[...] I conclude those four contracts did not provide valuable information about how the [2008 US presidential] election would affect the world.

Dixit Peter McCluskey.

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• Subsidizing real-money prediction markets and real-money conditional prediction markets
• An automated market maker subisdizes Robin Hanson’s presidential decision-aid markets on Intrade
• What to think of the anti-Robin Hanson gadfly?
• Implied Prices for Robin Hanson’s Presidential Decision-Aid Markets
• Futarchy Lite 2008

Mihai Nadin (University of Texas, Dallas):

It’s Only A Game

Prediction markets of all kinds pop up all over the world. As betting animals, we human beings get a kick out of knowing better. The illusion of having known things before others did is even more seductive. Yes, in retrospect, we are all right. But contracts that yield payments based on figuring out outcomes of an event —How will a new product do? Will a new movie be a hit? Who will win the election? When will the “big one” hit California?— are not about perceptions after the fact. Their object is the future. For me, they are anticipations, realizations in the space of possibilities.

Informed by aggregated knowledge (or by an illusion of knowledge expressed as a more-or-less informed guess), prediction markets, unlike a crystal ball readings, were adopted by many organizations. Some of them were simply desperate —here the US Defense Department qualifies for the trophy. Others, such IBM or Hewlett Packard, rich enough to try yet some other innovation —a can’t-lose proposition. Think about Google —how many will adopt Chrome, a browser that compares, in their views, only to sliced bread? But, surprise-surprise, at Google trading became yet another program, a trading robot that made its inventor rich in Gooblers (the currency for betting at Google). Do you feel like competing with such a program? Keep in mind that in the stock market performance over the last few weeks loss in value always came in swings. For people in the prediction market, this afforded higher profits than a steadily climbing market would have. You don’t need to short (especially when it’s not looked upon very kindly) to make money. Algorithms are good at this nerve-racking game —make money on melting markets, while everyone else loses their shirts (savings for retirement, for tougher days, for college education, etc.). Actually, on Intrade during the short McCain upswing (or was it Obama’s downswing?—depends how you look at it) more money could have been made than on the final outcome.

The low error rate in prediction markets made them popular not only among people dealing in Gooblers, but also in dollars or euros. More important is whatever we derive from the dynamics of aggregation. In the first place, information that can be used proactively (to minimize the impact of certain events, or to prepare for new opportunities). This is where things get really interesting. What does it take to make the “dangerous little knowledge” dispersed among many to aggregate? Ego will not do. In the aggregate prediction market we are only a nameless bit. The answers to the question of what does it take to become part of the new lotteries so far converge towards incentives. You can read “greed” here instead, if you don’t faint at the thought that making money is an instinct that unfailingly overrides haughty ethical or religious pronouncements (never mind political demagoguery in a day and age of massive corruption).

Having said this, I remember asking Cass Sunstein why he ignored prediction markets as games in his successful Infotopia. If I had advised either McCain or Obama —no, not my desire to advise candidates— my medium of choice for their success would have been games. Yes, prediction markets can make some people —actually, very few— richer. But embodied in games, driven by real-life data, prediction markets can engage many more people in having fun, while simultaneously giving up, in the aggregation of competition, the tidbits of information they somehow, knowingly or not, own. Playing games is not gambling. Therefore, the regulatory gauntlet that keeps Intrade in Ireland could disappear. Provided that Intrade reconstitutes itself into an MMPORP (Massively Multiplayer Online Role-Paying game, for those who don’t recognize the abbreviation). How would Intrade resist the pressure of sharing the game playing data to some homeland security outlet is a question above my payrate (if you allow me the innocuous quote).

Easier said than done. But I, for one, see the prediction markets make the transition (sooner or later). Anyone want to bet on this?

