XM-Sirius merger

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So at Justin&#8217-s and my suggestion, Intrade has just listed a contract on whether the XM-Sirius merger will close.

(We&#8217-ve been waiting for a nice, juicy, controversial merger like this ever since Hp-Compaq.)

Interestingly, the MM has it at 60 bid/70 ask to close by June 08, but if you look at the stock prices of XMSR and SIRI, they have lost some of their initial announcement effect. There might be some free money on the table for the quick (I am abstaining).

If there is interest in this contract, I might be able to get them to run a contract on future subscription prices and subscribers (either conditional on the merger closing or just straight up). If you think about it, this could be an interesting tool for evaluating mergers in the future.

Like the idea? Spread the word.

Sirius 5 day chart

XM 5 day chart

Will betting exchanges [BETFAIR] always leave horse racing open to skulduggery??

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Running Horse

Reader &#8220-Santiburi&#8221- answers to Ron Cox&#8217-s anti-BetFair diatribe:

Even the headline to this article is misleading for readers who don&#8217-t really understand the links between the racing and betting industries.

In real terms, exchanges haven&#8217-t changed anything as regards skullduggery. Yes, possibly other people than bookmakers can now more easily take advantage of negative information but the advent of exchanges didn&#8217-t define the starting point for such actions. Exchanges seem to have assisted in uncovering evidence of skullduggery but I know without question that it&#8217-s wrong to believe that more of the same wasn&#8217-t happening before the exchanges arrived. Conveniently, as now, most bookmakers didn&#8217-t have to, and don&#8217-t, open their systems for investigation.

Racing needs betting. It wouldn&#8217-t exist otherwise. One could argue for a pari-mutuel monopoly to eliminate bookmakers but that&#8217-s a non-starter. Bookmakers own horses. Trainers keep owners informed on the well being of their horses and talk to the media about their horses. Trainers, stable staff, jockeys, owners have family and friends and talk to their friends about life, the world around them and, not surprisingly, their horses.

I am absolutely abhorred by the act of deliberately changing the result of a horse race through &#8216-pulling&#8216- and such like. Ban those jockeys who are really guilty of such acts. However, trying to legislate for people, licensed by racing or not, talking to each other is ridiculous. Most of the officials trying to sort criminal acts from normal conversation are ill qualified for the role and, like most commentators it seems, don&#8217-t really understand the links between racing and betting. Sadly, the sport of kings, which I love, will die soon unless some reality and professionalism is imposed upon it and its guardians.

– More info on the Winston/BetFair case (U.K.).

– Unrelated: More info on Western Australia (an Australian state/province) trying to forbid BetFair.

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

A Big Traders Open Letter to TradeSports-InTrade

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Dear TEN Management:

I have decided to write you one final email in an attempt to discuss with you the problems that are existing on your websites, which continually go unacknowledged by your entire staff. The events of Monday evening have now pushed me to this point to try one last time to get a response from you. You will notice some attached forum posts in my email, and any emails that I reference are available to you. I will be happy to forward them to you if you&#8217-d like.

In the past 9 months, I have learned to use your site and become quite an avid trader. My trading volume must easily rank in the top traders on your combined websites. I trade sports and financials. However, the only thing that I now like about your website is strictly the concept of it. The unresponsiveness of the management and the disregard for the customers is alarming.

On this past Monday evening, the SMC/USF game was a live featured event. The forum reference for this issue is (http://forum.tradesports.com/eve/forums/a/tpc/f/809603632/m/3621061412). With one minute to go in the game, the exchange was closed for maintenance. The game was a 9 point game with a 5.5 spread. The game was an 8 point game with under 30 seconds to go, and the spread was totally in play. I first dialed your 1-866 phone #, and got no live help, I then sat waiting for live help via the internet and got no response even though I was first in line for over 5 minutes. Luckily for me, the game ended in my favor and the $2200 that I had at risk was credited back to my account. If you question my intention to trade in the last 1 minute of the game, let me include my trade lines from World Sports EXchange:
02/20/2007 02:06:18 Sell 10 CB-02-19-07-M1 ST MARYS -5.5 $90 Complete Fill
02/20/2007 02:06:23 Sell 4 CB-02-19-07-M1 ST MARYS -5.5 $90 Partial Fill
02/20/2007 02:08:56 Sell 1 CB-02-19-07-M1 ST MARYS -5.5 $100 Complete Fill

