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Cashing in on Online Prediction Markets

timothy posted more than 7 years ago | from the betcha-someone's-making-money dept.

77

garzpacho writes "BusinessWeek takes a look at the use of prediction markets to forecast business success. These markets have been taking the form of games online--the Hollywood Stock Exchange, for example, allows players to bet on the success of movies. Hollywood is currently one of the largest consumers of prediction market data, in part because movies' broad appeal leads to a large number of players, but also because the markets have been surprisingly accurate--92% in picking Oscar winners over the last three years. Because of this success, other industries are taking a look; pharmaceutical and tech storage businesses are currently working to set up their own markets."

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77 comments

I predict (-1, Troll)

Anonymous Coward | more than 7 years ago | (#15860704)

this is teh first post

92% Oscar winner accuracy? (2, Funny)

enitime (964946) | more than 7 years ago | (#15860752)

"...the markets have been surprisingly accurate--92% in picking Oscar winners over the last three years."


Only 92%? I'm sticking with The DaColbert Code [youtube.com] .

Re:92% Oscar winner accuracy? (1)

neonprimetime (528653) | more than 7 years ago | (#15860834)

I thought the DaVinci code was going to predict our future?

Surprising? (1)

2short (466733) | more than 7 years ago | (#15861033)


Is 92% "surprisingly accurate"? Only if Oscar winners are somewhat hard to pick, which they aren't. I'd bet I can pick more than half of the big categories correctly, despite never actually watching the movies; the surrounding hype is enough. Any competent film critic should achieve 90%.

Re:Surprising? (2, Interesting)

andrewman327 (635952) | more than 7 years ago | (#15861083)

Applying this system to business (especially pharmaceuticals) is a horrible idea. Oscars are selected in part by popularity. Of course the most popular movies will have the most votes. Predicting if Levoxyl can outsell Synthroid in the Pacific Northwest in Q1 2007 is another proposition entirely. I remember that the DoD tried something like this with terrorism but cancelled it because of public outrage.

Re:Surprising? (2, Informative)

eikonoklastes (530797) | more than 7 years ago | (#15861179)

Applying this system to business (especially pharmaceuticals) is a horrible idea

Not necessarily. Allowing Joe Q. Public to partake in the market would be a bad idea. Allowing the designers, testers, etc. to (anonymously?) participate is a great idea. Check out The Wisdom of Crowds [amazon.com] for a great read.

I remember that the DoD tried something like this with terrorism but cancelled it because of public outrage.

Cancelled before it was ever used. It probably would have worked, too.

Re:Surprising? (2, Interesting)

timeOday (582209) | more than 7 years ago | (#15862085)

Applying this system to business (especially pharmaceuticals) is a horrible idea.
Uh, that's what the stock market is. I'm not saying it's accurate, but it is how resources (money) are allocated in our global economy. "Betting on futures" for a movie? It's just a little more direct than buying stock in Sony.

Re:Surprising? (1)

andrewman327 (635952) | more than 7 years ago | (#15863201)

I have always thought that this system works pretty well for things with almost full information. The stock market, on the other hand, is a cruel mistress and does not accurately predict the future.

Re:92% Oscar winner accuracy? (0)

Anonymous Coward | more than 7 years ago | (#15863371)

A similar prediction market occurs here in Australia where we can 'bet' on elections. In the last Federal election, while the media were billing it as a close race, the market successfully predicted an (unfortunate) Liberal Party landslide. Just proves a well known fact: the mass media is full of sh*t (and prediction markets are quite accurate).

I predict (0, Flamebait)

roman_mir (125474) | more than 7 years ago | (#15860766)

I predict that this approach will cause the movies to get worse and worse.

I predict that Pirates of the Caribbean III will suck something awfull and this is a very good prediction judging from the Pirates of the Caribbean II, which sucked pretty bad.

I predict that movie directors who pay more attention to the story will create much better movies than those, who only care about money/visuals.

Re:I predict (-1, Offtopic)

roman_mir (125474) | more than 7 years ago | (#15860797)

oh, and I predict that the parent comment will make it +5Insightful (and this one +5 Funny)
I charge very little for my predictions, movie companies - take notice :)

Re:I predict (1)

stevesliva (648202) | more than 7 years ago | (#15860844)

Or, if the market because large enough, producers could use it as a hedge against failure and do more innovative things, not less. Although betting on your own movie to fail when everyone else also thinks it will fail probably isn't much of a hedge.

Re:I predict (1)

B11 (894359) | more than 7 years ago | (#15860882)

Can they possibly get any worse? I guess they could start making "reality movies," not in-depth commentaries on society like documentaries, but more along the lines of the vacuous dribble on MTV, Fox, et al.