Mihai Nadin (University of Texas, Dallas)

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• The SuperStruct Game = the world’s first massively multiplayer forecasting game
• Final InTrade v. Zogby Showdown Results
• Super Tuesday Showdown: Intrade v. Zogby
• Why I don’t believe in VP prediction markets
• InTrade, the pollsters, and whom/what to blame next Wednesday —in case predictions turn to be inaccurate

A Iowa Electronic Markets director has been caught (by a young student) red-hand over-selling the IEM predictive power…!!!…

First of all, thank you for your continued work on the IEM. [MicroSoft Word file] It’s great to see a continued and consistent trader base and methodology.

But I do have to admit that I am very uncomfortable with the way the paper compares the Vote Share market and the polls to the final Election Day result. Both a prediction market and a poll are trying to put a number on uncertainty, and that uncertainty is only ever known/fixed on Election Day. While the dynamics of how each reacts certainly can be compared and assessed, measuring an error based on comparing 2007 results to Election Day results strikes me as really unreasonable.

While I do find it fascinating that the markets bounced around the final result, leading to a potential interpretation that there was a structural reason why the Democrats won in 2008, I disagree with using prediction market results to imply that the result was pre-ordained.

I believe that prediction markets should be compared to polls through the election cycle to determine how each moves relative to each other (for communication and information flow). I believe that prediction markets and polls can only be assessed based on their results shortly before Election Day (for accuracy), and that as you get further before that the numbers become meaningless.

All that said, I’m willing to change my mind if there’s enough evidence otherwise.

Jed Christiansen

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- Iowa Electronic Markets propaganda

- HubDub propaganda

- InTrade propanganda

- BetFair propaganda

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• Is Intrade out on a limb?
• Does it matter that the prediction markets got the total number of electoral votes for Barack Obama (almost) spot on?
• Based on market data from a tiny prediction exchange (IEM, which is much smaller than InTrade-TradeSports or BetFair), a couple of researchers claim that prediction markets do not have superior predictive power. — And, adding salt to injury, they call our prediction market luminaries (Robin Hanson, Justin Wolfers, etc.)… “naive”.
• Electoral college map prediction for the 2008 US presidential election —based on state polls and prediction markets
• Illiquid prediction exchanges to liquid prediction exchanges: “You’re too volatile.”

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Nigel Eccles is calling HubDub.co.uk his home.

Let’s scan his Press release for interesting bits:

We’re delighted to be able to offer our UK Hubdubbers their very own UK Edition of Hubdub. Now Hubdubbers based in the UK can now see news stories that other UK users are predicting on, simply by selecting the UK Edition at the top right of the home page.

Interestingly, the US site’s most popular stories today are all around the Presidential Inauguration and Obama’s cabinent appointments, while the UK site’s top listings are X-Factor, Strictly Come Dancing and Everton v Middlesborough. What does this say about the UK, I wonder? [1]

Here is the press release that we issued today in the UK:

Edinburgh, 10 November 2008:

News junkies in the UK can now get an additional fix, by predicting the outcome of news stories – engaging in news stories instead of just reading them.

Users of Hubdub, which launches in the UK today, use a pot of virtual money to place bets on the outcome of any of over 2000 running news stories, covering the likes of politics, sport, business and entertainment.

Since launching earlier this year in the US, Edinburgh-based Hubdub has garnered a substantial and loyal following, with over 200,000 unique visitors per month, 800,000 predictions to date and over 2 million Hubdub dollars staked every day. Some users are spending several hours a day on the site, with many of them confessing to a definite Hubdub “addiction” on the site’s forum.

The fact that it’s Hubdub dollars at stake is apparently irrelevant [2] – Hubdub users are so competitive that the most important thing is that they prove they were right to the rest of the vibrant community. How much is won or lost depends on not only how the news story turns out, but how others have predicted the outcome. Groups of friends can set up their own, dedicated leaderboard to show who has predicted most accurately.

