How to Become an Insta-Expert: A Confession

On?Thursday, I left you with my Oscar picks:

the only close race is Best Picture, and the markets give a slight edge to The Hurt Locker, over Avatar. The other awards are easier picks:?Jeff Bridges will be best actor;?Sandra Bullock will be best actress (as much as I disliked her performance in The Blind Side);?Christoph Waltz is a lock to win best supporting actor;?Mo’Nique will surely win best supporting actress; and?Kathryn Bigelow will beat her?ex-husband to win best director.

It’s time for me to confess: I’ve barely seen any movies this year, and know little about the industry.? But I didn’t want to get left out of the water-cooler conversations about the Oscars.? And so these forecasts were simply a fun application of prediction markets.? By quickly scanning the latest market prices, I managed to become an insta-expert.? In fact, I managed to become such an insta-expert that I’ll be returning to the water cooler today to gloat about my successful picks in all the major award categories.

You can try the same thing.? Can’t be bothered with college basketball?? Check out the prediction markets ahead of March Madness, and you can be sure that your bracket will at least look informed.? Politics bores you?? Forget Politico and FiveThirtyEight; simply follow the markets and you’ll be an insta-expert.? Having trouble tracking the economy?? Follow the futures.? In basically no time at all, you can become expert on just about everything.? It’s all about listening to the wisdom of crowds.


Devon

Hope you applied your predictions to some friendly wagers.

Michael

Umm, no. This is a perfect example of how Freakonomics writers tend to be obsessed with their own cleverness. Prediction markets are a great tool, and I agree that they tend to be more accurate than other statistical and empirical tools in certain situations, but they're ultimately derivative, and rely on the aggregated "expertise" and "wisdom" of ACTUAL experts.

Maybe we should all stop developing expertise and just rely on our own collective non-wisdom, as if the markets aren't tautological enough already.

Sorry, FAIL.

Dan Stewart

Irrespective of your methods, you deserve congrats for your predictions.

Just because you surveyed predictive markets to inform (make) your picks, it doesn't necessarily follow that you cheated. You shouldn't be deprived of credit any more than if you had a stellar market-beating performance in your stock portfolio and later admitted that you simply followed a market guru's recommendations.

Mazel tov!

Rudy

GENIUS, not! Please, this is ridiculous, everyone does that.

Matt

Interesting, especially on how right the markets were. The comment I'd be interested to hear is what's the reasoning when something that got no love goes on to win? According to HSX.com, the Best Adapted Screenplay should have gone to Up in the Air. Instead, it went to Precious, which the futures market had in fourth place. Is that because people are less passionate about Best Adapted Screenplay than they are about big awards like Best Picture? I.e., in order for "crowds" to have sway, you actually need a crowd? (The Hurt Locker was similar for the Best Original Screenplay, but went from 2nd on the futures to winning the award - not as big of a jump as Precious.) Thanks for the interesting report.

Brian

Michael: Information markets designed to "discover" information, but rather to extract it from other people

Discovering information is costly and valuable, but its value is amplified by cheap extraction methods--like information markets.

Sometimes experts and insiders have the best information (the Oscars, stocks), but sometimes the aggregation of non-experts is more accurate (NCAA tournament predictions). Information markets are pretty good at extracting information in both cases, no small feat.

matunos

I realize you use the term "expert" somewhat tongue-in-cheek here, but I think it's a civil disservice to encourage people to "use the wisdom of the crowds" rather than educating themselves on the issues and forming their own insights. Oscar picks aren't that important (unless you're in the industry), but politics? Really? You're suggesting that readers eschew political discourse and instead focus on the horserace (as if we didn't get enough of that already), but not by relying on their own opinions, but the opinions of the anonymous prediction market crowds?

To me, this seems like a recipe for civic disaster. Markets create feedback loops that can appear to be self-fulfilling... until they fail. We all know the results when a bubble pops on Wall Street. Rewind back to 2001. Which is the best performing financial company? Let's ask James C. Collins!

To a fat turkey, every day looks successful until Thanksgiving Day. I'd rather have a populace able to look at the calendar than rely on the echo chambers in the turkey yard that tell them the feed will flow forever.