Re:I predict (1)

ArmyOfFun (652320) | more than 7 years ago | (#15860990)

I guess they could start making "reality movies," not in-depth commentaries on society like documentaries, but more along the lines of the vacuous dribble on MTV, Fox, et al.
They already started, hence The Real Cancun [imdb.com] . Fortunately, that experiment bombed, so hopefully they've given up on that idea.

But what really matters? (0)

Anonymous Coward | more than 7 years ago | (#15861025)

You are no doubt correct. The movies will get shittier. That has been the case for decades now, however. The fact remains that in today's America, dumb and shitty movies can often pull in a lot of cash. That is just because many people are convinced that they need to have seen the latest flick. Otherwise, they mistakenly think that their "social life" will "suffer".

So this sort of data collection does work, and it does have the effect that you describe. The American movie industry is about putting out a shitty (unnecessary) product, convincing enough of the unwashed masses that they need to spent a fair chunk of change go to see it, and then repeating the process over and over again. As long as they keep convincing people to go see the shitty movies they put out, they'll keep making money.

This sort of data is more checking whether or not people will continue to buy into their shit ploy. And yes, it no doubt will lead to the shitty films becoming even shittier.

Re:But what really matters? (0)

Anonymous Coward | more than 7 years ago | (#15862105)

Don't worry. In a separate move, people are also working on a marketplace for ideas that rejects the mass-market dumbed-down food for the masses approach of Hollywood. In this utopia only those with technological and intellectual savvy far above those of the average man may enter, and unintelligent blather is relegated to the far corners.

I think they're going to call it Usenet [wikipedia.org] .

Re:I predict (1)

Red Flayer (890720) | more than 7 years ago | (#15861210)

I predict that movie directors who pay more attention to the story will create much better movies than those, who only care about money/visuals.
And I predict, that commas, will be ever increasingly, used in improper, places, making reading, sentences, seem like they, are done by, Shatner, or that handicapped, kid, from, "Malcom in the Middle."

Anyway, RTFA. It's not about using the market predictions to determine whether effects or story will dominate in a film production.

Well, duh (re: Hollywood) (3, Interesting)

truthsearch (249536) | more than 7 years ago | (#15860771)

The Oscars are a popularity contest, so of course a prediction market will be accurate. Plus everyone knows if you throw in a mentally challanged main character or uglify a hot actress you're 10 times more likely to win the Oscar.

Jennifer Connolly in "A Beautiful Mind" (1, Funny)

Anonymous Coward | more than 7 years ago | (#15860851)

Plus everyone knows if you throw in a mentally challanged main character or uglify a hot actress you're 10 times more likely to win the Oscar.

Yeah, I was hopping mad when I saw how Ron Howard used CGI to digitally reduce Jennifer Connolly's bountiful bosoms in "A Perfect Mind". Anyone who saw her in "The Hot Spot" and "Career Opportunities" knows that something big was missing in Howard's film. Look, it was kinda neat how they removed Gary Senise's legs digitally in "Forest Gump" but removing the breasts of the most wonderfully stacked actress in Hollywood today was crossing the line in unnecessary CGI effects. I can't believe the Academy falls for such cheap tricks.

Re:Jennifer Connolly in "A Beautiful Mind" (1)

fl!ptop (902193) | more than 7 years ago | (#15861265)

Yeah, I was hopping mad when I saw how Ron Howard used CGI to digitally reduce Jennifer Connolly's bountiful bosoms in "A Perfect Mind".

maybe, but we'll always have her at her beautifully big-breasted best in "The Rocketeer" [imdb.com] and "Requiem" [imdb.com] .

Re:Jennifer Connolly in "A Beautiful Mind" (1)

kfg (145172) | more than 7 years ago | (#15861633)

Can you say "wet sweater?"

Dark Water [imdb.com]

I knew ya could.

KFG

Re:Well, duh (re: Hollywood) (4, Interesting)

TubeSteak (669689) | more than 7 years ago | (#15861078)

The Oscars are a popularity contest, so of course a prediction market will be accurate.
I find myself agreeing with that sentiment.

From TFA: "The Hollywood Stock Exchange gives traders just enough information to be able to play the market."

You don't have to worry about risk to predict the success of a movie.

To do predictions for something like pharmaceuticals, you need vastly more technical information... something that pharma companys are loathe to part with (results of unreleased clinical trials for example).

Otherwise, you're just guessing at the risks involved.

Re:Well, duh (re: Hollywood) (1)

khallow (566160) | more than 7 years ago | (#15871722)

But there are people with vastly more knowledge of pharmaceuticals. And they already trade on the stock market. That's one of the advantages of markets. If you are vastly more knowledgeable in an area, then you get directly rewarded for that knowledge. If you're not vastly more knowledgeable, you can still use the prices listed on the market as a best guess to the value of the security (and any underlying probabilities).