Globally, prediction markets, the mechanism behind Hubdub, are becoming increasingly popular. In the US, the Presidential election sent the numbers of users soaring. They have proven to be more accurate than polls [3], and because they respond in near real-time to developing stories [4], more agile too. Indeed, Hubdub successfully predicted the final voting results of the US election where the majority of polls and pundits failed. [5]

Lesley Eccles, one of the founders of Hubdub, commented: “It’s great to be launching in the UK, despite the recession. People are going to be looking for free entertainment and will turn to the web to find it. Hubdub is free, exciting and keeps you informed. In addition, news sites are looking to engage and interact further with their readers and Hubdub gives them a fantastic means to do so.”

Having secured partnerships with leading media news sites including Reuters and The Independent, Hubdub is taking prediction markets more mainstream and making them easier for casual browsers to appreciate. Sitting beside high quality news content, Hubdub provides news sites with additional ways to engage their readers, keeping them online longer and returning on a regular basis.

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[1] Interesting stats. Does it tell more about the Americans versus the British, or more about the HubDub’s SEO results?

[2] I agree with that, in part. I would like to see HubDub offering prizes to traders, as NewsFutures does.

[3] Scottish approximation. It should be said that prediction markets do slightly better than the polls, in a very long series of comparisons.

[4] Yes, a prediction market is an information aggregation mechanism, but its value is limited. It is valuable to the busy people. But the real value of the prediction markets have yet to be demonstrated. (I have my own idea.)

[5] Scottish exaggeration. I don’t like this way of assessing the electoral college predictions. The InTrade and HubDub prediction markets got both Missouri and Indiana wrong (so to speak, in a non-probabilistic way), but, as those 2 states has the exact same number of electoral votes (11), this double mistake cancels itself when you assess only the total number of electoral votes. The InTrade and HubDub prediction markets can claim that they got the number for Barack Obama (almost) spot on (they predicted 364, with the “leaning” method –he will get 365, actually, because of one additional Nebraska electoral vote) —but that’s because their mistakes on Missouri and Indiana cancel themselves perfectly. I call that “luck”.

TAKEAWAY: To find the real social utility of the prediction markets, we need to go beyond the propaganda churned out by the exchange executives and their courtesans.

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APPENDIX:

Here’s a visual post-mortem of the 2008 US presidential elections.

Pay attention to Missouri and Indiana.

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A) InTrade, on November 5, 2008 (screen shot taken at 2:00 am):

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Prediction Markets & State Polls, on November 4, 2008:

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B1) Prediction Markets (on November 4, 2008)

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InTrade (screen shot taken at mid-day ET, November 4, 2008):

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InTrade (screen shot taken in the morning, November 4, 2008):

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BetFair (screen shot taken in the morning, November 4, 2008):

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HubDub (screen shot taken in the morning, November 4, 2008):

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B2) State Polls (on November 4, 2008)

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Karl Rove (on November 4, 2008):

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CNN (on November 4, 2008):

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Pollster (on November 4, 2008):

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Electoral-Vote.com (on November 4, 2008):

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Nate Silver (on November 4, 2008):

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PREDICTION MARKET PROBABILITIES

-

Explainer On Prediction Markets

-

A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays $100 only if candidate X wins the election, and $0 otherwise. When the market price of an X contract is $60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative represents the imputed perceived likelihood of the partially uncertain event (i.e., its aggregated expected probability). A 60% probability means that, in a series of events each with a 60% probability, the favored outcome is expected to occur 60 times out of 100, and the unfavored outcome is expected to occur 40 times out of 100.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism —with or without an automated market maker.

Prediction markets enable us to attain collective intelligence. Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that the traders bring when they agree on prices. The event derivative traders are informed by the primary indicators (i.e., the primary sources of information), like the polls, for instance. These informed speculators then execute their transactions based on their anticipations about the future —anticipations that will be either confirmed or infirmed.

