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[Computational Complexity] Prediction Markets Review

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  • Lance
    Yesterday the Electoral College delegates voted, 365 for Barack Obama and 173 for John McCain. How did the markets do? To compare, here is my map the night
    Message 1 of 1 , Dec 16, 2008
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      Yesterday the Electoral College delegates voted, 365 for Barack Obama and 173 for John McCain. How did the markets do?

      To compare, here is my map the night before the election and the final results. The leaning category had Obama at 364. The markets leaned the wrong way for Missouri and Indiana, their 11 electoral votes canceling each other out. The extra vote for Obama came from a quirk in Nebraska that the Intrade markets didn't cover: Nebraska splits their votes based on congressional delegations, one of which went to Obama.

      Indiana and Missouri were the most likely Republican and Democratic states to switch sides according to the markets, which mean the markets did very well this year again. Had every state leaned the right way (again), one would wonder if the probabilities in each state had any meaning beyond being above or below 50%.

      Many argue the markets just followed the predictions based on polls like Nate Silver's fivethirtyeight.com. True to a point, Silver did amazingly well and the markets smartly trusted him. But the markets also did very well in 2004 without Silver. One can aggregate polls and other information using hours upon hours of analysis or one can just trust the markets to get essentially equally good results with little effort.

      In some other prediction market news: A couple of years ago, Tradesports spun off their non-sports markets into a new site Intrade. Last month Tradesports shut down. Intrade still lives and hopefully it will continue to provide an exciting collection of political and other prediction markets.

      Cantor Fitzgerald, owners of the Hollywood Stock Exchange, have filed with the CFTC to create real money markets based on box office receipts. Each share will pay off one-millionth of the first four weeks of the film's gross. They don't call it a prediction market since it doesn't have a binary outcome but I do because it is based on a specific time-limited event and the price should accurate reflect the expected gross of the movie.

      Not market related but the big news in Illinois is of course the embarrassment of our governor right after the Obama high we've been on. At least Blagojevich will, hopefully, fade from view soon while Obama should leave a strong legacy as president that we in Illinois will remember for a long time.

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      Posted By Lance to Computational Complexity at 12/16/2008 08:08:00 AM

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