Google (2, Interesting)

Anonymous Coward | more than 7 years ago | (#15860782)

When Google went IPO, I wanted to join in but had no idea what price it was going to emerge at and didn't want to overbid. Then I found out an exotic derivative was being marketed, betting on Google's IPO price. I watched the price of the derivative over the next few weeks; it stayed fairly stable, and I used its value to choose my price. The end result? I placed several bids at different values, and the lowest value I chose was $4/share over the final IPO price, meaning my entire order was executed (though neither I nor anyone else got the full boat).

Re:Google (1)

benna (614220) | more than 7 years ago | (#15864248)

You seemed to have missed the point of the Dutch auction completely. What you should have done was *gasp* bid what you were willing to pay. If the price turned out to be lower than your bid, you would get the lower price, and if it was higher, you wouldn't spend any money on something you though was overpriced. You could still enter multiple bids if you wanted to get a different number of shares depending on the price. The point is, what the eventual IPO price would be should have had no bearing on your decision.

Apply this to CS (2, Interesting)

neonprimetime (528653) | more than 7 years ago | (#15860796)

Maybe we should do this for Source Forge projects? Then we know which ones we shouldn't waste or time on.
Or, we could do this with Linux Distros so we know which ones we should just abandon before wasting all our efforts.

Re:Apply this to CS (1, Funny)

El Torico (732160) | more than 7 years ago | (#15860829)

I predict a flamewar breaking out as a result of the parent post.

DistroWatch.com (3, Informative)

licamell (778753) | more than 7 years ago | (#15860832)

Distrowatch [distrowatch.com] does this... shows the popularity of different distros. It sometimes influences me to try knew distros that manage to make it to the top of the list even if I have never heard of them.

Re:DistroWatch.com (1)

ABCC (861543) | more than 7 years ago | (#15861981)

Distrowatch does this... shows the popularity of different distros. It sometimes influences me to try knew distros that manage to make it to the top of the list even if I have never heard of them.

We could add the different unices to the list and have a *NIX-change, then we could all short SCO....Oh wait, thats possible already!

/me off to call broker

Re:Apply this to CS (1)

Bastard of Subhumani (827601) | more than 7 years ago | (#15860944)

do this with Linux Distros so we know which ones we should just abandon before wasting all our efforts.
You can't just abandon them. You have to give 3 years notice if you don't want to get your ass kicked by RMS^H^H^H^H sued by the FSF for GPL violation.

Market forces rule. (-1, Offtopic)

Anonymous Coward | more than 7 years ago | (#15860845)

Laissez-faire capitalisic principles work so well. I don't understand how some people can still think that contolled markets and socialism are good ideas. Anarcho-capitalism [wikipedia.org] , or at least something approximating to it, seems a much more intellectually sound choice.

Re:Market forces rule. (0)

Anonymous Coward | more than 7 years ago | (#15861158)

How is this offtopic?! TFA is about the sucess of market forces and the original AC is commenting on that, whether you agree with the politics or not. Pass the crack pipe, crazy moderator.

Not new, but fun. (1)

celardore (844933) | more than 7 years ago | (#15860879)

The BBC have been running Celebdaq [bbc.co.uk] for years now. They used to have a weekly show for it on BBC3. That is based on media coverage over the past week though.

I find these games entertaining on some small level. I've played Tradeover [tradeover.net] a little bit while I'm at work, that's a more realistic stock game. It would be stupid though to base the actual markets on the game, it's meant to work the other way around.

Big money moves the markets. Wherever the big money goes at the point of sale is what matters most.

Re:Not new, but fun. (1)

maadmole (698240) | more than 7 years ago | (#15860957)

older than that even, John Brunner predicted the rise of the prediction biz several decades ago, in his now sadly neglected novel Shockwave Rider: http://www.technovelgy.com/ct/content.asp?Bnum=661 [technovelgy.com]

Karnak says: (1)

hguorbray (967940) | more than 7 years ago | (#15860887)

I predict:

A:
the gullibility of the american public, the inability of business groups to decide anything for themselves and the first step to trashy AI created and produced movies for mass consumtion.

Q:
What do computerized predictions really predict?

May the dung beetles from 1000 camels crawl up your man-dress!

(Apologies to Johnny Carson and American Dad)

-What's the speed of dark?

Re:Karnak says: (0)

Anonymous Coward | more than 7 years ago | (#15862948)

The Speed of Dark is a near-future science fiction novel by Elizabeth Moon. The story is told from the first person viewpoint of an autistic computer programmer. It won the Nebula Award for Best Novel in 2003, and was also an Arthur C. Clarke Award finalist.

