In France, prediction markets are hyped by 2 bozo economists -David Thesmar and Augustin Landier.

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Emile Servan-Schreiber is doing a great job of putting prediction markets on the French media scene. (As I type this, he is on French TV.)

2 green-foot French economists (David Thesmar and Augustin Landier) are hyping the prediction markets in the French media, using a non-scientific language (&#8220-predictive markets&#8221-, &#8220-stocks&#8221- *) and few references to hard facts. Their background is not stellar. They penned an Op-Ed in July 2007, titled, &#8220-The mega-crash won&#8217-t happen&#8221- [PDF file].

Of course, one year later, the developed world experienced (and is still experiencing) the worst financial crisis ever. What&#8217-s funny is that, in 2007, our 2 economists-in-chief were hyping the non-regulated credit derivatives that sent us into the depression, and denying the possibility of systemic risk. What a bunch of incompetents.

Emile, please recruit more serious people.

[*] The good vocabulary is &#8220-prediction markets&#8221-, and &#8220-traded bets&#8221- or &#8220-event derivatives&#8221-.

Next: French bozo economist Augustin Landier is hiding his 2007 Op-Ed that stated that the financial crisis “won’t happen”.

Next: French bozo economist David Thesmar is hiding his 2007 Op-Ed that stated that the financial crisis “won’t happen”.

It wasnt about the predictions.

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Let&#8217-s not confuse media visibility with utility. Aside from the depressed Obama-to-win prices on one exchange, prediction market and polling aggregation results for the 2008 election were essentially the same using squared errors. Despite his insane schematics, Emile Servan-Schreiber has a good point about capturing the interest of the public, something that nerdy academic and libertarian-types aren&#8217-t necessarily good at. An Obama-backing baseball statistician out of Daily Kos nailed that part this year, a year where people were especially skeptical of markets, not to mention unregulated &#8220-offshore&#8221- ones. Likewise, if you put down the lens of considering markets as commission generators, you&#8217-ll see the value of contracts tied to social and cultural outcomes. Of one the biggest assets of prediction exchanges is media goodwill, which should be fostered by distilling information on subjects like global development and art prices.

Other things to keep in mind:

  • This year happened to have a lot of favorite-longshot States, which turned-out to be favorable to 538&#8217-s error relative to markets.
  • Prediction markets register information in real time. Since the difference in error is small, this is important.
  • Markets are more flexible, and useful in situations where you don&#8217-t have a rich data set and obvious statistical analyses. Elections are just one type of question. Even if you have data, it might be less expensive to set up a new contract than to undertake the analysis.
  • And of course, prediction markets have functions aside from forecasting, and provide incentives for uncovering new information.

Is InTrade being manipulated? Why does InTrade give a discounted probability for Barack Obama as US president?

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A quick link panorama.

#1. Is InTrade being manipulated?

– Nate Silver shows that there are abrupt downward pressures on the Barack Obama event derivative, while we also see some abrupt upward pressures on the Hillary Clinton event derivative.

However, you can see by yourself that InTrade is resilient enough and does a great job of going back to normal [*], after just a few hours of trading:

– At Portfolio, blogger Zubin Jelveh blows the incidents out of proportion.

– Professor Lance Fortnow has a more careful analysis and notes that the price of the Barack Obama bounces back quickly enough.

– Quick thought: Maybe the media should use an average of event derivate prices for the last 5 work days&#8230- so that the abrupt perturbations would be eliminated.


Professor Eric Zitzewitz:

I’m not sure you can conclude from Silver’s graphs that the market goes “back to normal.” You can conclude that it moves back in the opposite direction of the impact those large trades. Back when the Hillary for President market looked like it was being manipulated, it appeared that the manipulator was both placing a large purchase and then placing limit orders to provide price support and slow down the reversion of the price.

UPDATE: Are we witnessing manipulation attempts on the &#8220-Florida to vote Republican&#8221- prediction market at InTrade?

#2. Why does InTrade give a discounted probability for Barack Obama as US president?