Unfortunately, I was unable to cover on TS because your staff closed out the system, and was 100% unresponsive. If you review the emails to and from live help and myself on the past few Monday nights you will clearly see that I remind your staff not to close out the system during a game, and get back messages from them basically telling me that they know. Well, apparently, they don&#8217-t know, or possibly they don&#8217-t care. Your promise to allow trading to the end of the game/event was 100% violated. I paid $44.80 in fees to trade this STC/USF game – and was approximately 20% of your volume. TEN should do the right thing and refund EVERY trader their fees from that entire game, and quite possibly take them from the employee who continues to make late night errors. If these were my employees who kept making stupid errors that upset a large portion of my clients, I would terminate them immediately. And this is not the first occurrence. To the same extent, many events have been paused before their completion – with the final outcome still in doubt – in an event to avoid traders covering their positions, so that TEN can save every last dollar in fees. (http://forum.tradesports.com/eve/forums/a/tpc/f/809603632/m/7751024691).

This brings me to my next two points, the first of which being your new fee structure. We all heard what it was designed to do. Increase traders and liquidity. I read the flowery statement from the CEO (http://www.intrade.com/news/news_101.html), about open contracts, new traders, new interest, etc., etc. But it has not resulted in increased liquidity. And if it has, none of the traders can see it. Don&#8217-t you see the problem? TEN has created this mad dash to cover at the end of events to save a few cents as a trader, and has created this urgency in its employees to get events paused so they can save a few cents also. A well thought out plan would have eliminated this need to cover. It would allow a user holding a winning contract to sit back and relax, it would allow TEN employees to take their time in pausing an event to actually make sure the event is over. In addition this new fee structure has killed trading at the extremes, which is clearly proven in volumes in late game/event situations. When I am trading with TEN on a normal basis, my fees amount to $3000 a month. I don&#8217-t mind paying a fee for a service, but the service I get in return from TEN is no where close to what should be expected. In addition to paying fees and being &#8216-charged&#8217- for a service, have you ever considered giving a discount? This is the only site that I have used that offers nothing back to its users, and is by far the most expensive site to use. No refunds for being a large trader, no bonus, nothing. In this link you will find a proposal I made regarding a fee refund structure that would promote higher volume and liquidity and be advantageous to being a high volume trader. (http://forum.tradesports.com/eve/forums/a/tpc/f/809603632/m/8451026112)

The next issue is your staffing decisions. It appears that once 4pm Dublin time arrives, there is no one left capable or authorized to make a decision to deal with issues that arise. All these employees are authorized to do it forward emails and leave the problems for the morning. Do you realize that almost all of your sports volume goes on while management sleeps? The majority of your finanacial (Dow/Nasdaq) volume goes on after Dublin business hours? Even a 24 hour McDonalds has a manager on duty at 4am. Someone needs to be responsible for what happens, and to deal with any issues that come about. Judging by emails I receive from live help during non-Dublin business hours, that person does not exist.

Regarding the grading of contracts, we all know there have been many issues. I did not trade the North Korea contract, so I cannot offer my opinion on it. But I have been involved in the past few weeks in a few sports mis-grades that continue to show the haste of TEN to get their fees and get money back into the accounts. Just last night, the LSU/UK game was paused as the clock when to 0, so obviously someone must have been watching the game via satellite. But the final score that the service you use was different from the one quoted at the end of the game. Wouldn&#8217-t it make sense to clarify the situation before grading the event? This happened in a Chicago Bulls game and another college game earlier in the month. Why the rush? Information is the key to grading the events. And in some cases TEN (and now specifically Intrade) does not have the proper information to even grade events. If you refer back to my DOW Jones Hourly posts. The hourly contracts where TEN pauses at xx:00:00, and then claims – &#8220-The source used to expire the intra-day contracts will be the Time Stamped print at 10:00:00am ET/01:00:00pm ET or other contract specific time [or first print thereafter if there is no print at the specified time) as reported on Bloomberg.&#8221- But in actuality the information that you use to expire these contracts does not ever even include a time stamp! The information that you expire on is some random point beyond xx:00:00 because TEN claims that the data does not exist. How can you have a contract paused at a specific time but then grade it on a data point that exists some random number of seconds beyond when we were allowed to trade it? Do you have any idea how much money I have lost out of on this technicality? Do you even care? The forum references for this issue are (http://forum.tradesports.com/eve/forums/a/tpc/f/809603632/m/2691083191), (http://forum.tradesports.com/eve/forums/a/tpc/f/169603632/m/7701093191), (http://forum.tradesports.com/eve/forums/a/tpc/f/169603632/m/3091048191/p/2)

