Resources

Just wanted to let you know that I've been slowly updating the left frame on this page. Essentially, I've added some of the more interesting prediction markets and blogs. Chris F. Masse still has the biggest list of every market/exchange and blog on the topic, but I'm not as interested in creating an encyclopedia as him!

Next up is creating an academic paper "warehouse." It'll be a page that links to all the important and interesting papers that have been written on prediction markets. I only had enough patience today to get through about a quarter of my list. With my recent stress fracture I'll hopefully be able to take care of these soon.

Cheers.

Election Markets

As a politics junkie, I've been keeping up to date with Tradesport's markets for each of the US Senate seats up for grabs this election cycle.  Here's some (sort-of) interesting things I've found:

* Out of 33 Senate seats up for election, only 9 are actually competitive.  (I define competitive as less than a 50-point spread between GOP/Democrats, ie., a 75-25 race isn't competitive but a 68-32 race is.)

* Of those nine seats, six are held by the Republicans and 3 by the Democrats.

* Based on the current market values, PA will be lost by the GOP, but TN will be held.  These two are at the extremes of the competitive spread I mentioned.

* The remaining seven races are tight (comparatively).  Current trends have each party keeping control of the seats they already control, so little would change.  However, MT and OH are particularly tight and easily a toss-up.

* Essentially, the markets currently say that Democrats will gain ground on the Republicans toward control of the Senate (anywhere from 54-46 to 51-49), but would need a minor miracle to actually take control.  (A slightly less minor miracle would cause a 50-50 split and likely result in split committees but important votes going to Republicans with the VP Cheney tie-breaker.)

** BIG DISCLAIMER: I'm somewhat violating my own personal rule here about expectations and probabilities.  I'm calling the results as if the election were today.  The markets currently take into account that election day is several months off, and that's why so many races are nearly 50-50.  Not only that, but a 60% probability that one party wins a seat also means a 40% probability that the other party takes the seat.  Just like the markets thought Brokeback Mountain would win for best picture, they weren't right.  These markets are calibrated, not perfect.

Finally, you can play the home game at inklingmarkets.com... I understand they're adjusting their market-maker to reduce the extreme volatility that some people have seen in their trading.

Issues with betas...

I want to write a little more on Inkling and CrowdIQ now that I've
had a chance to play with them for a little while.

First of all, CrowdIQ is now officially beta. The various markets
are populated with contracts, and other contracts are in auction. I
have a number of comments on this site:

* As a trader you have quite a bit of control over what you're
doing. There are options available for "Market Buy" and "Market
Sell" as well as Limit Buys and Sells and finally Market Short-
Sells. This is certainly not an algorithm-based market (such as
Inkling)
* A number of the markets have contests associated with them, so
traders have incentives. (Amazon.com gift certificates and the
like). Hopefully that will help "thicken" the market.
* The user interface on CrowdIQ still feels a bit unwieldy. Perhaps
part of that stems from the fact that the main groupings of markets
are at the bottom of the page and sometimes I need to scroll down to
see them. I'd also like to see a "New Markets" and/or "Most Active
Markets" listing.
* I'm also not a huge fan of the different currency for every market,
though I understand the reasoning. A person's performance in order
to win incentives is based on that particular market alone.
* I think it is brilliant how CrowdIQ has made it so easy to create a
new market and devise contracts within that market. I created the
BirdFlu market myself. There is a lot of control for a user to
specify the number of contracts available, shares available, how long
a contract is in "auction" status before you can start trading on
contracts, etc. I confess that I created the BirdFlu market and
contracts with little thought to all of that (I was interested in the
user interface at the time since the site wasn't even active) and am
interested to see how it all turns out.

Overall, I really love the flexibility of the CrowdIQ site, and hope
they can work through some of the usability issues.

As for the Inkling market, I have to admit that the simple elegance
of their user interface is still fantastic. I'm a little put off by
the trading algorithm, however. I think that when purchasing shares
the site needs to present more data than what is currently there, so
that you don't accidentally drive the price of a contract well above
what you meant to do. For experienced traders this interface will
very likely be frustrating, since we're used to bid/ask prices and
standard terms like that. In the Inkling world, you have to tweak
your purchases and short sells so as to not unbalance the market.
The way the user interface works, though, makes it fairly intuitive
for a person new to trading.

I do still have a problem with the way one particular market works,
however. (The US House of Reps contract, but I've discussed that
before.)

Both sites are still very much beta, and I'm sure their founders/
owners both appreciate and probably get a little frustrated with some
of the extra attention. At the same time, I think it's great that
two new prediction markets opened up within the last month. It gives
us all new sources of examples and hopefully demonstrates the
potential in the marketplace for these markets.

Cheers for now.

Another new site

Thanks to a post on the PM Google Group by Bo Cowgill, I heard about yet another new prediction market website.

This one, called CrowdIQ is particularly easy to join. It looks to be extremely beta right now, but gives some idea what it's about. In fact, according to the CrowdIQ Blog, they aren't actually launching the site until Monday, March 13th.

Right now there are a variety of markets listed, but no active contracts. There are a few main differences between this site and other active PM's.

* The goal of CrowdIQ is to encourage the public to come up with their own prediction markets, which would be essentially hosted on their site. Their example was that if you wanted to establish a market that would predict if the Georgetown basketball team would make it to the NCAA tournament, you could just sign up and create it. (This is obviously similar to the Foresight Exchange.)

* The markets that people create can be either public or private. If public, anyone can join and trade. If private, you must be approved prior to trading.

