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THE SILICON ALLEY BLOG COMES TO THE RESCUE OF THE PREDICTION MARKETS.

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Silicon Alley&#8217-s Jonathan Kennedy:

[…] In denouncing prediction markets as &#8220-wrong,&#8221- however, many pundits miss the point. Prediction markets do not provide accurate predictions of the future. (How could they? They simply represent the consensus guess of a group of people who aren&#8217-t prophets). They merely provide the most-informed guess as to what that future is likely to be.

As numerous &#8220-collective wisdom&#8221- studies have shown, the consensus guess is always better than the majority of the individual guesses that are factored into it (not sometimes&#8211-always). The collective wisdom, moreover, is often more accurate than that of ANY individual. Why? Because the market collectively incorporates far more information than is available to any one individual.

Like the stock market, prediction markets don&#8217-t get it right every time. They do, however, provide a useful window into the collective expectations of others&#8211-one that is often the best available estimate of the future. And they do sometimes get it right. Just as they did with Mr. McCain.

Bravo, mister Jonathan Kennedy.

&#8212-

Take that, Barry Ritholtz. :-D

In an upcoming post, we will review the strengths and weaknesses of these thinly traded prediction markets&#8230-

We are holding our breath, Barry. Hurry up.

VENERABLE LAW SCHOLAR CASS SUNSTEIN REBUTS PAUL KRUGMAN AND COMES OUT TO DEFEND THE PREDICTION MARKETS.

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No GravatarCass Sunstein:

[&#8230-] Some people are now doubting not only the prediction markets but also the polls, saying that no one knows anything, and that anything is as likely as anything else. Don&#8217-t believe it. To be sure, we are continuing to obtain information about how prediction markets perform and when they do well and poorly. Perhaps they will turn out to be less reliable than they seem &#8212- and in all likelihood, we will obtain a better understanding of when they work. And of course no one has a crystal ball. But the polls are generally pretty good &#8212- and if you want to have a sense of the probabilities, you&#8217-d probably do best to consult Intrade.

Thanks to Stephen Bass for the link.

Previous blog posts by Chris F. Masse:

  • Red Herring’s list of the top 100 North-American high-tech startups includes Inkling Markets —but not NewsFutures, Consensus Point, or Xpree.
  • Professor Koleman Strumpf explains the prediction markets to the countryland people.
  • Professor Koleman Strumpf tells CNN that a prediction market, by essence, can’t predict an upset.
  • Time magazine interview the 2 BetFair-Tradefair co-founders, and not a single time do they pronounce the magic words, “prediction markets”.
  • One Deep Throat told me that this VC firm might have been connected with the Irish prediction exchange, at inception.
  • BetFair Rapid = BetFair’s standalone, local, PC-based, order-entry software for prediction markets
  • Michael Moore tells the Democratic people to go Barack Obama in Pennsylvania (a two-tier state), but the polls and the prediction markets tell us that that won’t do the trick.

HUBDUB = where the news shape the future

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I like the motto dreamed up by Nigel Eccles and his Scottish team. [I think they&#8217-ll come up with a play-money prediction exchange, but I&#8217-m not sure exactly what they are doing up there.]

And he, too, has come up to the defense of the prediction markets.

[I have updated my list of PM friends. Quite a long list now.]

Author Profile&nbsp-Editor and Publisher of Midas Oracle .ORG .NET .COM &#8212- Chris Masse&#8217-s mugshot &#8212- Contact Chris Masse &#8212- Chris Masse&#8217-s LinkedIn profile &#8212- Chris Masse&#8217-s FaceBook profile &#8212- Chris Masse&#8217-s Google profile &#8212- Sophia-Antipolis, France, E.U. Read more from this author&#8230-

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

  • Barack Obama is the 44th US president.
  • We already have prediction markets in future tax rates. It’s called the municipal bond yield curve.
  • DELEGATES AND SUPERDELEGATES ACCOUNTANCY
  • O’Reilly – Money-Tech Conference
  • Google Profiles
  • Event Derivative Exchange HedgeStreet is baaaaaaaaack… from the grave.
  • Sports Derivative Forum

Care to revise your statement, sir?

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No GravatarJustin Wolfers:

“In a few years, we may regard the second half of the 20th century as the aberration in which the press used polls rather than markets to track political races,” Justin Wolfers, a business professor at the University of Pennsylvania’s Wharton School, wrote in an e-mail message. “And in the 21st century, we may return to the habits of the early 20th century, reporting on political races through the lens of prediction markets rather than polls.”