On the topic of market makers, does TEN realize that their entire system is dependent upon them?? They control all events. Trading, price setting, liquidity. I will never make a market, it&#8217-s not my trading goal. Many others feel the same. These market makers need to be compensated so they don&#8217-t need to make their markets wider in order to protect themselves. Market makers are openly admitting to changing how they are doing business to protect themselves. Your fee structure and benefits to them should protect them &#8212- in return they will offer traders better markets, promote more volume, and ultimately increase liquidity. This will also motivate them to stay for the entire game/event. (http://forum.tradesports.com/eve/forums/a/tpc/f/809603632/m/8451026112) (http://forum.tradesports.com/eve/forums/a/tpc/f/809603632/m/7341030702) These issues also exist with the financial contract. http://forum.tradesports.com/eve/forums/a/tpc/f/809603632/m/2271068702

In your defense, I must say, dealing with banking issues, and trusting my money with your company, you are second to none. I have never once had an issue regarding a deposit or withdrawal. Any problems or questions that have arose have been dealt with promptly and fairly by some excellent employees. But on the topic of depositing and withdrawing, why haven&#8217-t some of the suggestions been taken? (http://forum.tradesports.com/eve/forums/a/tpc/f/809603632/m/8451026112) Why is TEN so far behind everyone else? This will hurt volume if money cant be moved freely into and out of the site. Why cant some of those quality employees be available to handle other problems and create methods of increased liquidity?

I hope you do not take my emails and forum posts as personal attacks. Like I said in my opening statements, I like the concepts of TradeSports and Intrade, however there are many issues that go unaddressed &#8212- and that is the fault of management. I would like to see the best for Tradesports/Intrade and would like to make my experience and the experiences of other traders to be positive ones, but I also fully understand the need for a company to make a profit. My suggestions to you take both into account. I have successfully owned, operated, and restructured many businesses and have always felt my opinions to be objective in balancing corporate profits with customer satisfaction. I feel if you begin to look your policies and procedures from both standpoints, your business can run more efficiently, achieve higher profit levels, and create a more stable and trusting customer base.

Thank you for your time and consideration. I hope this time you will take the time to respond to me either via email, or any other method you choose to contact me by. I am more than willing to discuss some of these issues with you further.

Sincerely,
Todd
E-mail: todd73nj &#8211-at++ aol &#8211-dot $$ com

Next: Second E-mail to InTrade-TradeSports

Previous blog posts by Todd Griepenburg:

  • TradeSports Cost of Service Charts
  • Third E-mail to InTrade-TradeSports
  • Second E-mail to InTrade-TradeSports

Market to the market aficionados, first.

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David Pennock:

Markets and betting suffer from an image problem and a learning curve — they appeal strongly to a certain demographic but are repelled by others. As much as I’d like this mentality to change, I don’t see it happening in the near future.

In my view, the prediction market consultants should focus on the market-literate people out there (the sophisticated users of markets) before branching out to other forecasting techniques (&#8221-competitive forecasting&#8221-), which the other (i.e., non-market) forecasting professionals do master better.

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

Trading on Markets vs. WeatherBill, Market Scoring Rule, BetFair Multiples

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I will try to be clearer.

PROBLEM: Other than on popular prediction markets at TradeSports-InTrade and BetFair, liquidity is a problem.

HANSON&#8217-S SOLUTION [*]: Market Scoring Rule. (See it in action: I’m betting the farm on AL Gore for the Oscars.) Cool, but not really customizable. In my example, I had the choice between three options, only. Quite poor.