Popularity vs. knowledge? (0)

Anonymous Coward | more than 7 years ago | (#15860888)

It occurs to me that these markets are based more on popularity vs. actual knowledge.

So it's no surprise to me that they could pick which movie star many think is the best (after all, the judges do the same thing, in a sense--they pick whichever movie star they like best).

But if you did that, say, with drug research or things most people know nothing about, I'd have a hard time believing that you could get any useful information out of a market. Instead, you'd most likely only get data on which drug names sounded better, or which diseases people most wanted a cure for (something you could likely figure out from how many had those diseases to begin with) ...

Perception and reality (4, Insightful)

EmbeddedJanitor (597831) | more than 7 years ago | (#15861151)

which diseases people most wanted a cure for (something you could likely figure out from how many had those diseases to begin with)

Perception and hype are not the same as reality. For instance, TB kills more people than AIDS, yet which is perceived to be more important to treat? There's a lot of discussion and hype about breast cancer, yet prostate cancer is more serious.

Perception drives our irrational thinking.

Re:Perception and reality (1)

ABCC (861543) | more than 7 years ago | (#15862032)

1. Buy AIDS penny stock
2. Convince Africa to invest in the pharma market so someone will be more likely to invent an Aids cure
3. Sell all AIDS once youve got a big margin and watch the stock tumble
4. Retire

Another victory for Capitalism! What have you lot got against profit?

Re:Perception and reality (1)

khallow (566160) | more than 7 years ago | (#15871730)

Perception drives our irrational thinking.

IMHO, nothing changes perception quite like losing something of value (eg, money).

Re:Popularity vs. knowledge? (1)

zedeler (671724) | more than 7 years ago | (#15861673)

It occurs to me that these markets are based more on popularity vs. actual knowledge.

Well, the market seem to sift out players that make more or less arbitrary trades. If you can't identify any valuable traits of the stocks in the market, you will eventually to loose your (virtual) money. From the perspective of the player who looses, one can argue that very few people like to play any game where the results of their actions seem arbitrary (because they don't understand the game) and the loose. From the market perspective, theese players haven't got any noticeable influence on price formation.

At HSX [hsx.com] they do adjust the stock value when each movie actually hits the theaters, paying out a bonus to anyone who managed to predict the turnover of the movie during the opening weekend. On the other hand, players who overestimated the price will loose accordingly. This feedback to the players helps them learn what the movies are really worth.

My view of prediction markets is that it is an open challenge to all participants: find any way to assess the value of something, and get paid (in some or other currency) if you get it right. Due to the openness of the problem, solving it can be done in a multitude of ways, which unlocks a lot of creative thinking.

Your "beauty contest" idea is only right, if it also works that way in real life - that it does make the movies more popular. Otherwise any player who follows a "buy only good looks" will loose his/her money.

More serious example (4, Informative)

hcdejong (561314) | more than 7 years ago | (#15860966)

StrategyPage runs a prediction market on geopolitical events [strategypage.com] , with a similarly high success percentage.

Re:More serious example (2, Informative)

TopShelf (92521) | more than 7 years ago | (#15861145)

MIT's Technology Review [technologyreview.com] magazine used to run a great set of market contests, called Innovation Futures. They had great prizes, of which I won a few (Sony DVD burner, HP Tablet PC, oodles of gift certificates, etc.).

That was important because if you want people to really make these markets work, there has to be some incentive for them to do so.

Re:More serious example (1)

MattW (97290) | more than 7 years ago | (#15861312)

The way their predictions are set up, their 89% success rate is thoroughly unimpressive. There are often several mutually exclusive choices (e.g., 2006 Kerry VP running mate choice), as well as repeated submissions of ridiculously longshot possibilities (which, quickly relegated to the CON scrap heap still bring up the accuracy average). I was amused, however, by how many people ended up getting the John Roberts confirmation wrong, because the wording said, "To replace retiring justice Sandra Day O'Connor", and of course, he ended up replacing Rehnquist.

Re:More serious example (1)

benna (614220) | more than 7 years ago | (#15864268)

I notice they have a DOW future on there. With such an illiquid market, I would imagine would could easily profit from the arbitrage between the site's DOW future, and one traded on a real exchange.

Insiders are encouraged to play (0)

Anonymous Coward | more than 7 years ago | (#15860987)

One difference between the Hollywood Stock Exchange and the conventional stock market is that insiders are encouraged to play.

No wonder the accuracy. People who might actually get to be Oscar voters should be good at guessing what they will vote for as well as what other insiders do.

And the market as defined as the movie-going masses are pretty dismal at picking oscar winners.

I think when it comes to predicting something as subjective as movie sucess, William Goldman's "Nobody Knows Anything!" quote still rings true. A recent special had many interviews with insiders that boiled to to that quote. None of the testing really revealed what the collective audience was going to react to and many surprises insued. I guess movie prediction science will give economists at least one science to look down on in the accuracy dept.