The value of a set of prediction markets consists in the added accuracy that these prediction markets provide relative to the other forecasting mechanisms, times the value of accuracy in improved decisions, minus the cost of maintaining these prediction markets, relative to the cost of the other forecasting mechanisms. According to Robin Hanson, a highly accurate prediction market has little value if some other forecasting mechanism(s) can provide similar accuracy at a lower cost, or if very few substantial decisions are influenced by accurate forecasts on its topic.

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More Info:

- The Best Resources On Prediction Markets = The Best External Web Links + The Best Midas Oracle Posts

- Prediction Market Science

- The Midas Oracle Explainers On Prediction Markets

- All The Midas Oracle Explainers On Prediction Markets

-

----------

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• Prediction Markets — The Day After
• Electoral college map prediction for the 2008 US presidential election —based on state polls and prediction markets
• 2008 US ELECTORAL MAP PREDICTION: The 2008 US elections thru the prism of the prediction markets — 2008 US presidential and congressional elections — US President Prediction + US Congress Prediction — Barack Obama vs. John McCain
• Prediction Market Definition —now updated with the name of Chris Hibbert and Eric Crampton’s cult leader built into.
• 2008 US electoral college: What I am betting on.

We would have 3 new regulators in the US:

1. a systemic risk regulator
2. a market integrity regulator
3. an investor protection regulator

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Wall Street Journal:

[...] In a speech at a conference in Chicago, [Acting CFTC Chairman] Mr. Lukken recommended the creation of three regulators to focus on systemic risk, market integrity and investor protection. The roles of the CFTC and SEC would be folded into the new regulators. Under the plan, the systemic risk regulator would police the financial system for risks that could ricochet across companies to have broad economic consequences. The market integrity regulator would oversee safety and soundness of exchanges and key financial institutions, effectively acting as a replacement for existing bank regulators and the SEC’s function of regulating brokerages. The investor protection regulator would protect investors and business conduct across all firms. [...]

Mr. Lukken’s recommendations contrast with those of SEC Chairman Christopher Cox, who has urged Congress to merge the SEC and CFTC and asked for the SEC to have oversight of credit default swaps, a financial instrument that many believe worsened the credit crunch. Mr. Lukken rejected calls to merge the two agencies, saying such a move would be “ineffective and would only reinforce our outdated regulatory structure.” Instead, he advocated a “complete rewrite” of securities and futures laws and recommended the new regulators follow broad principles that could adapt to changing markets and innovation. The current “rules-based regulatory approach” wasn’t able to ” keep up with the speed and innovation of the financial markets,” he said. “Regulation by objective rather than function will ensure that all products and institutions are properly overseen based on identified public risks rather than futile difficult determinations of whether an instrument is a security, a future, or a swap contract,” Mr. Lukken said.

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I like those recommendations.

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• Will HedgeStreet USA, the hypothetical InTrade USA, and the hypothetical TradeFair USA, be regulated in the future by a merged SEC+CFTC regulatory structure?
• The CFTC extends its regulatory arm to… the City of London.
• CFTC regulation and election contracts
• WEB EXCLUSIVE: What Vernon Smith told the CFTC about the social utility of the event derivative markets —the so-called “prediction markets”
• Securities and Exchange Commission Chairman Christopher Cox said he strongly supports merging his agency with the Commodity Futures Trading Commission.

I’ve used the Bob Barr contracts at Intrade to poke fun at the totally unrealistic expectations of Libertarian Party advocates (a couple times at Midas Oracle), so here’s a brief (and completely amateur) analysis of those contracts (and Nader contracts), post-election.

You may need to click on each chart to see the whole thing.

The probability of Barr obtaining 1% or more of the vote remained about .4 (40%) throughout the past several months. More optimistic scenarios became more discounted as the election grew nearer, and presumably it became clear Barr would not break through. Even 1% would have been seen as a breakthrough by LP advocates, but in the end Barr obtained only 0.4% of the vote. (Note that obtaining .4% of the vote and a .4 probability of obtaining 1% of the vote are very different things!)

