InTrade CEO John Delaney refused to improve the fairness of the trading on his Ireland-based event derivative exchange.

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One InTrade trader, in October 2009:

The four re-definitions that have (so far) been necessary during the 3-month life of the US.GOVT.HEALTHPLAN.DEC09 contracts have brought to my attention that Intrade, to the best of my knowledge, does nothing to notify members that contracts they own have been &#8220-clarified&#8221-. It may be coincidence that volume on this contract spiked upward on July 29, Septeber 5 &amp- 10, and October 9 following rule changes on July 28, September 4 &amp- 9 and October 9. I suspect, however, that some members were aware of the rule changes while others with open orders found out about them later. While avoiding such ambiguous contracts would be preferable, some system should be in place to ensure that the unexpected need to revise contract definitions does not provide certain members with an unintended advantage.

Among the possible changes that I feel would improve this situation are the following:
1) Post a notification in the &#8220-News&#8221- whenever existing contract definitions are changed.
2) Notify all members with current positions and/or orders in a given contract whenever rule changes are posted.
3) Halt trading for some period of time after each change to allow members equal opportunity to respond to these changes, rather than providing an advantage to anyone who might look back at the contract specs or read their email first, including anyone who might know to look for a change after requesting the clarification from Intrade.
4) Add an asterisk or other indicator beside the contract summary on the trading screen, so that members interested in that contract will know that the contract definition has been changed. Ideally, the date of this revision should be included.
5) Add whatever changes among the above are instituted to Rule 1.7.

Changes 1), 2) and 5) seem like common sense to me, but perhaps others will disagree. In any case, I look forward to other exchange members&#8217- comments on all of these suggestions.

The same trader, in December 2009:

Well, six weeks have passed since Mr. Delaney&#8217-s assurance that this issue would be addressed &#8220-ASAP&#8221-. Unless I have somehow missed being notified of the policy change , it seems clear that the status quo is fine by management.

All I can do to attempt to encourage Intrade to take seriously the ambiguities in certain contracts is:
1) liquidate all my positions in such contracts,
2) avoid trading any potentially ambiguous contracts,
3) attempt to warn other traders about contracts that may be potentially ambiguous.
In particular, I will certainly stay away from any contracts involving U.S. legislation.

I could instead try to anticipate specific improvements that would help minimize ambiguities. However, if Intrade management cannot be bothered to address this issue even in a broad way, I think that it would be counterproductive for me to apply the occasional Band-aid. Discouraging other traders from becoming entangled seems more productive.

The health-care debacle on InTrade

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[The Intrade event derivative traders] &#8220-are getting more and more alienated by the actions and judgments of Intrade&#8217-s management.&#8221-

Is InTrade mis-managed? Many people are starting to think so, apparently. Still think that Chris Masse of Midas Oracle is too much critical of InTrade, my dear Chuck?

Prediction markets: Sticking to the letter of the contract VERSUS Interpreting intent

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Chris Hibbert (of Zocalo):

I disagree, Chris. Much experience on FX has shown that interesting questions (those that aren’t routine repetitions of previous questions) often result in realities that diverge from the obvious expectations of nearly everyone involved in describing the possibilities. In those situations, we’ve found that trying to interpret intent leads to more confusion than sticking to the letter of the question as asked.

If a [prediction market] sticks to its written description of what the claims mean, then careful readers are rewarded, and they learn that they have a good chance to predict how the judge will interpret the question and events in the world. If questions are determined based on “intent”, then everyone has to spend time deciding which aspect of the question the judge will decide was more important, when reality decides not to conform to the question’s expectations.

Sometimes (as you argue was the case with the North Korea question) the result is surprising and disappointing, but choosing the other approach leads to much less participation as people who see that something surprising is preparing to happen or has happened back out of their bets rather than waiting to find out what the judge decides is important. I’m much happier when the participants spend their time figuring out what will happen in the world, rather than when they have to spend their time predicting how the judge will react. Strict construction gives us a predictable world.

See also Jason Ruspini&#8217-s comment on the same topic&#8230-

Were prediction markets useless during the H1N1 breakout?

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Lance Fortnow:

Might this be an instance where prediction markets greatly out-performed the experts? In short, no. There were relevant markets but two big problems:

  • No one thought to create a market for the number of flu cases over a couple of thousand.
  • Prediction markets require a verifiable outcome so they were based on CDC confirmed cases. But after the flu turned out not to be that dangerous, the CDC stopped confirming most cases and there were less than 7500 confirmed cases by the end of May.