Xpree launches new prediction market product, new transaction interface and new website - check it out

[mat.f...@gmail.com]

http://www.Xpree.com launches "Open Innovation Markets", super easy
betting interface and also a new website

Open Innovation Markets combines crowd based innovation, voting and
prediction markets. The idea is to brainstorm as a community, vote on
the ideas to rank them, then forecast key metrics using a market (cost
to develop etc). Prediction markets work well for the estimations of
unbiased key metrics, combining this with voting allows the crowd to
bet on only the top ranked ideas.

In an effort to make truly Usable Markets, we changed from a "stock
trading" metaphor to a "betting" metaphor. In research, we found that
players found shorting stock to be a lot less intuitive than going
long, this may explain the optimism bias in the Google results. With
betting, "I bet $100 that X is lower than 3,000" is as easy as saying
"I bet $100 that X is higher than 3,000", and is a whole lot easier
than "I sell short 10 stock units at an average price of $X, and cover
this with $Y" etc. We have some demos on our site for you to try
out. For the prediction market purists out there, we still allow the
player to see the underlying prediction market dynamics - no black
boxes at Xpree.

Feedback welcome!

Mat Fogarty

[Robert Holley]

As one of the academic members of this list, I'm curious if any of you have
comments on the effect of the book described below on prediction markets.
His thesis is that major events such as the fall of communism, 9-11, and the
rise of Christianity were not predictable because they were too far beyond
the range of the expected. I actually think that it won't because most of
the markets deal with the probability of a fixed event within well defined
limits. This, however, is not always even true. How would a prediction
market have dealt with the assassination of Robert Kennedy, an unexpected
event that by definition removed him from contention for the presidential
nomination?

I think that this theory would have an influence if prediction markets were
more open. Let's say, for example, that someone built a prediction market to
select the top news story of 2008 as determined by xyz group at the end of
the year. A totally unpredictable event such as 9-11 could turn out to be
the winner, but such an event would have been quite impossible to foresee
because it would be almost totally unexpected.

What do you think?

Amazon.com
Bestselling author Nassim Nicholas Taleb continues his exploration of
randomness in his fascinating new book, The Black Swan, in which he examines
the influence of highly improbable and unpredictable events that have
massive impact. Engaging and enlightening, The Black Swan is a book that may
change the way you think about the world, a book that Chris Anderson calls,
"a delightful romp through history, economics, and the frailties of human
nature." See Anderson's entire guest review below.

Robert P. Holley
Professor, Library & Information Science Program
Wayne State University
Detroit, MI 48202
313-577-4021 (phone)
313-577-7563 (fax)
aa3...@wayne.edu (email)

[Byrne Hobart]

I think the 'field' contract in election futures is a good analogy, here. Instead of predicting specific things, there could be broad predictions containing sub-predictions. For example, a prediction market on the US airline industry could say something like "If the US airline industry loses half of its market value over the next five years, will it be for a cause that is a) technological, b) political, c) due to increase competition from abroad, d) due to increased domestic competition, or e) due to unpopularity with consumers." If someone knew about 9/11 in advance, they might bid up e) quite a lot, at which point e could be split into particular causes, until one of those causes is "An act of terrorism will make people scared to fly."

 

This particular example wouldn't work out because the causes of any event are hard to determine, but it shows that prediction markets can predict unusual events by constantly refining contracts. Like a stock spinoff that lets you buy the division you like without being saddled with a conglomerate you don't care for.

[tom abeles]

Hmm, let me puzzle this through. Book makers are in the "prediction market" business. They don't care what the subject is. The odds are based on a perceived payout where the odds always favor the book maker who manages the pool. Its the slot machine made visible. Taleb is very careful to point out that we always see the "winners" in such gambits and never see the loosers or what the party holding the purse and making the odds gets from the deal. I am not certain that putting assets at risk to play is the sine qua non of a prediction market. After all, the "wisdom of the crowds" argument does not require that the crowd put assets at risk. 

Taleb is a contrarian who was lucky in the markets and he admits that. Looking at the price of gold, a contrarian gold bug, early in the game is quite well off today as are those who shorted the market before the recent market downturn. On the other hand, those who were long on the sub prime market actually predicted the outfall but were not savvy enough to read the tea leaves.