Ralph Nader contracts attracted very little trading, though the 1% or greater contracts gave Nader a 60% chance of obtaining 1% of the vote as late as early October. Nader contracts for 3% and above did not trade at all — or almost not at all — Intrade’s web page table (screenshot below chart) shows a few trades, but no advanced chart or closing price/volume download, and there seemed to be an (unrelated?) possible bug with Nader contract reporting fairly consistently — last trade prices would not be remembered and reported in the aforementioned table — or it could be user (me) error/misunderstanding.

Both Barr and Nader contracts were traded heavily (for them) post-election, presumably as traders freed up cash and unwound positions — for unkown reasons Intrade still has not expired the contracts.

Spurred by comments from David Nolan (scan the page for “Intrade” or my name), I also attempted to gauge what traders thought about the average vote percentage candidates would receive across all scenarios — even a small chance of a genuine breakthrough could make an otherwise hopeless campaign (in the LP’s case, 9 such presidential campaigns prior to 2008) worthwhile. See below for the average (not most likely!) vote percentage over time each candidate might be expected to receive if the campaign were re-run may times. Assumptions: a floor of .5% (cases in which 1% is not met), very generous given that Barr did not reach even that, and only one LP candidate ever has, if candidate crosses threshold, they do so by .5%, also generous, and if 7% (the highest contract) is crossed, they obtain 7.5% of the vote, slightly ungenerous given the non-impossibility of obtaining a much higher percentage of the vote. Longshot bias should also expected to be at play. I don’t think these numbers should give LP or other third party advocates any comfort, though I admit my own bias on the matter. The average of all Barr scenarios declined steadily as the election approached, while Nader contracts did not trade until closer to the election, and they both ended at an average of 1% across all scenarios just before the election.

In the end Nader received 0.54% of the vote, beating Barr for (a very distant) third place behind Obama and McCain.

All of the data used above may be found in intrade-2008-barr-nader.zip. The spreadsheet file intrade-2008-barr-nader.ods aggregates everything.

2012

I’d like to see:

• Fewer contracts (in 2008 there were 7 for Barr and Nader each, from 1% through 7%; actually 8 each counting an electoral vote contract that received almost no attention) might be better, and one testing 0.5% of the vote, which is a more relevant barrier for the LP (only broken once, in 1980) — maybe 0.5%, 1%, and 3%, or perhaps a single log-scaled contract.
• Minor vote total contracts contingent on nominee — assuming they had attracted trades, would they have expected the more mainstream for US politics (but less mainstream among libertarians) Bob Barr to outperform other candidates for the LP nomination?
• Even better than contingent nominee/vote total contracts, contingent nominee/some measure of welfare or liberty contracts. Presumably these would show no difference among LP nominees, on the theory that no such nominee will make a difference in the world.
• More trades! Why are libertarians afraid of the market?

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• Bob Barr candidacy fails market test.
• Bob Barr markets
• InTrade-TradeSports are fucking up contracts, once again.
• Voodoo analysis of prediction market contracts
• 2008 US Elections Prediction: John McCain is now the favorite at InTrade, while all the other prediction exchanges still have Barack Obama ahead. Is InTrade quicker to incorporate the latest polls because of the bigger liquidity of its prediction markets?

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InTrade CEO John Delaney:

Our #1 untapped resource is the vast collective intellect that we have only started to use. Harnessing the “wisdom of the crowd” has a very big potential role in improving all of our lives. If we do it, we all have a voice and will feel part of the solution as well as the problem. We can solve some wicked problems, like climate, resource, growth, social, and economic challenges. In simple terms, there exists between us the best information on how we solve our key challenges. If our leader’s embrace and permission new systems like prediction markets to operate in a transparent prudent way I am convinced that we can contribute in no small part to the solution.

Recall, that US Department of Defence believed a prediction market could provide valuable information on growth, risks and social issues. Hundreds of academics, dozens of Fortune 500 companies, and millions of people believe that prediction markets can help provide valuable information on economic, financial, social and environmental issues.

