Category Archives: Economics

Justin Wolfers = Open Researcher

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&#8220-Open&#8221- in the sense described in this document.

Consider this:

  1. The ungated version of a document is provided.
  2. The references are provided in a special file
  3. The pieces of evidence are stated in a special file.
  4. The raw data are provided in a special file &#8212-so that you can apply your own statistical method to them.

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Amazing.

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Now, contrast Justin Wolfers with that British professor (the little poodle of a British prediction exchange), who, when asked by me what he meant by &#8220-betting markets&#8221- (a quite vague term that covered different things at different times), replied to me, &#8220-I meant what I wrote&#8221-.

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Justin Wolfers [*] is the most cited prediction market economist

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Economist Rankings at IDEAS

#390: Vernon Smith &#8212- #644: Justin Wolfers

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E-mail me if you think I forgot to spot a name in the list. (That could well be. There are so many names in the list.)

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[*] I suppose that the other guy is somewhat associated with that result.

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Previous blog posts by Chris F. Masse:

  • Robin Hanson fanboy and InTrade trader Patri Freidman’s outing —as one of the “sexiest geeks alive”
  • Is the mechanism outputting Justin Wolfers as the most cited prediction market researcher completely rotten?
  • COLD FUSION: Before you go trading on InTrade, do solve that, first —if you can.
  • Kudos to BetFair’s e-mail marketing team?
  • Conditional prediction markets about oil price and SegWay sales… Like the idea, Robin Hanson?
  • The Orb @ Texas Tech University
  • IS IT SAFE TO LOCATE A PREDICTION EXCHANGE NEAR A RIVER???

Collective Error = Average Individual Error – Prediction Diversity

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The Brain has a comment on Scott Page&#8217-s presentation [PPT file] about his book, The Difference:

One question is whether there is a way to usefully systematize that principle by trader selection or via something other than a strict market such as an (incentivised) weighted average system like HP’s BRAIN. The latter type of system will work better in some domains but in general might be less robust because it constantly runs the danger of being overfit to past trader correlations (or apparent expertise, risk appetites, etc). In general, trader self-selection and self-weighting might be more accurate. If you have some metric of “fundamental” trader similarity like proximity, org chart relations, demographic data – as opposed to past trading correlations only, that might work better in terms of expert-selection/expert-weighting.

The Difference

Previous blog posts by Chris F. Masse:

  • 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 ???
  • That can’t be Nigel Eccles of HubDub.
  • The Marketing Of The Reading Of The Public Prediction Markets = What Robin Hanson has deep trouble with, and what the prediction exchanges (e.g., InTrade-TradeSports, BetFair-TradeFair) haven’t fully computed yet
  • In 2013, Enterprise 2.0 will be a $4.6 billion industry. Good. But they forgot to mind the enterprise prediction markets.

STRAIGHT FROM THE TRUISM DEPARTMENT: Money buys happiness.

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No GravatarThe richer people and countries become, the happier they get.

Wow, that&#8217-s what I call a discovery.

Freakonomics – #2 – #3

New York Times

CNBC video

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Previous blog posts by Chris F. Masse:

  • Just like the armchair generals (presented on television as “military analysts”) carry the Pentagon’s propaganda, are our economics professors (who need the exchange data to pursue their academic career) in fact John Delaney’s unofficial P.R. agents, hidden behind an appearance of objectivity, and whose agenda is to generate favorable news coverage for InTrade? Is the symbiotic relationship between the prediction exchanges and the economics researchers dangerous for the truth?
  • Can we still trust Betfair? Should we trust Betfair? Or indeed, any betting exchange?
  • Prediction Markets at Google — by Peter A. Coles, Karim R. Lakhani, Andrew McAfee
  • Is that HubDub’s Nigel Eccles on the bottom left of that UK WebMission pic?
  • Collective Error = Average Individual Error – Prediction Diversity
  • When gambling meets Wall Street — Proposal for a brand-new kind of finance-based lottery
  • The definitive proof that it’s presently impossible to practice prediction market journalism with BetFair.

The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies

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No GravatarThe Difference

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Via Emile Servan-Schreiber (who claims it&#8217-s the supportive evidence for The Wisdom Of Crowds)

Has somebody read that book?

