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:
- lower cost-
- 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.
Is John Delaney the greatest psychic of all times (past, present, and future)?
Deep Throat is very impressed by how accurate the InTrade-TradeSports CEO’-s 2005 prediction turned out to be. According to Deep Throat, the great Irish oracle “-accurately predicted back in early 2005 in a PM conference in NY that someday the markets will make a horribly wrong prediction and that the [prediction market] industry will take a lot of s**t for it.”-
Deep Throat is easily impressed. What about the prediction below, then:
- One of these days, a powerful hurricane will land in one of the southern states, and make billions of dollars in damage.
Vague and obvious predictions are of little help, here. An interesting thought to have, collectively, is how to prepare well in advance to counter such a backlash —-as it is sure to happen again in the coming years. Due to the readers’- new behavior (using the Web to get their info), the conversational aspect of the Web (comments, bloggers responding to their peers), and the velocity of the bloggers (tempests in tea cups spread over one or two days, and then the bloggers move on), the answer is quality, impartial, exchange-independent, science-based, diligent, pro-PM blogging.
You will note that InTrade-TradeSports, BetFair, NewsFutures, and the other PM firms, are completely absent from the dialogue between anti and pro PMs. The BetFair blog has not published anything about the New Hampshire fiasco, and the InTrade bulletin has only put in writing, on a post, the post-NH market-generated probabilities —-without adding any bit of analysis. Totally pointless and useless corporate publications.
As for me, I have worked hard to put our group blog, Midas Oracle, on the blogging scene. I will further this endeavor and announce new initiatives in the future —-if I am able to do so.
Previous blog posts by Chris F. Masse:
- NUCLEAR SCANDAL: HubDub allow their traders to bet on celebrities’ death.
- APRIL FOOL’S DAY: This year, again, CNET makes fun of the wisdom of crowds.
- Play-money prediction exchange HubDub is a phenomenal success.
- BetFair Australia’s spin doctor tells all about their payments to the horse race industry.
- Meet Jeffrey Ma (at right on the photo), the ProTrade co-founder, and whose gambling life is the basis of the upcoming movie, 21.