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I have already expressed my deep skepticism for this kind of grandiose discourse.

Today, if I may, I would like to ask these questions to John Delaney:

1. We have just experienced one “wicked” problem, recently —the credit crunch crisis. Can you demonstrate that InTrade was “part of the solution”?
2. Speaking of the credit crisis, for instance, what makes you think that InTrade can be “part of the solution”, whereas it is now documented that the World Economic Forum (a.k.a. Davos), where 2,500 “global leaders” gather each year, have failed miserably in raising interest for the speakers who were talking about this (then, looming) financial crisis? Is InTrade really stronger than Davos?
3. Would you mind giving us specific instances, taken from the past 12 months, where the InTrade prediction markets were of high social utility to society?
4. Can you cite the names of some research scientists who are endorsing the idea that the real-money prediction markets (from either InTrade or BetFair) “can contribute in no small part to” the solutions to the world’s “wicked problems”?
5. What would you respond to those who say that, during the 2008 US presidential election campaign, the InTrade prediction markets sucked up to Nate Silver?

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Here are my thoughts:

1. I agree with InTrade CEO John Delaney that prediction markets are interesting, but I disagree when he suggests that they are radical tools —they are subtitle tools, actually.
2. I agree with InTrade CEO John Delaney that prediction markets are (somewhat, I would say) useful to society —but the demonstration should be done using Robin Hanson’s guidance.

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APPENDIX:

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What Nate Silver predicted:

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What InTrade predicted:

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----------

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• InTrade-TradeSports has a web server misconfiguration problem, and CEO John Delaney has a character problem.
• INTRADE-TRADESPORTS CEO JOHN DELANEY CENSORS CNBC ON YOUTUBE.
• Liberal hack (and Nobel Prize winner) Paul Krugman totally and completely misunderstands what InTrade CEO John Delaney said regarding the non-informational trades made on their US political prediction markets.
• My open challenge to AskMarkets co-founder George Tziralis
• What InTrade CEO John Delaney told the CFTC about “event markets” (prediction markets)

They were both lambasted by a famous, controversial and bombastic prediction market blogger… and they both failed in spectacular fashion.

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Here’s what I wrote in October 2008:

InTrade are going to open prediction markets on the future price of art. These innovative prediction markets will fail miserably.

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The InTrade prediction market on the Mei Moses Fine Art Index has attracted only 6 trades, so far.

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In November 2007, I said that the BetFair prediction markets on global warming (HSBC Investable Climate Change Index & ECX CFI Futures Contract) were “flawed products”. A few weeks later, they disappeared. Even the BetFair prediction markets on the highest and lowest UK temperature (which I was a bit more positive about) have now disappeared —and the “Climate” sub-category (under their “Special Bets” category) has totally disappeared in cyberspace.

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In both cases, I explained to my readers why those prediction markets would fail. Read my archives if you are curious.

NO PRIMARY INDICATORS = NO PREDICTION MARKETS

I even made the suggestion, one day, that the creator of any prediction market should be compelled to list the related primary indicators and their URLs —as a barrier to prevent futile prediction markets to be put on the Web.

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• The definitive proof that FOR-PROFIT prediction exchanges (like BetFair and InTrade) are the best organizers of socially valuable prediction markets (like those on global warming and climate change).
• I have lambasted the Mei Moses Fine Art Index prediction markets for being intrinsically incapable of generating liquidity in trading. As a direct consequence of this coverage on the world’s #1 prediction market blog, they are picking up steam like they want to navigate down the whole Mississippi till they reach the Golf of Mexico. — Snake eats itself.
• BetFair’s Global Warming Prediction Markets — CFM’s Views
• Only 7 web publications took the BetFair bait on global warming.
• BetFair embrace “decision markets”.