Terrorism Futures Market (5, Informative)

rothlmar (982182) | more than 7 years ago | (#15860993)

If you'll recall, a similar terrorism futures market was planned by DARPA; it fell victim to political pressure, got deep-sixed, and the proponent, John Poindexter, resigned in a cloud. But the truth is that the idea works well. Here's a summary of the controversy: http://www.wired.com/news/politics/0,1283,59818,00 .html [wired.com] .

Re:Terrorism Futures Market (1)

jconley (28741) | more than 7 years ago | (#15861013)

I think f--dcompany.com has been doing this for a long while...

Re:Terrorism Futures Market (1)

khallow (566160) | more than 7 years ago | (#15862049)

I think they lacked certain characteristics of a real market. Ie, in a real market trading occurs when there's disagreement about the price of a security. OTOH, even if everyone agrees that company X is diving, you can still push your score up by going with the concensus view. I seem to recall that one of a few to get something right is more valuable, but following the concensus seems to pay off unlike a regular market.

Re:Terrorism Futures Market (1, Informative)

Anonymous Coward | more than 7 years ago | (#15861062)

Yeah, I hated seeing that terrorism futures market get blasted for all the wrong reasons.

A great book, The Wisdom of Crowds, goes over why futures markets work so well. Things ranging from judging the weight of a pumpkin to predicting within minutes of the Challenger disaster that the O-rings were responsible, have been foretold by futures markets or simple version of them.
http://www.amazon.com/gp/product/0385721706/ [amazon.com]

Re:Terrorism Futures Market (1)

$carab (464226) | more than 7 years ago | (#15863946)

No, I don't think it would have worked so well. Here's two reasons why:

1. Not enough traders. Who's going to provide the liquidity for such a market? Where are the large mass of uninformed traders that provide the impetus for better informed traders to take advantage of their status? What's the bid/ask spread going to look like? Where are the market makers going to come from? It's worth noting that Tradesports does really well (high-volume) on things like sports and very poorly on wonky political happenings, like the status of a Palestinian state.

2. If you take a prediction market and suddenly start using it to make decisions, it becomes a "decision market". In the case of national security, this becomes a very dangerous proposition - without a suitable amount of liquidity, the decision market is subject to manipulation. What happens when we shift resources to NYC when the real threat is in LA just because that's what the decision market tells us to do? Also, prediction markets have a noted bias (probably psychological) that conflates "extremely low" probability events with just "low" probability events. Not something to base national security on, once again.

and here's another one for good measure:

3. What's the point of having a professional intelligence community at all if they do worse than a collection of interested amateurs?

Re:Terrorism Futures Market (1)

NickFortune (613926) | more than 7 years ago | (#15864543)

If you'll recall, a similar terrorism futures market was planned by DARPA; it fell victim to political pressure, got deep-sixed, and the proponent, John Poindexter, resigned in a cloud. But the truth is that the idea works well.

I don't think the problem was whether or not it would have worked. The trouble I see it is that a market would mean a lot of money riding on whether or not a terrorist act was committed. Which in turn creates a financial incentive for people to commit attrocities who wouldn't otherwise consider such actions. How many multinational corporations would you trust not to blow up someone else's building if there was half a billion dollars at stake?

By the same token, it's going to be tempting to try and pump the prices behind events that you want to have happen. See how high you can get the payoff for the assassination of Kim Jong-Il, for example. The upshot of that is that other governments it's going to like you're setting up an assassination market.

It's probably a nice idea as long as it doesn't feed back into the real world. I mean it doesn't much matter if the Hollywood market affects the likelihood of any given film being a hit. Maybe the results generate a little viral marketing, encourage a studio to splurge a little promoting a film, who cares? But terrorism? brrrr.....

Re:Terrorism Futures Market (1)

khallow (566160) | more than 7 years ago | (#15871757)

This was addressed in the original market. The amounts of money traded would be limited so there wouldn't be half a billion dollars riding on such events. Plus, if the price does rise substantially on such a contract, it should be a clear warning sign. The market actually functions better if the terrorists and other insiders trade.

This form of moral hazard isn't restricted to just terrorism. For example, stock option markets have similar problems. If there's enough options riding on a company, then it becomes worth it to conduct unlawful activities (eg, stock market manipulation, sabotage, assassination, etc) to change the stock value (and hence shift by large amounts the stock option's value). One thing they do is limit the amount of stock options that are available. That clears up a lot of this sort of problem.

Re:Terrorism Futures Market (1)

NickFortune (613926) | more than 7 years ago | (#15871846)

This was addressed in the original market. The amounts of money traded would be limited so there wouldn't be half a billion dollars riding on such events.
Interesting. I wonder how that would affect the performance of the market.Is the original proposal online anywhere? I have to say, I never saw it.