* Each market has its own currency. This is an interesting development. As an example, I managed to sign up with three markets. In the first (Apple Rumors), I was granted A$5000. The next I received IQ$2500, and in the final market (Enron Jail) I received K1000. I don't want to assume too much since none of these markets have opened yet, but this seems like an odd decision.

It might make more sense if the markets were extremely general (such as one for politics, one for entertainment, etc.) so that a successful trader in one field wouldn't necessarily be able to leverage their success and overwhelm other markets. But with such specific markets, it appears to me that it will simply be an averaging mechanism. If everyone trading in a market starts with the exact same amount of money and can only use it in that market, they would use all of it to bet their preference. Provided every trader uses that same strategy, all the market serves to do is average the traders opinions.


So those are my initial thoughts. I look forward to their markets opening and playing with it a bit. The user interface at least looks nice, but without making trades it's difficult to tell how it really feels. That will be an important test for broad user acceptance.

Cheers for now.

Great news!

I was looking at the costs of flying from London to Chicago for the one-day PM conference in June (ouch!) when courtesy of Chris F. Masse (see Blogroll) I saw that Colabria will be holding a PM Summit in Vienna in September. So while I have to wait a few months to attend, it will cost significantly less.

Link is here, but I should point out that it looks like the schedule has just been copied from the NYC summit last month and I haven't seen John mention it on the PM Google Group. I hope this is going to happen, and look forward to seeing people there.

Cheers.

More on Inkling

I'm really growing to like this site. Here are some additional comments after playing with it for a bit.

* Initially I thought that each trader's stake was initially too low, and then I realised that it was because I was trading in the US House of Reps market. Instead of being on a $0-$100 scale, you are trading on the number of seats one party (in this case the Democrats) will hold after the 2006 elections. These positions are in the $200-$250 range, which means that if you have relatively strong feelings about the matter you'll likely use up your whole stake just in that market. Now the company could use a scaling factor of even 50% so that a belief that Democrats will hold 210 seats would be expressed as $105, but that could also hurt the user friendliness and easy comprehension of the markets.

* As a political junkie, I was glad they put up a market for the US Senate as well. For the opposite reason as the House of Reps, this could be a great liquid market, since the payout will be in the $40-$60 range.

* Prices seem to be very volatile. My assumption is that this is because the market is thin. When I took a stake in the US House of Reps market, my trade made the price jump by nearly $20!

* It's beta, so some things are a little buggy. At one point I didn't have much available cash, so I tried to cash out on some short selling that had gone in my favor. When I tried to make the trade, I was told that "You only have enough money to buy -58 shares". It's something for their team to work out, but a funny error message all the same.

I'm still really impressed by the user interface. I think it will be much more intuitive for people new to trading and markets in general.

On a final note, if you're interested in Prediction Markets, please sign up for the Google Group. It's growing every day and a number of interesting people post there.

Cheers for now,
Jed

Quick Review: Inkling Markets

Courtesy of a link from Chris Hibbert at his Commerce.Net blog, I heard about a new prediction markets startup called Inkling. Here are some first impressions:

* Great user interface. It's much better done than every other prediction market I've seen.

* Dumb name for the virtual currency. Inkles?? What in the hell were they thinking? I understand it matches with the company brand, but it just sounds stupid.

* As Chris noted in his post, the accounting is screwy. When I sold short, it gave me a specific warning that I was buying on credit and that 70% of that short sell would be held for a margin call. But when it comes to the dashboard page, they don't represent that at all. [UPDATE] My bad, here. While I still hold the accounting is a bit strange in the "My Assets" box, the main dashboard is clear in regards to accounting.

* Minimal number of markets. But it's beta, so it's understandable.

* How they separate markets is a bit strange. I went to trade on some Apple rumors markets and even after selecting a specific market in that category, the info box below the bid box still had details for all of the rumors markets. Again, probably a beta bug.

Overall, I look forward to the development of the site.

Cheers.

A future project

I'm finishing my master's degree, and the only thing I have left
(other than one exam in Game Theory) is my thesis project. My
current intentions are to complete a project revolving around
prediction markets.

So I discussed this with my advisor, and realised that he doesn't
view PM's as a particularly useful tool. He believes that if you sat
down with an expert (defined as one of those rare people that always
beat the market) and re-created that person's mental model you could
re-create their judgement. My thoughts are 1) it's damn hard to find
that person and, 2) it would be incredibly difficult to develop that
model and that the model is fine-tuned over time.

As I went home and thought about how I could reconcile these ideas, I
had a thought. In the paper "Information Aggregation Mechanisms:
Concept, Design and Implementation for a Sales Forecasting Problem"
by Kay-Yut Chen and Charles R. Plott they described a prediction
market that HP used to forecast sales. The prediction market
regularly beat the HP forecasts; though Chen and Plott didn't
specifically investigate why. Paper is here: http://www.hpl.hp.com/
personal/Kay-Yut_Chen/paper/ms020408.pdf

My dream project would be to re-create the situation where a
prediction market can be directly compared to an "official"
forecast. Then by examining how the players in the market made their
choices and what influenced them I can determine where it is similar
and where it departs from the theory behind the "official" forecast.
Are there just a few experts in the market and the rest are following
the herd? Is everyone aware of the forecast (specifically or
generally) and just making an adjustment to that, or are they
determining a distribution on their own? I think this would be an
interesting project, serve my ends to investigate prediction markets,
and satisfy my advisor.

Of course the problem with this idea is that I need to find a company
that already does sales forecasts (or something similar) and get them
to agree to all this. Clearly an issue, and I may end up going back
to revise my ideas. We'll see.

Cheers for now.