That seems to say that "the wisdom of crowds" and "prediction markets" probably join along with the other "prediction" schemes which sell expensive books and newsletters or courses on how to beat the odds in "x".

The pollsters were wrong in NH on the primaries and have been cautiously licking their wounds and telling everyone why they were wrong- ahh, the Bradley effect- good as any other rationale. futurists decry that they are in the same prediction game. They have given up and elected to create "scenarios" of possible futures from which you can pick- They are recovering from the false ideas of Condorcet, Saint-Simon and other Enlightenment thinkers and have fallen back to the humanities, more creatures of the Romantic anti-Enlightenment thought which is probably where prediction markets need to be ensconced

tom abeles

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Date: Sat, 26 Jan 2008 16:55:33 -0700
From: bho...@gmail.com
To: Predictio...@googlegroups.com
Subject: Re: Theory of the black swan

<br

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[mat.f...@gmail.com]

Taleb's book is a very interesting critique of the whole forecasting
industry. Essentially, the events that matter were never forecasted,
therefore, why bother?

A well constructed prediction market can help. By monitoring the
percentage chance of an unlikely event, for example a terrorist attack
on the US in the next year, even small fluctuations in this metric can
be meaningful. For example, if this metric were to rise from 1% to
5%, still the market does not predict an attack, so Taleb would be
right that it happens, but was not predicted. However, the meaning of
5% is a probability, and this is still relevant for decision making -
for example taking out insurance for the possible event.

[Russell Andersson]

I don't have strong views either way.

I thoroughly enjoyed Taleb's first book, Fooled by Randomness, so have
also read his latest offering, The Black Swan.

I have to admit that I was thoroughly under-whelmed. The book's basic
premise is that it is hard/impossible to predict extreme events, and
extreme events can have dramatic global macro consequences. Not exactly
an earth shattering insight considering everybody knows that the world
is becoming smaller/more correlated thus large shocks reverberate
further.

So in answer to the original question, I do not believe there is much to
be learned by the prediction market community from this particular
offering. I would suggest that there are several more helpful books,
some by members of this forum, to read before you get to this one.

Its also noteworthy, and not that I have a dog in the fight ... that
some members of the academic community consider Taleb to be something of
a hack.

From the Chicago Tribune:
<
http://www.chicagotribune.com/business/chi-mon_swanjan14,0,7321725.story
>

"I don't want to glorify him by refuting what he says," said Scholes.

Scholes said academics do not take Taleb seriously because he does not
cite previous academic literature in his theories, relegating him to a
man who "popularizes ideas and is making money selling books."

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[Jed Christiansen]

This question deals clearly deals with binary markets, which can be
interpreted as probabilistic forecasts.

A properly defined binary market includes two or more options, one of
which will be judged as "true" while all the others are "false."
Thus the options have to be MECE: Mutually Exclusive and Cumulatively
Exhaustive.

I don't think that it's possible to create a question that would
incorporate "Black Swan" events as anything but the "Field/Other"
option that would properly complete a binary market question. For
example, take the presidential primary election. One could create a
market/contract on who would win the Democratic nomination that would
have just two options: Clinton and Obama. And they would probably be
right... one of those two candidates would likely win the Democratic
nomination. But to create a proper contract, an "Other" option needs
to be included. This could represent Gore entering the race, or
something else entirely. (I'm originally from Minnesota and remember
Paul Wellstone tragically dying in a plane crash just days before the
election.) Any of these events would be "Black Swans."

So perhaps it could be said that prediction markets could forecast
Black Swan events, just not any particular Black Swan event. (And
even that statement would be quite a stretch without a lot more
investigation.) Openness doesn't really have a lot to do with it...
just MECE.

Best regards,
Jed

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Jed D. Christiansen
Managing Director
Mercury Research and Consulting Ltd
http://www.mercury-rac.com
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jed.chri...@mercury-rac.com
+44 (0) 796 358 3663
http://blog.mercury-rac.com
http://www.linkedin.com/in/jedchristiansen
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