This form of moral hazard isn't restricted to just terrorism. For example, stock option markets have similal problems. If there's enough options riding on a company, then it becomes worth it to conduct unlawful activities

mmm... but as a rule you can't corner the market in kumquats by planting a bomb in Grand Central Station. In one case the violence is acting as an (unlawful) business method.In the other, it's the commodity being traded.

We're talking about giving corporate money a legitimate pretext to buy and sell violence. I can't help but worry that this would act to increase the overall supply.

Re:Terrorism Futures Market (1)

khallow (566160) | more than 7 years ago | (#15878726)

Interesting. I wonder how that would affect the performance of the market.Is the original proposal online anywhere? I have to say, I never saw it.

Dr. Robin Hanson, one of the founders, has some details on it. I couldn't link to that directly (URL doesn't work at the moment), but here's a good discussion [af.mil] of the market including the complaints.

We're talking about giving corporate money a legitimate pretext to buy and sell violence. I can't help but worry that this would act to increase the overall supply.

And I already mentioned how the market dealt with that. Plus, said violence is *still illegal*. So you haven't obtained a "legimate pretext" to buy and sell violence.

Finally, recall that there was inside trading on the 9/11 attacks. The existing markets can serve quite nicely.

Re:Terrorism Futures Market (1)

NickFortune (613926) | more than 7 years ago | (#15879049)

I couldn't link to that directly (URL doesn't work at the moment), but here's a good discussion of the market including the complaints.

Thanks, I'll look forward to reading that.

And I already mentioned how the market dealt with that.

Yes, you said that limiting the supply of options in the options market eliminated *most* of the illegal activities. Which is probably a fair trade off when the commodity is oranges or shares in SCO.

Plus, said violence is *still illegal*. So you haven't obtained a "legimate pretext" to buy and sell violence.

Sorry, I didn't explain that very well. By usng money to manipulat the market, it would be possible to create financial incentives to perform acts of violence. The sponsor would lose money on the deal, of course, but might regard the loss as acceptable is the violent act achieved the desired outcome. So while they wouldn't be buying violence, and therefore not legally liable, it might still be possible to spend money in order to achieve violence, giving the same functional outcome.

Re:Terrorism Futures Market (1)

khallow (566160) | more than 7 years ago | (#15882864)

Ok, Robin Hanson's home page is here [gmu.edu] , but it's still down. If I recall correctly, you have to click through to his personal page and then there's some betting markets related stuff. The PAM (Policy Analysis Market) stuff should be around there.

Yes, you said that limiting the supply of options in the options market eliminated *most* of the illegal activities. Which is probably a fair trade off when the commodity is oranges or shares in SCO.

But not so when it's airlines and reinsurance companies?

Reading through the link that I gave on the previous post, I see that each trader starts with $100. So there turns out to be very little money actually riding on terrorist attacks, assuming they were tossed in to that market.

Sorry, I didn't explain that very well. By usng money to manipulat the market, it would be possible to create financial incentives to perform acts of violence. The sponsor would lose money on the deal, of course, but might regard the loss as acceptable is the violent act achieved the desired outcome. So while they wouldn't be buying violence, and therefore not legally liable, it might still be possible to spend money in order to achieve violence, giving the same functional outcome.

Again if the amounts are limited, then you don't have enough in one place to provide an incentive. It's pretty obvious that if there's a billion dollar bet riding on whether a particular act of crime occurs, then there's a massive incentive to make that act happen. So by limiting the market, you remove that incentive. The amounts in the regular stock options markets are large enough that there still remains various incentives. But you can reduce the size of the "terrorism" market so that that isn't the case.

Come to think of it, there's already markets in terrorism. See here [ideosphere.com] and here [ideosphere.com] . The latter paid out after September 11 happened. The key obstacle to using these markets to profit from terrorism is that they trade only play money. You can't even transfer funds from one account to another legitimately.

Re:Terrorism Futures Market (1)

NickFortune (613926) | more than 6 years ago | (#15887571)

Ok, Robin Hanson's home page is here, but it's still down. If I recall correctly, you have to click through to his personal page and then there's some betting markets related stuff. The PAM (Policy Analysis Market) stuff should be around there.

Thank you. The other link you sent me was very interesting.

Which is probably a fair trade off when the commodity is oranges or shares in SCO.

But not so when it's airlines and reinsurance companies?

I was thinking more of explosions and assasinations, myself. Interestingly, the Strategic Insights discussion suggests that terrorism and assasination were never intended to be the subject of trades, so maybe that isn't a problem.

And yes, with a $100 cap on any bet and only the pentagon allowed to offer bets, the market should be fairly safe from feedback into the real world.

