More creative uses of markets

It seems like not a week goes by without another prediction market being launched.

This week’s entry: CasualObserver.net . Up and running just one week, it focuses on the U.S. midterm elections. The good news is that you can participate for free. The bad news is that if you want to win real money, you have to look elsewhere. (I guess the founder Rick Hinton doesn’t want to be arrested by a justice deparment run amok.)

The only money that will change hands is if you decide to buy some CasualObserver boxer shorts. For Rick’s sake, I hope they sell better than the Freakonomics t-shirts.


jstleger

I can personally say that had anyone in the Duquesne University economics department known about t-shirts, you would have bought A LOT.

jstleger

*sold a lot

Chris. F. Masse .COM

Hi professor Levitt,

Casual Observer uses Inkling Markets technology. I've learned recently that Inkling uses Robin Hanson's Market Scoring Rule instead of CDA.

MSR is a mix between CDA and scoring rule. It was invented for the US DOD's DARPA's Policy Analysis Market (dubbed the "terrorism futures market" by the idiots), which made waves in July 2003, if you can remember.

I'm not a market design expert, and you would like to ask Professor Hanson, but what I got is that MSR is better than CDA for thin markets. Which makes it appropriate for internal corporate prediction markets or thinly traded prediction markets.

For the curious, here is one MSR paper link:
http://hanson.gmu.edu/combobet.pdf

Other than Inkling, MicroSoft Research and Common Knowledge Markets also make use of MSR for their prediction markets.

Chris. F. Masse .COM

Addendum:
The play-money prediction exchanges designed around the CDA technology can of course make use of an automated market maker in order to add liquidity, but it complexifies the interpretation and adds side effects.

Dr. Funk

The predictive power of this site seems very very weak, since there's no incentive to correct the market? Users can invest in the candidates they want to win, so as to skew the odds in their favor.

Some of the lines are laughably bad right now (or at least would open huge arbitrage opportunities with tradesports) but the only way to correct them would be to create dozens of users, since investment is arbitrarily capped.

FrankH

The incentive to correct the market is short selling. You can see this at work in some of the higher volume stocks that have experienced relatively small price movements.

You will find some wild swings occasionally but they typically correct fairly quickly. The composite index (Dems vs GOP) of all the stocks should be a good indicator of how rampant any "mispriced" stocks may be. If you look at the weekly Index chart on the home page it hasn't experienced tremendous fluctuation and is now at a spread of about 4 points.

PiensoLuegoExisto

The Washington Stock Exchange was also finally luanched this week. They had been in beta for about a year I think?

http://www.thewsx.com/

They also have a blog:

http://www.washingtonsx.com/blog/

MrWeen

I want a Freakonomics t-shirt! Nothing better than advertising that economics is cool.

58saavedra

Freakonomics t-shirts...where? I would love to buy a freakonomics t-shirt. Hoodies, boxers, sweat pants, winter coats. I smell a fortune in that market. I need to buy a new coat by October's end, so let's get the factories rolling Steven.

matth

I don't understand how the site works. Clearly, the outcome of the price levels is no indication of how well the candidate is doing. I buy candidates I think will rise, and then I sell them. In doing so, I lower their poll number significantly. This does't make sense.

Blandy

I'd wear a Freakonomics T-shirt to University occasionally if I could get my hands on one. Are they available in Australia?

jstleger

I can personally say that had anyone in the Duquesne University economics department known about t-shirts, you would have bought A LOT.

jstleger

*sold a lot

Chris. F. Masse .COM

Hi professor Levitt,

Casual Observer uses Inkling Markets technology. I've learned recently that Inkling uses Robin Hanson's Market Scoring Rule instead of CDA.

MSR is a mix between CDA and scoring rule. It was invented for the US DOD's DARPA's Policy Analysis Market (dubbed the "terrorism futures market" by the idiots), which made waves in July 2003, if you can remember.

I'm not a market design expert, and you would like to ask Professor Hanson, but what I got is that MSR is better than CDA for thin markets. Which makes it appropriate for internal corporate prediction markets or thinly traded prediction markets.

For the curious, here is one MSR paper link:
http://hanson.gmu.edu/combobet.pdf

Other than Inkling, MicroSoft Research and Common Knowledge Markets also make use of MSR for their prediction markets.

Chris. F. Masse .COM

Addendum:
The play-money prediction exchanges designed around the CDA technology can of course make use of an automated market maker in order to add liquidity, but it complexifies the interpretation and adds side effects.

Dr. Funk

The predictive power of this site seems very very weak, since there's no incentive to correct the market? Users can invest in the candidates they want to win, so as to skew the odds in their favor.

Some of the lines are laughably bad right now (or at least would open huge arbitrage opportunities with tradesports) but the only way to correct them would be to create dozens of users, since investment is arbitrarily capped.

FrankH

The incentive to correct the market is short selling. You can see this at work in some of the higher volume stocks that have experienced relatively small price movements.

You will find some wild swings occasionally but they typically correct fairly quickly. The composite index (Dems vs GOP) of all the stocks should be a good indicator of how rampant any "mispriced" stocks may be. If you look at the weekly Index chart on the home page it hasn't experienced tremendous fluctuation and is now at a spread of about 4 points.

PiensoLuegoExisto

The Washington Stock Exchange was also finally luanched this week. They had been in beta for about a year I think?

http://www.thewsx.com/

They also have a blog:

http://www.washingtonsx.com/blog/

MrWeen

I want a Freakonomics t-shirt! Nothing better than advertising that economics is cool.

58saavedra

Freakonomics t-shirts...where? I would love to buy a freakonomics t-shirt. Hoodies, boxers, sweat pants, winter coats. I smell a fortune in that market. I need to buy a new coat by October's end, so let's get the factories rolling Steven.