– As you remember, Emile Servan-Schreiber of NewsFutures believes that it&#8217-s a Republican conspiracy all over.

– Professor Justin Wolfers puts up an hypothesis: it&#8217-s legally impossible for US traders to arbitrage on BetFair.

– InTrade put up a crappy excuse: the industry is still too &#8220-young&#8221-. How lame. How stupid. The industry was younger in the previous elections, where arbitrage opportunities didn&#8217-t exist according to professors Justin Wolfers and Eric Zitzewitz (see their 2004 paper and their other publications).

– Blogger Zubin Jelveh swallows the InTrade P.R. line, and adds another crappy InTrade P.R. line: More arbitrage opportunities are being exposed in open air because much more observers are hunting down arbitrage opportunities in 2008 than in previous elections. That&#8217-s a second blatant cretinery, uncorrected by the Portfolio blogger. Re-read Justin Wolfers&#8217- blog post. Professor Justin Wolfers states that:

The current variation in price is larger than I have ever seen in my years of studying prediction markets. The forces of arbitrage that would typically eliminate these differences have been handicapped by the legal restrictions preventing U.S.-based traders from using overseas markets.

– Finally, professor Lance Fortnow says nothing about the arbitrage opportunities between InTrade and BetFair, but does offer some technical points about the issue of polls versus the prediction markets, centered around the question of state correlations. Read on.

UPDATE: Eric Crampton (a Canadian exiled in New Zealand) says he has managed to turn a buck by arbitraging between InTrade and iPredict New Zealand. He also makes 2 theoretical points. Go read it.

UPDATE: Greg Mankiw just linked to Nate Silver.

NewsFutures Enterprise Prediction Market Workshop, NYC, 10/27

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For aspiring practitioners and those intrigued by the applications of collective intelligence in the workplace, the typical prediction markets conference can be frustrating for lack of focus on practical knowledge and hands-on experience with the tools. That&#8217-s why NewsFutures is organizing a Wisdom of Crowds Consulting Workshop, in New York City, on October 27.

It is designed primarily for business consultants who would like to acquire working knowledge of &#8220-WOC&#8221–based solutions, or for the manager looking for some hands-on experience while considering the potential of this approach for his or her company.

The one-day program will cover:

  • Foundations
    Prediction Markets and Wisdom of Crowds 101: principles, mechanisms, evidence, and applications
  • Applications
    Case studies in strategy, forecasting, innovation, and project management
  • Tools
    Hands-on experience with various wisdom-of-crowds software tools: Prediction Markets, Competitive Forecasting, Idea Pageant, and Impact Matrix
  • Practice
    Keys to a successful implementation: information, integration, inclusion, interface, and incentives
  • Collaboration
    Nuts and bolts of working with NewsFutures

If you are interested, please follow this link for more information about the venue and how to register.

I look forward to seeing you in NY, home of the world&#8217-s financial meltdown!


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HubDub will get quoted in the future, just like the Hollywood Stock Exchange is, today… – PROBABILITY = 33%, AT BEST.

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HubDub CEO Nigel Eccles:

I fully appreciate the work that Emile and others have done but just because something hasn’t worked before doesn’t mean it can’t happen. […] Sometimes ideas take time and a fresh perspective before they achieve their full potential. […]

My thoughts:

  1. The future is present today as a seed. If we examine today&#8217-s seed under a microscope, we can see part of the future. The fact is that the prices/probabilities from NewsFutures&#8217- play-money prediction markets are NEVER quoted by journalists and bloggers. They quote only InTrade, TradeSports, BetFair and the Hollywood Stock Exchange.
  2. &#8220-Time&#8221- can change that, indeed, provided that HubDub multiplies volumes by a factor of one million &#8212-which is what I wish for them.
  3. I don&#8217-t see the &#8220-fresh perspective&#8221- that HubDub would be bringing to the table. HubDub resembles a lot to NewsFutures. (The differences in terms of market design, automated market maker, and breath of topics, are a minor.) HubDub is a generalist, play-money prediction exchange, just like NewsFutures is.