Prediction Market Sites
Google Analytics
Iran -- Still at it
David Bernstein thinks that Israel will strike Iran in the next few months. The Tradesports contract still indicates that an attack is unlikely. I bet the Iranian government watches this market and thinks to themselves "we can keep working on uranium enrichment as long as the Tradesports contract stays below 30, if it goes above that we will need to cut back and go with the Russians"
Political Contribution Hedging
I have been checking out the 2006 Senate Races on Tradesports, not much volume yet but things are picking up. I was also thinking about the roles of Hedgers and Speculators in political and legislative markets. It strikes me that one of the natural hedges in political races will be for political contributions. Contributions motivated by support of a canidate who holds similar political views and donations for "influence" both have a lot more value if the candidate wins.
It may also be true that contributions to an underdog or first-time candidate will have more impact as the politician is more grateful for the early support. I suspect there is also more satisfaction from a ideological supporter's point of view when a candidate wins in an upset. Of course, these underdog contributions are more likely to be "wasted" on a losing candidate. This extra benefit for a contribution to a winning-underdog could help the market's hedging function. If I have purchased enough of the favorite such that I get my donation back if my underdog loses -- I better be getting additional political value from my donation since it is going to expensive if my long-shot candidate wins.
Mitt Romney's Chances
Interesting article in the Boston Herald on Tradesport's market for the 2008 race. Prez candidates face grueling battle. They focus on Mitt Romney's potential bid. I suspect we will see more mainstream coverage of prediction markets this election cycle. In addition to their track record, the rapid/instant response to developments in the race makes markets an easy source for news.
Up-coming events
The prediction market summit comes to New York.
Prediction market mini-conf in London
Guan Yang has coverage of the London Business School prediction market conference. Unicast: Prediction market mini-conf in London. It looks interesting.
Blair and the Black Swan
Tony Blair has been suffering some setbacks lately. Apparently he got the message that I shorted the "Blair Resigns by end of Dec 05" contract trying to make a few cents here and there. Not that he is going anywhere before the end of the year, but it can make for some nervous news reading. The vote on the numbers of days the government can detain terrorist suspects started things off. The EU budget negotiations may also have a negative effect since he is perceived to have given up too much -- the British refund -- and not received strong commitments on behalf of the French to cut their agriculture subsidies. This highlights some important issues in trading. It is not difficult to bet on things that are likely to happen -- Blair not resigning before the end of the year -- and win. However, traders exposes themselves to big losses in the event of a "Black Swan" event, a very rare very bad outcome. You might expect the accumulated winnings on all the trades on "likely" events to compensate for the rare negative outcome and they well may. The problem is that it is very difficult to know the distribution of these "Black Swan" events. This is especially difficult for political/event contracts. The good news -- the downside is limited in these binary event contracts. You at least know the worst case.
Academy Awards
Enough of this politics, the Academy awards contracts are available on TEN (Tradesports, InTrade etc). Last year the market failed to pick the winner for Best Picture. Aviator was the market favorite while the winner was Million Dollar Baby. The bettors were probably confused and thought the award actually had to go to a good movie; that is of course ridiculous (see Titanic).
Tech Buzz Markets
Yahoo has offered the Tech Buzz game for a while now. Basically you attempt to predict what searchers will be searching for in the future. I have not played around with it too much but am starting to. There are interesting implications if the market works. There are a large number of markets attracting enough people to provide liquidity might be hard for certain technologies.
Internal Corporate Markets
Prediction markets are not just valuable for political trading and betting. They are an interesting way to use information within a company. Predicting how long projects take can seem almost impossible (applies to real estate as well as software). Google has been using markets to estimate just these types questions. I suspect both the market power and the anonymously nature of these markets helps the accuracy.