WEATHER BILL SOLUTION: Forget trading on markets, forget automated market makers, forget mixing betting and trading (MSR), forget all this &#8212-impossible to go retail with these mechanisms. Weather Bill = a sophisticated way to take client orders, very precisely. Customers get what they really want. Weather Bill offers a highly customized hedging service. (Instead of going for re-insurance money, they pass the risks to some hedge funds via a CFTC-acknowledged EBOT, but that&#8217-s a back-office detail.)

HEDGESTREET CASE: HedgeStreet is a hedging/speculating service. (Note that they are regulated by the CFTC, not just acknowledged.) Let&#8217-s do a thought experiment. HedgeStreet (just like BetFair did recently) becomes a bookmaker, in addition to being an exchange. They adopt a WeatherBill-like user interface to take very precise client orders &#8212-as opposed to asking traders to fill in ask-and-bid orders and making use of an automated market makers (as HedgeStreet did, if I am correct). Of course, you would have two different user interfaces: one for the speculators and one for the hedgers. Then, do you see an algorithm/mechanism that would balance the two? And whom would they pass the risk to (if any)? And is there a way to have a mix exchange&#8211-bookmaker business model while satisfying the CFTC at the same time?

&#8212-

My point is that there is room for innovation, out there. BetFair has shown that you can go retail &#8212-providing that you cater to a population of sophisticated bettors. The fact that they now offer multiples show that the betting exchange business model has some limits. Sticking with it like a fundamentalist prevents you to servicing fully your customers.

As always, innovation is the key to customer satisfaction &#8212-and to profitability, mister Jason Ruspini.

Addendum: [*] Robin Hanson actually devised two versions of Market Scoring Rule. His combinatorial version might render this blog post totally pointless. Alas, no prediction exchange (betting exchange) is using his combinatorial Market Scoring Rule.

Super Bowl Analysis Highlights — Keith Jacks Gambles Second Turn

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A bunch of Marginal Revolution commenters dared criticizing Keith Jacks Gamble&#8217-s Super Bowl Analysis Highlights (+ addendum). The impudence! The audacity! They called down the thunder- they should get ready for the boom. [*]

Yes, the results of individual plays depend on lots of factors including play selection, and there is no way my analysis can separate all of these factors. After all, football is a team sport, and thus I suspect that cleanly identifying a player&#8217-s sole contribution play-by-play to his team&#8217-s chance of winning may be impossible. Certainly the performance of the offensive line has a ton to do with a team&#8217-s success. But even with standard statistics for measuring a player&#8217-s performance these issues remain. Quarterbacks get credit for completions, passing yards, and throwing touchdowns even though the coach&#8217-s play calling, the line&#8217-s blocking, the receiver&#8217-s route running, ect have everything to do with creating those numbers. Attributing actions to the primary actors on a play is a natural way to compute statistics. At least my net probability points statistic provides some weight to the game situation when measuring a player&#8217-s impact on a given play. Certainly, a 3 yard run on 3rd and 2 at the opponent&#8217-s 4 yard line means more than a 3 yard run on 3rd and 10 at a team&#8217-s own 20. This difference isn&#8217-t captured in rushing yards, but it plays a major role in my numbers.

It&#8217-s not ludicrous to think that the error rate of a betting market is low. In fact, Professor Paul Tetlock&#8217-s research [PDF] shows that it is low. He finds that the implied probabilities (prices) for sports contracts on Tradesports.com are very close to the frequency that these contracts payoff. See Figure 1 on page 41 and notice that for his data the differences between prices and frequencies are actually quite small- in the range of prices from 40 to 80 (where the prices were for most of the Super Bowl) he finds deviations of around 1 (1% in probability). Furthermore, a look at Table 1 on page 34 shows that the standard errors for the estimated deviations in this price range are too large to rule out &#8220-no deviation&#8221- as an unlikely truth.

True, before kickoff the betting market estimated that Florida had about a 30% chance of beating Ohio State, and certainly before kickoff the market would have estimated that Florida had only an very small chance of winning by so many touchdowns. However, I&#8217-m sure that the market&#8217-s estimate of Florida winning by so much was not zero. Thus, this one example doesn&#8217-t say much of anything about the error rate of betting markets. Small probability events do happen. I once saw a lady win $5,000 on a quarter slot machine in Vegas, but that doesn&#8217-t make it ludicrous for me to think that my chance of doing the same was extremely small.