Read more...

Tonya

"Listen to people twice as much as you speak"...I'm new in my company and spend much of my day listening to office chatter. Most of it is just gossip, but I am to learn quite a bit about people, policies, culture, etc. Aside from the gossip, I pick up a lot of useful information as well.

The aggregate market may not always be correct, but chances are less that it will be incorrect.

It's possible to learn a lot from others. Of course then you have the problem of groupthink....and then we run into correlation versus causation. Thanks for getting me thinking! =)

Joe McDermott

Following futures instead of the cash stock market won't be helpful in determining the state of the economy. The only differences between the spot SP 500 and the futures SP 500 are interest rates (futures are traded on margin) and dividends. Both of these are known, therefore the two move in tandem.

David Chowes, New York City

Reminds me of a story which may be apochrophal: a family takes a vacation in upstate New York and meets what used to be called an Indian.

One day the traveler gets to know the Indian chief and asks about tomorrow's weather. The response, "Rain in the morning, clears up in the afternoon." About 80 degrees at noon.

Right!

So, each day, the vacationer asks the Native American [PC] about the following day's weather and the Indian chief is right about 90%. Amazing!

So, one day he askd the chief how he can prosnosticate so well?

"IListen to radio every day."

matunos

Following my previous comments, a short technical critique of the strategy you encourage:

Prediction markets are basically odds makers. What you are doing is not extracting knowledge (much less expertise) on the matters, but engaging in information arbitrage. Your friends at the water cooler are not following the odds, so you can take advantage of your odds-based predictions; not with money in this case, but with prestige. If they were all looking at the odds already, then what would you have to add to the conversation?

I suspect most people discussing who is going to win the Oscars are really saying who they think *should* win the Oscars, not so much who is likely to win.

Michael

Do prediction markets necessarily encompass all available information? Let's say I worked for PWC and knew all the results. I could just keep betting the line until I shifted it enough that it was no longer profitable to wager.

But that's unlikely. I wouldn't want to compromise my job, and don't have that kind of money.

Maybe prediction markets aren't the best way to make decisions. For instance, some real experts can beat the prediction market (spread) enough of the time to be profitable betting sports. Most of the good ones use statistical analysis. On the other hand, Nate Silver tried to use stats to predict the Oscars last year and was crushed by prediction markets.

As convoluted as this comment is, I am mostly just curious when prediction markets are better than statistical analysis and visa versa. Call is a Wolfers vs Ayres battle.

HW

The thing is that the crowds these markets survey the wisdom of are not composed of schmucks off the street (or internet). It's people who care enough to do research and put their money where their findings are. It's a pool of experts. If every dopy message board reader sees where the market is and bets the ranch, the signal of the knowledgeable will become swamped by noise and the markets will be rendered useless.

Kevin H

@Michael That's give of the point isn't it? Prediction markets are a cheap way to dessminate expert opinion to the rest of us sheep. I actually have yet to see the definitive study on prediction markets being better than simple polls, but they are far from worthless.

vimspot

Are there any sports prediction markets left? I haven't seen any since tradesports.com died.

Crazy Uncle

Hardly anyone was wrong about the Oscars this year. I've seen almost no movies this year either, didn't look at the prediction markets, and I had all the right picks, too,

Manuel Vasquez

I'm not sure how much you can take from this example; I'm pretty sure the "experts" at the WSJ friday edition nailed the winners, too, in their odds report (although I don't care enough to dig it out of the trash). This was a much easier year to predict.

ben

Vimspot, there's a little web site taking over the planet called Betfair.

Jason

You are giving yourself WAY too much credit. Siskel and Ebert successfully predict these awards 100% year after year. This isn't a difficult thing to predict. Predicting something like the NCAA tourney, that would be an accomplishment, but if you look at rankings and your prediction market, you will fail just as much as the average bracket.

David

It seems as though prediciton markets in a sense are odds of who the market believes is likely to win. It provides a way for ill-informed people to have an idea of what is believed to be that most likely outcome of things such as the Oscars. A cross between statistics and economics.