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Previous blog posts by Chris F. Masse:

  • The Most Surprising Piece Of News I’ve Heard Today
  • My first prediction market plugin for WordPress
  • Self-Serving Prediction Market Of The Day — Unlawful Internet Gambling Enforcement Act of 2006
  • Prediction markets tend to be so illiquid, though, that mere activity looks like volatility.
  • Decision Markets and Futarchy are solutions in desperate search for a problem to solve and for their early adopters… and that may stay that way well after Robin Hanson’s head gets cryogenized.

QUESTION TO THE READERS: Could anyone guess what Nassim Nicholas Taleb would think of the prediction markets?

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Fortune:

The idea that catastrophe can strike without warning does not seem particularly hard to understand. Why doesn&#8217-t Wall Street ever seem to allow for that possibility? And why doesn&#8217-t it learn from past catastrophes?

Let me blame business schools and the financial economics establishment – they have a vested interest in promoting models and devaluing common sense.

I worked on Wall Street for close to two decades in trading and risk management of derivatives. I noticed that while portfolio models got worse and worse in tracking reality, their use kept increasing as if nothing was happening. Why? Because in the past 15 years business schools accelerated their teaching of portfolio theory as a replacement for our experiences. It looks like science, and they have been brainwashing more than 100,000 students a year. There is no way my experiences can be transmitted to the next generation because of these schools. We&#8217-ve had fiascoes in finance that they need to neglect because they contradict their models. The problem may also be the Nobel in economics that gave a stamp to these junky theories. Someone needs to make the Nobel committee account for this, for the damage to society – and I hope to do so.

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Strongly anti-establishment guy. (More here, last year, with Felix Salmon.)

Could anyone guess what Nassim Nicholas Taleb would think of the prediction markets? Would he think that our prediction market researchers (Robin Hanson, Justin Wolfers, and company) are &#8220-giving stamp to junky theories&#8221-, hence &#8220-damaging society&#8221-?

Anyone (who knows NNT) willing to guess???&#8230-

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UPDATE: Jason Ruspini&#8230-

The basic answer is obvious – Taleb considers predicting as such to be nonsense, although the papers in this area by Wolfers et al only need appeal to information aggregation.

I do think Taleb would be very skeptical of the model-based papers on manipulation. While he and Robin Hanson seem to have some similar interests, this might be a difference. Consider Taleb&#8217-s &#8220-Fat Tony&#8221- and &#8220-Dr John&#8221- characters from The Black Swan. Fat Tony is more intuitive and &#8220-street-smart&#8221-. Dr John is more &#8220-platonic&#8221-, nerdy, and more apt to make mistakes because of a bad model or assumptions. The characters are each posed the following question: &#8220-Say I flip a fair coin ten times and it comes up heads all ten times. What are the chances of it coming up heads on the next flip?&#8221- Dr John replies, &#8220-Elementary. They are independent events, so 50%.&#8221-  Fat Tony says, &#8220-Less than 10% because the coin is probably loaded. Your assumptions are wrong or you are lying!&#8221-

The model-based papers on manipulation assume equal trading budgets and no feedback trading. These assumptions rarely hold.

Previous blog posts by Chris F. Masse:

  • “I’m very concerned with the international situation and what’s happening in Tibet.”
  • How to win $100 in play money at HubDub, regardless of any political outcome
  • Problem 17: Prediction Markets — USMA D/Math Problem of the Week — Submission Deadline: April 3, 2008 at 1600
  • Midas Oracle is now powered by WordPress 2.5 —and you should be too.
  • Would be fun to have the equivalent for event derivatives.

Freakonomics did not quiz Bo Cowgills boss, Hal Varian, on prediction markets -triple alas.

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No GravatarHal Varian, Google’s Chief Economist

Freakonomics interview. (I did ask, but they didn&#8217-t listen.)

Hal Varian&#8217-s post.

Read the previous blog posts by Chris F. Masse:

  • OutReach
  • If Warren Buffett can’t figure out derivatives, can anybody?
  • Many people twitter on prediction markets.
  • Folks, when you have something important to say, write up a full post, not a comment.
  • Prediction Market Journalism
  • TechCrunch is 221 times bigger than Midas Oracle.
  • Earthquake measuring 9.0 or more on Richter scale to occur anywhere on or before December 31, 2008

The concept of information value was not invented by Robin Hanson in the shower one morning for public release to the world via Midas Oracle.