Come to think of it, there's already markets in terrorism. See here and here. The latter paid out after September 11 happened.

The obvioious answer to that one is "well we don't need another one then, do we?" (Very interesting site BTW, thanks for the pointer). But really, if the CCC summary is an accurate reflection of the project intentions, then I can't see any real problems. Some diplomatic repercussions down the line, perhaps, but that's not necessarily a show-stopper.

On the other hand, I wonder how accurate the market would be as a predictor, given the proposed limiters. I'm not altogether sold on the "market as predictor" idea in the first place, but if it does work, I'd expect its accuracy to be a function of the "freeness" of the market; that the very fact that the market could feed back into the real world would be what would keep the prices in line with reality. By limiting the players, the size of the bets and by only allowing the pentagon to issue bets, the exercise seems more like a focus group with propaganda opportunities rather than a proper market.

Still, I don't suppose we'll ever know for sure. Pity really, since it was an interesting proposal. Much as I have mixed feelings about the idea, it would have been fascinating to watch it in action.

Re:Terrorism Futures Market (1)

khallow (566160) | more than 6 years ago | (#15891084)

By limiting the players, the size of the bets and by only allowing the pentagon to issue bets, the exercise seems more like a focus group with propaganda opportunities rather than a proper market.

Given what actually happened, I'd have to say the propaganda opportunities just weren't there. but you have a fair criticism. The more constraints you place on a market, the less relevant it becomes. Still, it would have consisted of a fairly large pool of people in government, academia, and elsewhere. So there's a lot of knowledge to go around. IMHO, I think the markets would have been useful.

Speaking of HSX... (0, Offtopic)

mobby_6kl (668092) | more than 7 years ago | (#15861026)

Shit, this reminded me to check HSX, and it looks like I lost almost $300,000 just this month! Despite being excellent movies, Clerks II and A Scanner Darkly aren't helping me at all. FSM bless Indiana Jones 4 and Pirates III though!

No real money involved? (3, Interesting)

ArcticCelt (660351) | more than 7 years ago | (#15861116)

I understand that there is no real money involved. Do someone know a "good or recommended" web site with similar concept where you can cash on your knowledge and instinct?

I just did a search and found two but I am not sure if they are any good:

http://www.intrade.com/ [intrade.com] where you can in many political, entertainement and world events

http://www.tradesports.com/ [tradesports.com] Mostly sports but also a bit of world events

Re:No real money involved? (2, Funny)

Red Flayer (890720) | more than 7 years ago | (#15861246)

Do someone know a "good or recommended" web site with similar concept where you can cash on your knowledge and instinct?
Yes, try this one [nyse.com] . They don't explain it too well, but you're wagering on whether given companies will meet, surpass, or fail to meet others' expectations of how they'll perform. Sometimes you're even wagering on just how they'll perform, but normally you're wagering against how others think they'll perform -- that is, can you guess better than everyone else?

Re:No real money involved? (1)

ArcticCelt (660351) | more than 7 years ago | (#15861358)

I went to drink an orange juice and then it hited me; Damn I forgot to preempt the obvious joke of "yes its called the stock exchange duhhhh". And there we go now :(

Now I also just notice that booth links seams to be from the same company so before anyone say the second most obvious comment: "are you promoting your own web site/company", I'll say no, but if you don't believe me I'll say: "Do you want bet 100$ on that?".

Re:No real money involved? (1)

ArcticCelt (660351) | more than 7 years ago | (#15862038)

Allright, I found two link of interest :

The wikipedia article will give information plus a lots of links a the bottom http://en.wikipedia.org/wiki/Prediction_market [wikipedia.org]

This resource will give you lots of links for real money and play money markets http://www.chrisfmasse.com/3/3/exchanges/ [chrisfmasse.com]

Unfortunately after looking almost all the real money links I found no site that appear to be mainstream enough. However many of the play money ones seams fun and it cost nothing to try so enjoy!

Re:No real money involved? (2, Informative)

xcaverx (804538) | more than 7 years ago | (#15861381)

I've tried Intrade. Tradesports is a division of the same company. You might want to run a few practice transactions on Intrade without putting up any money -- just so you can learn some of the pitfalls:

One is the idea (which I shared for a while) that the majority on any contract position is almost always right -- read the news stories, after all, they all suggest the prediction markets are damn near infallible. But the majority position may be all wrong for most of the life of the contract and then readjust in the space of a few trades, leaving you holding some worthless contracts if you had bought with the market. For example, the Republican gubernatorial hopeful in Virginia was the favorite on Intrade for months, then the market reversed itself very rapidly. Likewise Bush's female Supreme Court nominee was strongly favored to win approval until Arlen Specter voiced his misgivings and her contracts fell from the sky. I guess Intrade racked up wins on both predictions -- but in both cases the markets were wrong until it became dead obvious to everyone that Kaine would win Virginia and Harriet Miers would have to drop out.

