Making Sure Bets On Online Prediction Markets
from the psst-i-have-a-tip dept
Online prediction markets like Intrade have started to make a name for themselves in this year's exciting political arena. By trading futures on political outcomes like the Democratic and Republican presidential nominations, the idea is that the efficiency of the market will ultimately serve as a better predictor of outcome than traditional methods like exit polls. However, as some traders are starting to find, prediction markets still have many inefficiencies in their current state, allowing shrewed traders to make tidy profits as a result. In the Intrade market, a political future is worth $10 if the political outcome occurs, and $0 if it does not occur. Therefore, a $5 market price on a particular future is supposed to correlate with a 50% prediction of that future to occur. However, in practice, certain factors push these prices out of the range of their realistic probability. For example, contracts for Ron Paul's predicted as high as a 9% chance of him being selected as the Republican nominee, when in reality, his chances were probably closer to nil. Perhaps driven by a small cadre of Paul supporters, the Intrade market was able to be swayed by a small number of trades. Even today, Intrade shows Paul at a 1.2% -- which is a great opportunity for someone to make money on taking the short side of that contract. On the Democratic side, Al Gore supporters have put a 1% chance on his head, who never even appeared on the ballot -- wishful thinking indeed. That said, the limited amount of volume on these contracts precludes anyone from actually making a crazy amount of money on them, but it does remind us of an important fact about markets -- while they do tend to come up with the right answer in the long term, in the short term, they are incredibly susceptible to very human factors like optimism and group think.Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
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Filed Under: accuracy, politics, prediction markets
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Manipulators Don't Have an Effect
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Love your circular reasoning
Q: How long is "long term"?
A: Long enough to come up with the right answer.
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Prediction Markets
I have included a Wikipedia link to "Wisdom of the Crowds". Remember, the government wanted to trade a futures contract on terrorism.
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PopSci Predictions Exchange
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great opportunity?
You sell at 1.2 (risking $9.88 to win $0.12) and Intrade immediately charges you 3 cents for being the aggressor. Then when they expire the winning trade you put on, they take out 10 cents for "expiry fees". Your Pnl net of fees: -0.01
By all means, risk $9880 to win $120 betting against Ron Paul, just don't cry when they deduct your balance by $130 and ask you to send them another $10 to cover fees.
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link exchange request
to this site.So would you like to link exchange with this site.?c
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