Risks pay off -sometimes. – [VIDEO]

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Peter Diamandis on risks and innovation:

Peter Diamandis:


Finally I’d like to address the issue of risk. In contrast to individuals who speak about reducing exposure to risk, I want to speak in favor of accepting more risk.

There is no question that there is risk involved in winning the X PRIZE, as well as risk in going to the moon or Mars or opening any portion of the space frontier. BUT, this is a risk worth taking!

As American many of us forget the debt we owe to early explorers. Tens-of- thousands of people risked their lives to open the &#8216-new world&#8217- or the American west. Thousands lost their lives and we are here today as a result of their courage.

Space is a frontier and frontiers are risky! As explorers and as Americans, we must have the right to take risks that we believe are worthwhile and significant. We owe it to ourselves and future generations. In a time when people are risking their lives in motor sports or bungee jumping, it seems a bit shallow to be concerned about the risk involved exploring space.

It is also critical that we take risk in our technology development and that we allow for failure. Without risk and without room for failure we can not have the very breakthroughs we so desperately need.

A breakthrough, by definition, is something that was considered a &#8220-crazy idea&#8221- the day before it became a breakthrough. If it wasn’t considered a crazy idea, then it really isn’t a breakthrough, is it? It would have simply been an incremental improvement.

Remember those immortal words, &#8220-Failure is not an option?&#8221- If we live and work in an environment where we cannot fail, than breakthroughs may not be an option either.

I urge both this Committee and NASA to take steps which will help the American people understand that space exploration is intrinsically risky, yet a risk worth taking. Let&#8217-s make space explorers heroes once again.

Why does the CFTC allow the Cantor Exchange and not InTrade?

Joe Weisenthal has a small opinion piece on why the CFTC allows real-money prediction markets on movie business, and bans those on politics or sports. The problem in the piece is that Joe is 100% wrong.

  1. Joe says that there can&#8217-t be hedging in politics. Wrong. You can hedge your political ads on InTrade.
  2. Joe says that there can&#8217-t be hedging in sports. Wrong. Businesses that operate inside a stadium could hedge the risk of the home team losing (which means less business for them).

So. why does the CFTC shy away from hedging on sports and politics? &#8211-&gt- Politics. The CFTC is afraid of the US Congress, who would object to politics and sports &#8220-gambling&#8221-.

The CFTC is a weak institution, in the DC sphere of power. In the recent past, the CFTC lost one important battle against other parts of the US government &#8212-even though it was the CFTC that was on the right side of the issue at the time. With politics and sports betting, the CFTC does not want to lose another battle. It is a question of survival.

How Paul Volcker will save the world

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Paul Volcker:

The specific points at issue are ownership or sponsorship of hedge funds and private equity funds, and proprietary trading — that is, placing bank capital at risk in the search of speculative profit rather than in response to customer needs. Those activities are actively engaged in by only a handful of American mega-commercial banks, perhaps four or five. Only 25 or 30 may be significant internationally.

We will never have a perfect model of risk. – by Alan Greenspan

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We will never have a perfect model of risk

The most credible explanation of why risk management based on state-of-the-art statistical models can perform so poorly is that the underlying data used to estimate a model’s structure are drawn generally from both periods of euphoria and periods of fear, that is, from regimes with importantly different dynamics.


Inkling Markets, one year later

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Much, much better. Last year at the same time, in March 2007, I was selectively critical of some of the statements they did put in their (now old) version of their website. Adam Siegel has made good progress in mastering and conveying the problematic of enterprise prediction markets. I think that if Inkling Markets can truly deliver a service that can help companies mitigate business risks, and if they can prove positive results, then their client roll could be multiplied by a factor of 1,000 or so in the next 10 years.

Adam Siegel:

Two years ago the only way to run a prediction marketplace was to roll your own or call a vendor/consultant and have them set up software and run markets for you. It took many weeks, often months. Today with Inkling Markets it take seconds. […]

[#1] Improve forecasting of key performance indicators
Track and raise awareness of key success metrics to identify and mitigate risk factors before it&#8217-s too late.