The market is not liquid -- usually only a few contracts trade every day. Look at the most popular contracts -- such as will Hillary become the Demo nominee -- just a few thousand contracts outstanding. If you want out of a contract immediately, you may have to drop your asking price markedly below the last traded price.

New information is factored into the pricing with breathtaking speed -- you are going to outsmart this market only by accurately predicting the outcome well in advance of expiration. You can't count on being able to keep pace with the change of pricing, unless you hover over a computer screen and clear all your contracts before you go to bed.

Re:No real money involved? (1)

ArcticCelt (660351) | more than 7 years ago | (#15861790)

Very useful information you gave here, I will probably try it. However, what you said about the liquidity of the market is what I was fearing the most and that's why I was trying to find the most popular one (with the most volume).

Is this the most popular site of its kind? Is there a bigger competitor somewhere? I'll keep looking and post it if I find something in cases anyone wants to know.

Re:No real money involved? (1)

porges (58715) | more than 7 years ago | (#15863699)

Tradesports is of the opinion that North Korea did not launch a test missile that left their airspace on July 4th, by the way. At least that's how they resolved the bets. Way too much information on the fiasco here [chrisfmasse.com]

Re:No real money involved? (1)

khallow (566160) | more than 7 years ago | (#15867258)

Contract resolution is an ongoing problem. Tradesports is lucky that they haven't picked up a more controversial case by now. But to be honest, it's really hard to word contracts like this.

Re:No real money involved? (1)

djtack (545324) | more than 7 years ago | (#15866358)

The Iowa Electronic Markets is one of the oldest futures markets of this nature. It's real money (though you can only 'invest' $50), and completely legal. Most of the markets are related to major elections, but there are a few others (like fed. policy and MSFT price). I'm been an active trader since the 2000 election and it's been pretty interesting. http://www.biz.uiowa.edu/iem/ [uiowa.edu]

Old field (4, Interesting)

tansey (238786) | more than 7 years ago | (#15861127)

This is actually a fairly old field of statistics. The story goes that a mathematician at a state fair saw there was a contest to see who could guess the weight of a pile of recently slaughtered beef. Everyone was allowed to guess at it: farmers, house wives, butchers, etc. In the end, the experts (i.e. the butchers) didn't win, and their answer was off by about 10%. However, the total of all the answers, averaged, was off by only .2 lbs.

This sparked the idea that the knowledge of the whole group can lead to better answers than the knowledge of a select group of experts. It's also been shown to be true with things like artificial intelligence and mathematical proof programs.

So it seems like hollywood and the like have just finally realized that the entire group of people can do better at predicting movie success than just some panel of marketing experts.

Re:Old field (2, Informative)

renfrow (232180) | more than 7 years ago | (#15862228)

This idea, that while nobody knows the answer, but, everybody knows the answer, was one of the plot devices in the book 'The Shockwave Rider' [wikipedia.org] by John Brunner in 1975. One of my top ten favorite scifi books.

Re:Old field (1)

khallow (566160) | more than 7 years ago | (#15867188)

Markets have a big advantage over polls in several ways. Communication between the participants occurs, you can express the degree of confidence you have (by buying more or less), and the best possible answer is merely the market price spread.

Everyday predictions (1, Informative)

Anonymous Coward | more than 7 years ago | (#15861287)

Even without groups of people, individual predictions of phenomena for which there is a common intuition can be surprisingly accurate. See "Optimal predictions in everyday cognition" [mit.edu] , reviewed [economist.com] in the Economist.

My Prediction (1)

dmuth (14143) | more than 7 years ago | (#15861295)

...is that BusinessWeek's webserver is about to burst into flames!

The article didn't mention the flu market... (3, Interesting)

exp(pi*sqrt(163)) (613870) | more than 7 years ago | (#15862630)

...discussed here [blogspot.com] where you can buy stock in your favorite flu virus [uiowa.edu] . Apparently it performs well in predicting flu outbreaks.

The "Delphi Effect" (2, Informative)

farrellj (563) | more than 7 years ago | (#15863292)

This is a well known phenonena, and has been used for a long time now. If you ever read the book "The Shockwave Rider" by John Brunner, and shame on you if you haven't, you will recognize the "Delphi Boards". They were basically a legalized betting system that allowed you to wager on the possiblity of something happening...for example, a cure for cancer. I won't go more into the story, but you can check it out for yourself!

It is technically known as the Delphi Effect, and you can read more about it here:

http://en.wikipedia.org/wiki/Delphi_effect [wikipedia.org]

ttyl
          Farrell
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