I think that my analysis does account for bruising running, clock control, and ball control. If a Rhodes run wears on the defense, the market sees this fact and will raise the probability of the Colts winning more so than if he had just fallen down at the same spot without knocking into a defender. Also with clock control, if a Colts receiver stays in bounds to keep the clock moving to protect a lead, then the market sees this fact and will raise the probability of the Colts winning more so than if he had run out of bounds at the same spot. Certainly, Addai not fumbling will raise the probability of the Colts winning more so than if he had not controlled the ball. The reason that you don&#8217-t see these factors greatly boosting Rhodes&#8217- and Addai&#8217-s numbers in my analysis is that these things are to be expected of any NFL running back. All running backs pound defenders, stay in bounds when necessary, and hold on to the ball when most important. Thus, market prices only change a little when these actions are done successfully. Doing good things that are to be expected do not count that much towards a player&#8217-s performance in my analysis. However, doing something bad when something good is to be expected, such as fumbling, really hurts a player&#8217-s performance statistic. For example, Addai&#8217-s fumble and Manning&#8217-s interception hurt their overall net performance statistic.

I was surprised by how low Rhodes&#8217- performance measured in my analysis, and I think it&#8217-s in part due to poor play calling that unfortunately gets counted against Rhodes in my analysis. For example, when Rhodes ran for 8 yards on a 3rd and 10 inside the red zone, the market dropped the Colts chance of winning by 4.5% even though I think Rhodes getting 8 yards was a great outcome for a RUN inside the 10. The priced dropped because that play pretty much ended the Colts chance at scoring a touchdown on the drive given that the field goal team was now trotting onto the field. I think this price drop is suggestive that the Colts made a mistake in their play calling. There&#8217-s also a case in which Rhodes ran for 5 yards to midfield on a 2nd and 13, but the probability of the Colts winning dropped by 1%. Even though 5 yards is an above average outcome for a run, it&#8217-s not a good outcome for a play on a 2nd and 13, because the probability of a punt goes up. Although, not related to play calling, all of Rhodes&#8217- yards in the last 5 minutes of the game amounted in just a .5% increase in the Colts probability of winning because at this stage of the game the market was fully convinced that the Bears chance at a comeback was was less than 1%.

It&#8217-s a common misconception that betting lines are set up to get equal money on both sides. Betting lines are set up to maximize the sportsbooks&#8217- profits. See Steven Levitt&#8217-s paper [PDF] or just take a look at Sportsbook.com&#8217-s betting trends. NFL betters overbet on favorites, so I wouldn&#8217-t be surprised to see underdogs beating the spread a little more often than favorites. However, I would be shocked if underdogs can truly be expected to beat the spread more than 52.4% of the time since it would mean that an underdog better with a big pocketbook could expect to make a lot of money from the sportsbooks. Also, my data is taken from Tradesports.com, an online exchange that takes no positions unlike a sportsbook. It&#8217-s a marketplace of betters, and so far, the evidence is that the prices there are pretty good estimates of probabilities. [&#8230-]

Super Bowl Analysis Highlights – MR Comments

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The Marginal Revolution commenters on Keith Jacks Gamble&#8217-s Super Bowl Analysis Highlights:

very interesting, but I disagree with his assignment of results to individual players. The results of individual plays, and their effect on the probabilities, depend on a lot of factors, not least play selection.
Posted by: Bernard Yomtov at Feb 11, 2007 12:33:55 PM

Its ludicrous to imagine that the error rate of a betting market is as low as implied. Consider that in the Florida-Ohio State game, the market was off by several touchdowns.
Posted by: Vish Subramanian at Feb 11, 2007 2:22:05 PM

This is an interesting idea, but it assigns no value to the worth of Dominic Rhodes wearing out the Bears&#8217- defensive players with his bruising running, or the clock control and just plain ball control Joseph Addai contributed to. It also fails to account for things like offensive line play.
Posted by: Mick at Feb 12, 2007 5:22:36 PM

Also, betting lines are set up to get equal money on both sides of the coin, so the betting public is supposed to be 50/50 winners and losers. Underdogs had a winning record in the NFL this year, and a runaway winning record against the spread.
Posted by: Mick at Feb 12, 2007 5:24:23 PM

Predictocracy: Market Mechanisms for Public and Private Decisionmaking – THE MARKET WEB

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Predictocracy: Market Mechanisms for Public and Private Decisionmaking &#8211- by Michael Abramowicz &#8211- 2007-xx-xx &#8211- (fall)

Chapter: The Market Web &#8211- (towards the end of the book)

&#8212-

Michael Abramowicz:

If prediction markets should become commonplace, decisionmakers might link to them in their own analyses.