MP3 file

Previously: Prediction markets are forecasting tools of convenience that feed on advanced indicators.

Read the previous blog posts by Chris F. Masse:

  • Bzzzzzzzzz…
  • Bzzzzzzzzz…
  • “No offense, but I think Radley Balko is the most valuable blogger in America right now.”
  • Are you a better predictor than John McCain?
  • What does climate scientist James Annan think of InTrade’s global warming prediction markets?
  • Inkling Markets, one year later
  • One trader’s view on BetFair’s new bet-matching logic

Prediction Markets = the greatest time-saving invention of this century

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John Tierney (and again this morning):

[…] Keeping up with a presidential campaign used to require at least an hour a day of wading through punditry, and much more time during the peak primary season. But now, with a few clicks on Intrade, you can see the accumulated expertise of thousands of people betting on the campaign. […]

That&#8217-s what I mean by &#8220-Prediction markets are forecasting tools of convenience that feed on advanced indicators&#8220-.

I will have another post on John Tierney&#8230- if Barry Ritholtz delivers on his promise to write up on prediction markets.

What one thing do you think that countries, companies or individuals must do to make the world a better place in 2008?

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Is there any prediction market answer to the Davos Question? I bet that there isn&#8217-t any, because the successes of the prediction markets are incremental and not spectacular. Prediction markets are a tool of convenience &#8212-they have no magic in them.

Nevertheless, I propose that we send the boy scout of the prediction market field, Jed Christiansen, to the World Economic Forum &#8212-if he can endure the cold.

Boy Scout

Boy Scout Uniform

Do you see a sixth dimension to the prediction markets?

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Midas Oracle is about the event derivative markets and:

  1. their profit opportunities (sought by the traders)-
  2. their predictive power (investigated by the economists)-
  3. their entertainment ability (delivered by the play-money prediction markets)-
  4. their hedging utility (employed by the risk managers and monitored by the CFTC)-
  5. their decision-making capacity (alleged by Robin Hanson).

E-mail me or leave a comment below.

&#8212-

UPDATE: Xpree&#8217-s Mat Fogarty&#8230-

their training / motivational ability (corporations like their employees to be engaged and knowledgeable about key metrics – PMs reward this process)

Inkling Markets = Business Processes + Prediction Markets

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Inkling Markets - Business Processes

Adam Siegel:

Two years ago the only way to run a prediction marketplace was to roll your own or call a vendor/consultant and have them set up software and run markets for you. It took many weeks, often months. Today with Inkling Markets it take seconds. […]

[#1] Improve forecasting of key performance indicators
Track and raise awareness of key success metrics to identify and mitigate risk factors before it&#8217-s too late.

[#2] Expose product quality problems early
Identify design and production anomalies before a product (physical or virtual) is brought to market to avoid expensive repairs and recalls.

[#3] Predict risk to your supply chain
Run a &#8220-web&#8221- of markets about the risk factors to your supply chain to predict internal and external events that would cause inefficiencies or disruptions.

[#4] Foster a culture of innovation
Determine which new ideas and process improvements will have real business impact vs. the &#8220-nice to have.&#8221-

[#5] Create new interactions with users
Build a dedicated community of users around a marketplace of questions relevant to your business area and brand. […]

Previous blog posts by Chris F. Masse:

  • The marketing association between BetFair and TOTE Tasmania works better than expected.
  • The term “event markets” sucks —and the uncritical thinkers using this crappy term suck too.
  • CLIMBING HIS WAY TO THE TOP: Erik Snowberg is now Assistant Professor of Economics and Political Science at California Institute of Technology.
  • Unlike other countries, the United States of America defends the freedom to offend in speech.
  • The best research papers on prediction markets
  • 2008 Electoral Map
  • American Enterprise Institute’s Center For Regulatory And Market Studies (Policy Markets)

Who wrote the broadest definition of prediction markets?

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Certainly not Chris Masse, says Emile Servan-Schreiber of NewsFutures:

[…] No, HSX box-office predictions are forecasts, not event probabilities, so if you restrict the definition to event probabilities, you exclude most of HSX. Same for “vote-share” markets at IEM. […]

Read the whole conversation (including the last Jason Ruspini comment) and decide for yourself. Now that Robin Hanson left us high and dry, who will write the broadest definition of prediction markets?