share overall but would be disappointed to see Eisner leave, you would sell only in the Early Retirement market. If he does get bounced, you&#8217-re happy to have the $31 cash- if he stays put, you are happy to continue owning the stock. On the other side of your trade: a hedge fund that thinks Disney would be worth $32 if a new manager came in.

The directors&#8217- job would be to listen to the markets. If a wide enough spread opens up in favor of a departure&#8211-maybe 1%&#8211-get out the pink slip. […]

Previously: PaddyPower&#8217-s betting lines on CEO exits + Marginal Revolution on CEO exit betting lines

Marginal Revolutions Tyler Cowen re-writes history to favor his GMU colleague.

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I respectfully disagree with that.

#1. BetFair floated CEO Resignation event derivatives back in 2004 &#8212-2 years before Robin Hanson&#8217-s CEO Firing idea [CORRECTION: see below], and 3 years before PaddyPower&#8217-s press release.

#2. Robin Hanson was about decision markets, in his Forbes Op-Ed &#8212-neither about prediction markets nor book betting.

#3. The main obstacle of implementing Robin Hanson&#8217-s concept of decision markets is the business executives&#8217- egos. Why would they outsource the decision making to a crowd machine if the added value is marginal? Publishing complacent blog posts on the premier economics blog won&#8217-t solve this problem.

Trying to sell decision markets to business executives is like trying to sell robotized dildos to young, horny men. Whatever the merit of the product, they don&#8217-t need it &#8212-they prefer using their own thing (if you see what I mean). :-D

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UPDATE: Comment from Robin Hanson&#8230-

You make a valid point about there being a difference between CEO futures and decision markets. It is the board, not the CEO, who we might hope would be willing to overrule the CEO ego. And I&#8217-ve had a web page arguing for CEO decision markets since 1996.

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Robin Hanson (back in April 1996):

[…] The main proponent of this Vote No campaign thinks the following proposal of mine has promise. I propose to create, for each stock, a separate market in that stock for trades which are &#8220-called-off&#8221- if the CEO does not step down in the next year. The price of the stock in this market should indicate the market&#8217-s expectation of the value of that company with a different CEO. If that stock price is consistently and significantly higher than the ordinary stock price, that should be a clear market signal, from informed traders, for the CEO to step down. (If there is no price, because there is no trading, then there is no signal.)Ordinarily CEOs respond to statistics showing how poorly their company is fairing relative to similar companies by explaining how they are really different. And they respond to statistics of unhappy shareholders by pointing out how little incentives any one of them has to become well informed. These excuses should be blunted by my proposal, and board members may more plausibly fear legal action for ignoring these market signals.

This proposal is an example of a more general concept of policy markets.

LinkedIn vs. FaceBook prediction market

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Read and Write Web:

[…] However I am interested in prediction markets, so how about we define a specific prediction and then revisit it in six months? If Facebook and/or LinkedIn were public companies, we could test our predictive powers in the stock market with real money. However because they are private companies (for now), we can just do this for fun and bragging rights. Anyway public companies are now all boring, predictable enterprises- we have to recreate the fun in the private markets.

So the prediction, we think, from Stowe is this: “In 6 months Facebook will have more of your business contacts than LinkedIn”. We&#8217-ll check back in 6 months whether that prediction comes true. […]

Their poll shows that LinkedIn has the lead over FaceBook (this early Monday morning):

LinkedIn vs. FaceBook

Maybe PopSci PPX will be interested in floating a LinkedIn vs. FaceBook event derivative. I suspect that they would like to settle such an event derivative with objective, primary data &#8212-as opposed to an online poll.

UPDATE: Latest results of the poll&#8230-

LinkedIn vs. FaceBook

REMINDER: Midas Oracle is going to make an important announcement, soon.

Prediction Market Proposal: MicroSoft Windows Vista vs. MicroSoft Windows XP

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No GravatarIt&#8217-s not the first time that I read an opinion piece lambasting Vista on the CNET site.

I would like to see a long-term prediction market at PopSci PPX on whether Vista will start off and be more popular than XP, one day. I&#8217-d short-sell everything like crazy.

Previous blog posts by Chris F. Masse:

  • Robin Hanson wants to rule the world —just as CEOs and heads of states do for a living.
  • Predictify got funded… Great for those who will be hired… But is it a good thing, overall?
  • Nassim Nicholas Taleb likens modern-day financial markets to medicine in the 1800s, when going to a hospital in London or Paris multiplied your risk of death by four times, he says. Similarly, quants increase risk by deploying flawed financial tools designed to reduce it, he argues.
  • TradeSports-InTrade — Check Deposits
  • BetFair Australia fought for free trade across Australian state boundaries… and won.