Will trading play-money and/or real-money event derivative contracts become commonplace? It&#8217-s likely, at the contrary, that trading will remain an elite occupation and that prediction markets with appropriate liquidity will remain scarce. Unless Google, Yahoo! (with Yootopia) and/or MicroSoft has/have a secret plan to popularize betting exchanges &#8212-which could well be since Bo Cowgill, David Pennock and Todd Proebsting are ambitious guys.

&#8212-

Michael Abramowicz:

For example, suppose that a corporation is deciding whether to build a new factory in a particular area. That decision might depend on variables like future interest rates and geographic patterns. And so, a decisionmaker might build a spreadsheet containing live links to prediction markets assessing these issues.

Interest rate prediction markets would help, for sure. As for geographic forecasting, maybe non-trading mechanisms could help &#8212-for real estate, I&#8217-m thinking of Zillow, or some improved mechanisms derived on Zillow.

&#8212-

Michael Abramowicz:

The Market Web

If prediction markets should become commonplace, decisionmakers might link to them in their own analyses. For example, suppose that a corporation is deciding whether to build a new factory in a particular area. That decision might depend on variables like future interest rates and geographic patterns. And so, a decisionmaker might build a spreadsheet containing live links to prediction markets assessing these issues. That way, as the market predictions change, the spreadsheet&#8217-s bottom line would change as well. Predictions in many prediction markets may be interrelated, and so market participants in one prediction market will often have incentives to take into account developments in other prediction markets. Prediction markets thus can affect one another indirectly, as participants in one update their models based on developments in another.

Sometimes, however, it might be desirable to construct links among prediction markets so that changes in one automatically lead to changes in another. Consider, for example, the possibility of a market-based alternative to class action litigation. In Chapter 8, each adjudicated case represented a separate prediction market, but often there will be issues in common across cases. Many thousands of cases may depend in part on some common factual issues, as well as on some distinct issues. Legal issues also may be the same or different across cases. Someone who improves the analysis of any common factual or legal issue can thus profit on that only by changing predictions in a very large number of cases. A better system might allow someone to make a change across a single market and have that change propagate automatically to individual cases.

The critical step needed to facilitate creation of the market web is to allow a market participant to propose a mathematical formula to be used for some particular prediction market. Some of the variables in that formula could be references to other, sometimes new, prediction markets. For example, a market participant might propose in a market determining how much amages the plaintiff should receive a formula dependent on variables such as the probability that the plaintiff states a cause of action, the probability that the plaintiff was in fact injured, the probability given injury that the defendant caused the injury, the probability given a cause of action that the defendant is subject to strict liability, the probability given no strict liability that the defendant was negligent, and the damages that the plaintiff should be awarded if liability is proved. This formula, for example, presumably would allow for no damages where the plaintiff probably does not state a cause of action. Each of the components of this formula might be assessed with a separate prediction market. We can easily build the market web by combining three existing tools. The first tool is a text-authoring market. The relevant text would be the formula itself, including specifications of other prediction markets that would be used to calculate specific variables. As with any text-authoring market, a timing market would determine when a proposal to change the text should be resolved. Other markets might become live only once proposals to take them into account were approved. Ex post decisionmakers would assess the wisdom of these markets&#8217- recommendations in some fraction of cases to discipline the market&#8217-s functioning.