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[The title above is a joke :-D based on Bo Cowgill’s latest comment. To get his joke, you will have to read all the comments there, till the final one (at the time of writing).]

Bo challenges me to publicize a Wikipedia link about the concept of information value. So, here is it:

Value of information (VoI) is undoubtedly one of the most useful notions in decision analysis. […]

Standard Definition

Consider a general decision situation having n decisions (d1, d2, d3, &#8230-, dn) and m uncertainties (u1, u2, u3, &#8230-, um). Rationality assumption in standard individual decision-making philosophy states that what is made or known are not forgotten, i.e., decision-maker has perfect recall. This assumption translates into the existence of a linear ordering of these decisions and uncertainties such that-
– di is made prior to making dj if and only if di comes before dj in the ordering
– di is made prior to knowing uj if and only if di comes before uj in the ordering
– di is made after knowing uj if and only if di comes after uj in the ordering

Consider the case where the decision-maker is enabled to know the outcome of some additional uncertainties earlier in his/her decision situation, i.e., some ui are moved to appear earlier in the ordering. In such case, VoC is quantified as the highest price in which the decision-maker is willing to pay for all those moves. […]

Voila.

Economist to watch: Justin Wolfers

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Absent from the NYT list, alas: Eric Zitzewitz, Robin Hanson, Koleman Strumpf, etc.

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Economists to watch - NYT

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Justin Wolfers&#8217- website

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

  • Google Profiles
  • Event Derivative Exchange HedgeStreet is baaaaaaaaack… from the grave.
  • Sports Derivative Forum
  • AMERICA’S CULTURAL HERITAGE AND ETHICAL VALUES ARE BEING POLLUTED AND DILUTED BY ILLEGAL IMMIGRATION.
  • I’m a big believer in the market, that it is the best way of aggregating information. Due to the law of supply and demand and profit-seeking, it has a better idea of what a price should be than any other way of determining prices.
  • WARREN BUFFETT: I said that the US dollar might be “worth less” in five to ten years —not that it might be “worthless”.
  • The Year Of The Rat should bring $$$ to the prediction market industry and the event derivative traders.

MENTAL HEALTH EXPERTS: INKLING HOBBY IS GOOD FOR ENERGY ECONOMIST MICHAEL GIBERSON.

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The New York Times:

Carol Kauffman, an assistant clinical professor at Harvard Medical School: &#8220-When you’re really engaged in a hobby you love, you lose your sense of time and enter what’s called a flow state, and that restores your mind and energy.&#8221- [&#8230-] &#8220-That positive emotion builds your cognitive and social skills. If you follow your bliss [*] for a little while, it really gives you a surge of energy.&#8221-

Dr. Gabriela Cora, a psychiatrist who is managing partner of the Florida Neuroscience Center and president of Executive Health and Wealth Institute: &#8220-Making time for enjoyable activities stimulates parts of the brain associated with creative and positive thinking. You become emotionally and intellectually more motivated.&#8221-

Gail McMeekin, a psychotherapist and owner of Creative Success: &#8220-Any time you take a break from routine, you develop new ways of thinking&#8221-.[&#8230-] &#8220-You have to do some market research first and make sure you could earn a living doing your hobby. You also take the risk that making your hobby your career [*] will take all the fun out of it.&#8221-

[*] His &#8220-bliss&#8221- right now is to chronicle the Writers Guild America&#8217-s 2007 strike on Inkling Markets and Midas Oracle .COM.

[**] Told him 10 times!!!!!!!

Michael Giberson

RECOMMENDED READING: RGGI auction design flaw: Separate sealed-bid auctions for substitute goods poses needless risks for bidders – by Michael Giberson (at Knowledge Problem)

&#8220-RGGI&#8221- is short for the Regional Greenhouse Gas Initiative (North East and Mid-Atlantic). They want to create a multi-state cap-and-trade program with a market-based emissions trading system. Economist Michael Giberson has found [links to Crampton&#8217-s paper that highlights] &#8220-one serious flaw that threatens the efficiency of the auction: they proposed to auction two goods which are asymmetric substitutes in separate, simultaneous sealed bid auctions.&#8221-

Mike, are there lessons here to learn when it comes to prediction market designs?

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Psstt&#8230- The best sentence that Mike has ever told me is this one (from memory):

Maybe there&#8217-s a method in your madness.

:-D

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

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