The pretty good Andrew Gelman:

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This is a (not yet expired) static chart from InTrade on whether the RCP poll aggregation have been accurate:

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• On the question of the candidates’ qualifications to assume the presidency, 87 percent of the people polled said Joe Biden is qualified while only 42 percent said Sarah Palin is qualified.
• Electoral college map prediction for the 2008 US presidential election —based on state polls and prediction markets
• Prawf Andrew Gelman on Nassim Nicholas Taleb
• Are the polls accurate? — Electoral college map prediction for the 2008 US presidential election
• BetFair fixes the corruption that it suscitates (since short selling could be used by cheating athletes or jockeys).

Here’s a visual post-mortem of the 2008 US presidential elections. [Cross-posted from Midas Oracle .COM]

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A) InTrade, on November 5, 2008 (screen shot taken at 2:00 am):

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Prediction Markets & State Polls, on November 4, 2008:

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B1) Prediction Markets (on November 4, 2008)

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InTrade (screen shot taken at mid-day ET, November 4, 2008):

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InTrade (screen shot taken in the morning, November 4, 2008):

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BetFair (screen shot taken in the morning, November 4, 2008):

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HubDub (screen shot taken in the morning, November 4, 2008):

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Professor King Banaian:

Chris Masse is instructive: Don’t oversell.

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Indeed.

You might re-read Emile Servan-Schreiber’s post, which deals with interpreting prediction market prices as probabilities.

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B2) State Polls (on November 4, 2008)

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Karl Rove (on November 4, 2008):

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CNN (on November 4, 2008):

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Pollster (on November 4, 2008):

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Electoral-Vote.com (on November 4, 2008):

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Nate Silver (on November 4, 2008):

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PREDICTION MARKET PROBABILITIES

-

Explainer On Prediction Markets

-

A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays $100 only if candidate X wins the election, and $0 otherwise. When the market price of an X contract is $60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative represents the imputed perceived likelihood of the partially uncertain event (i.e., its aggregated expected probability). A 60% probability means that, in a series of events each with a 60% probability, the favored outcome is expected to occur 60 times out of 100, and the unfavored outcome is expected to occur 40 times out of 100.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism —with or without an automated market maker.

Prediction markets enable us to attain collective intelligence. Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that the traders bring when they agree on prices. The event derivative traders are informed by the primary indicators (i.e., the primary sources of information), like the polls, for instance. These informed speculators then execute their transactions based on their anticipations about the future —anticipations that will be either confirmed or infirmed.

The value of a set of prediction markets consists in the added accuracy that these prediction markets provide relative to the other forecasting mechanisms, times the value of accuracy in improved decisions, minus the cost of maintaining these prediction markets, relative to the cost of the other forecasting mechanisms. According to Robin Hanson, a highly accurate prediction market has little value if some other forecasting mechanism(s) can provide similar accuracy at a lower cost, or if very few substantial decisions are influenced by accurate forecasts on its topic.

-

More Info:

- The Best Resources On Prediction Markets = The Best External Web Links + The Best Midas Oracle Posts

- Prediction Market Science

- The Midas Oracle Explainers On Prediction Markets

- All The Midas Oracle Explainers On Prediction Markets

-

----------

Midas Oracle .ORG = Site Map + Archives + Best + Charts + Exchanges + Software + Links + People + Write A Post Or A Page + How To Publish

• Does it matter that the prediction markets got the total number of electoral votes for Barack Obama (almost) spot on?
• Prediction Market Definition —now updated with the name of Chris Hibbert and Eric Crampton’s cult leader built into.
• Electoral college map prediction for the 2008 US presidential election —based on state polls and prediction markets
• 2008 US ELECTORAL MAP PREDICTION: The 2008 US elections thru the prism of the prediction markets — 2008 US presidential and congressional elections — US President Prediction + US Congress Prediction — Barack Obama vs. John McCain
• 2008 US Elections Prediction: John McCain is now the favorite at InTrade, while all the other prediction exchanges still have Barack Obama ahead. Is InTrade quicker to incorporate the latest polls because of the bigger liquidity of its prediction markets?