The second tool would be a simple normative prediction market corresponding to the text-authoring market. It might also be possible to have computer software that automatically parses the formula and consults various sources, but the market sponsor need not build this tool. Rather, ex post decisionmakers will assess the appropriate value for the normative prediction market based on the formula. An advantage of this approach is that it would make it easy to use complicated formulas, as well as formulas that depend in part on numbers from sources other than prediction markets, or from prediction markets of other types. In addition, this approach makes it easy to collapse a formula into a single prediction market, if that should prove desirable. The formula text simply would be changed to a description of the market to be created, such as &#8220-adjudication of plaintiff&#8217-s liability in a particular case.&#8221-

Finally, the third tool necessary is a mechanism for determining the market subsidy. A separate subsidy would be needed for the text-authoring market and the normative prediction market. Each of these subsidies could be determined by additional normative prediction markets, perhaps with fixed subsidies. The subsidy for the text-authoring market in turn would be distributed by the text-authoring market to individuals who have proposed particular amendments, and individuals who have participated in the assessment of particular amendments. The text-authoring market also could allocate a subsidy to the first individual who creates the market and proposes some text for it. When the text-authoring market produces a new formula reflecting additional prediction markets, the subsidy for the main prediction market would fall (since calculating a formula based on other prediction markets will often be relatively easy).

A single node in the market web would thus consist of a text-authoring market describing the node and providing a formula for calculating it, a normative prediction market, and a set of additional prediction markets for determining how to distribute a subsidy to the different components of the node. The nodes collectively create a web because the formulas link to other nodes- software, of course, could easily make these links clickable. At the same time, a mechanism is needed to determine what portion of the market subsidy each node should receive. A simple approach would be for a prediction market to be used for every link, to determine the portion of the subsidy for each node that should be allocated to each node linked to it. The total should add up to less than 1, leaving some portion of the subsidy for the node itself.

With these markets established, software could easily distribute a single subsidy for the market as a whole to market participants who have traded on individual nodes when the market closes. Market participants working on one portion of the web, meanwhile, would not have to assess the relative importance of one node to nodes that are only distantly related. It would also be straightforward to have a continuously open market, periodically collecting and distributing money in accordance with individual participants&#8217- success on the market.

This assumes that the market web would be arranged on a single server. It is possible, though, that a node on one market web might link to a node on another market web. If market sponsors allowed such links, it could promote competition among prediction market providers. It also partially answers one potential criticism of using prediction markets for decisionmaking, that a software engineer might hijack the government by faking some prediction market results. Market participants at least will have incentives to identify fake prediction markets and not link to them. In principle, it is possible to have government decisions based entirely on decentralized prediction markets. A caveat is that the government might want to subsidized individual market web providers, and it might use centralized prediction markets to accomplish that.

Whether or not the markets themselves are decentralized, they would allow market participants to make it easier to assess the basis for market predictions. Indeed, the market web is in some ways a substitute for deliberative prediction markets, because both provide means of helping observers understand the basis for the market&#8217-s predictions. An observer could look at any individual node of the market web and understand how it has been calculated, though inevitably there must be some &#8220-leaf&#8221- nodes that themselves do not contain any formulas. At the same time, software might allow an observer to find all of the nodes that link to a particular node. So a market participant addressing a factual issue relevant to many cases could link to all of the cases represented by that factual issue. As a particular issue becomes increasingly important, the subsidy for that node should rise, and market participants can profit on their analysis of the issues relevant to that node without worrying about details of individual cases.

[…]

Brainy stuff. I&#8217-ll mind this for a while. I&#8217-m sure that the Midas Oracle readers will find this idea original &#8212-and maybe, interesting.

An Analysis of the 2007 Superbowl Using Price Changes on TradeSports

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An Analysis of the Superbowl Using Price Changes on an Online Prediction Exchange – (TradeSports) – (PDF) – by Keith Jacks Gamble – 2007-02-08

ABSTRACT: I analyze Superbowl XLI by matching price changes for a futures contract on the winner to play-by-play data. The price change following a play measures the impact of that play on the market’s expectation of which team will win. Thus, these price changes identify the relative importance of each play in determining the outcome. Four of the top five impact plays of the game were turnovers, led by Kelvin Hayden’s interception return for a touchdown. These price changes also provide a new statistic for measuring and comparing players’ performances. Despite winning the Most Valuable Player Award, Payton Manning ranks 10th on the list of positive impact players for the Colts. By far the greatest contributor to the Colts’ victory was Rex Grossman, whose poor play for the Bears contributed twice as much as the top performing Colt.

CONCLUSION: This analysis of Superbowl XLI shows how price changes on an online exchange can be used to measure the impact of each play on the final outcome. […]

NOTE: This is just for the openers. It could be that Keith Jacks Gamble will publish a blog post on Midas Oracle, soon &#8212-if he wishes.