[#2] Expose product quality problems early
Identify design and production anomalies before a product (physical or virtual) is brought to market to avoid expensive repairs and recalls.

[#3] Predict risk to your supply chain

Run a &#8220-web&#8221- of markets about the risk factors to your supply chain to predict internal and external events that would cause inefficiencies or disruptions.

[#4] Foster a culture of innovation
Determine which new ideas and process improvements will have real business impact vs. the &#8220-nice to have.&#8221-

[#5] Create new interactions with users

Build a dedicated community of users around a marketplace of questions relevant to your business area and brand. […]

Adam Siegel (Inkling Markets CEO) in Forbes:

[Prediction markets] can significantly:

  1. improve forecasts of key performance indicators,
  2. provide a more realistic understanding of project-completion dates,
  3. identify quality-control problems early in the development life cycle,
  4. improve demand forecasts within the supply chain,
  5. and allocate resources more appropriately across research-and-development projects.

[I have edited the formatting of this excerpt.]

Journalism Failures – Big Time

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In February 2001, Fortune magazine named ENRON the &#8220-most innovative company&#8221-.

In October 2007, Robin Hanson, on the Overcoming Bias blog, re-published the falsehood that James Surowiecki (and 3 other book authors in their respective book) made a mistake about Francis Galton in his book, The Wisdom Of Crowds.

In January 2008, the &#8220-BetFair Prof&#8221- (Leighton Vaughan-Williams) claimed, on the BetFair blog, that the &#8220-betting markets&#8221- foresaw the Republican race in the Michigan primary.

In January 2008, Risk magazine named SOCIETE GENERALE (recently busted by one of its traders, which lead to a loss of 7.2 billion dollars) the &#8220-equity derivatives house of the year&#8221-.


TAKEAWAY: Either by complete incompetence or by lack of investigation means, journalism is not up to its lofty goal &#8212-telling the truth to people.


Risk magazine

(Via Marc Andreessen.)


Jerome Kerviel, soon to be named &#8220-person of the year&#8221- by Risk magazine? :-D

Jerome Kerviel


Societe Generale Logo

Societe General Tower in Paris

Previous blog posts by Chris F. Masse:

  • A second look at HedgeStreet’s comment to the CFTC about “event markets”
  • Since YooPick opened their door, Midas Oracle has been getting, daily, 2 or 3 dozens referrals from FaceBook.
  • US presidential hopeful John McCain hates the Midas Oracle bloggers.
  • If you have tried to contact Chris Masse thru the Midas Oracle Contact Form, I’m terribly sorry to inform you that your message was not delivered to the recipient.
  • “Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S & P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”
  • Meet professor Thomas W. Malone (on the right), from the MIT’s Center for Collective Intelligence.

The future of futurism: crowds or entrepreneurs?

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Chris Masse has already linked to The Economist story on futurists, which ends with a plug for prediction markets:

The most heeded futurists these days are not individuals, but prediction markets, where the informed guesswork of many is consolidated into hard probability. Will Osama bin Laden be caught in 2008? Only a 15% chance, said Newsfutures in mid-October 2007. Would Iran have nuclear weapons by January 1st 2008? Only a 6.6% chance, said Inkling Markets. Will George Bush pardon Lewis “Scooter” Libby? A better-than-40% chance, said Intrade. There may even be a prediction market somewhere taking bets on immortality. But beware: long- and short-sellers alike will find it hard to collect.

Like Chris, I&#8217-m partial to the plug for prediction markets, but the story from the past year that best fits the five pieces of advice to futurists in the article (think small, think short-term, admit uncertainty, embed in an industry, and listen more) was not about the &#8220-wisdom of crowds.&#8221- Rather, this profile by Michael Lewis of hedge fund entrepreneur/insurance risk modeler John Seo in the NYT Magazine seems to fit the bill.

[NOTE: This post is a somewhat revised version of a posting on Knowledge Problem: What will futurists do in the future? Chris has also already linked to the story on John Seo that was published in August 2007.]