Top tier sports, national elections, and Hollywood releases are all arenas in which all the information one might analyze is already pretty much public. There are many methods for predicting these outcomes, and I wouldn’t argue that prediction markets have a huge advantage in these arenas. The markets where I expect PMs to have an advantage are where there are experts who, given an incentive, could share (or discover) information that’s not already public, and where you don’t already have an enormous crowd trying to figure out the answer. Certainly it’s fun to bet on your team or party, or to develop expertise on how the public will react to particular movies, but it’s not clear to me that we get better predictions in those areas.
This is also one of my criticisms of the Servan-Schreiber paper. While I believe there are probably markets in which the availability of serious money to be won could attract people who’d be willing to spend research in order to get a better answer, NFL sports isn’t an arena where spending thousands of dollars will help you uncover facts that aren’t already in the mainstream media.
When we talk about CEO markets, or product release dates, or market penetration numbers, we’re talking about [prediction] markets in which the information isn’t already out there, and some people will spend time and effort to ferret out relevant facts for reputation (we see this often on Foresight Exchange) or money.
Mr. Kristof, if you want to keep yourself accountable and track the success of your predictions in the long run and in real-time, why not simply participate in a prediction market such as NewsFutures?
You could suggest that particular stocks be listed in relation to particular new stories and their possible outcomes. Then, as you invest in particular outcomes, your prediction portfolio would either grow or shrink, providing us all with an objective measure of your foresight. You could feature on your blog a widget displaying in real-time the “-net worth”- of your various predictions.
Other advantages of this approach would include:
– Forcing a detailed specification of possible outcomes- – Having you compete directly (bet against) the general public- – Measuring how much your columns can influence price movements for various predictions- – Leading by example to show other pundits how it’-s done.
There are various types of prediction markets out there, so you can pick the venue where you’-d feel most comfortable:
– Play-money only, like NewsFutures– [or HubDub ] – Real betting (illegal) like Intrade- – Charity-driven, like Bet2give.
If the idea intrigues you, please contact me at [email protected] and we can get you started right away!
Emile Servan-Schreiber CEO, NewsFutures
Readers, do click on the link (which will bring you to the New York Times), and do click on “-Recommended”- under Emile’-s comment —-so that his pitch for the prediction markets will be more visible to all the people reading the comments there. Thanks. Appreciated.
Via Yahoo! research scientist David Pennock of Odd Head and YooPick, the dear honorable Duncan Watts:
In part because of disappointing findings such as this, an increasingly popular substitute for expert opinions are so-called “-prediction markets,”- in which individuals buy and sell contracts on various outcomes, such as football game point spreads or presidential elections. The market prices for these contracts then effectively aggregate the knowledge and judgment of the many into a single prediction, which often turns out to be more accurate than all but the best individual guesses.
But even if these markets do perform better than experts, they don’-t necessarily do a good enough job to rely on. Recently, my colleagues have started tracking the performance of one popular prediction market, at forecasting the outcome of weekly NFL games. So far, what they’-re finding is that the market predictions are better than the simple rule of always betting on the home team, but only slightly so —- which, oddly, is very similar to what Tetlock found regarding his experts. Some outcomes, in other words, and possibly the outcomes we care about the most, simply aren’-t “-predictable”- in the way we would like.
Prediction markets are not “-a substitute for expert opinions”-. They are a substitute for the averaged probabilistic predictions of a large group of experts polled the traditional way (by phone or by e-mail). In prediction markets, traders (who are not experts, most of the times) collect and aggregate facts and expertise at a lower cost than a poll or survey of experts.
In the research cited by Ducan Watts, the prediction markets are slightly more accurate than the competitive forecasting mechanism. Well, that’-s something we are used to.
What Ducan Watts doesn’-t say is that prediction markets integrate facts and expertise faster than the group of experts polled by his researching colleagues —-for the very crude reason that it takes a certain time to survey a group of experts (be it by e-mail or by phone).
If I can count, that’-s 3 reasons why prediction markets can bring in business value:
better accuracy (relatively, and, overall)-
That said, it should be repeated that prediction markets feed on facts and expertise —-so the experts remain indispensable in the general forecasting process.
No facts (e.g., political polls) –->- No prediction markets.
No experts (e.g., NFL prognosticators) –->- No prediction markets.