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TradeSports [Nov. 8th, 2006|12:36 pm]
Arvind Narayanan
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[Current Mood |relaxedrelaxed]

Most news outlets are still calling the senate races in Virginia and Montana too close to call, but Tradesports seems to have made up its mind. GOP retaining senate control has a mere 10% probability as of now, and surprisingly, hit that value last evening and has held steady.

Will tradesports trump conventional predictors once again?

(To me the track record of prediction markets is not very surprising, given my core belief that the wisdom of the masses, as manifested in the free market, is more efficient than the wisdom of a few, a regulated/planned economy.)

Also, the probability of Obama becoming president if he gets the nomination is around 70% (simply dividing the value of 2008-PRES-OBAMA by 2008-DEM-NOM-OBAMA). Right now the volume of trading on that contract is too low to mean anything, but assume, hypothetically, the following:
  • Prediction markets are always accurate

  • Shares on all contenders for the dem/rep nomination are actively traded
Does this mean it is an optimal strategy for each party to simply nominate the candidate that maximizes the conditional probability of success? I suspect the answer is no, but I'm not sure why.
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Comments:
[User Picture]From: medryn
2006-11-08 08:31 pm (UTC)
I really can't imagine the Republicans winning the presidency in 2008, so I'd say that the probability of any nominated Democrat winning the presidency is at least 70%.
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[User Picture]From: arvindn
2006-11-08 08:49 pm (UTC)
Really? PRESIDENT.DEM2008 is trading at 49%, so you should buy now and make a killing. Also, Clinton's conditional is hovering around 50%.

Dude, 2008 is two years away. Who would have thought in 2004 that the Dems might take control of both the house and the senate? Public memory is so short lived. It takes only one 9/11 to swing the balance massively in the space of a week. Scratch that, it takes only one macaca to swing the balance massively in the space of a week.
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From: (Anonymous)
2006-11-11 03:49 pm (UTC)
I would think that Republicans read John McCain has a great chance much more than 30% in 2008. Over the past couple of years he has trying to distance himself from Bush leaving Democrats with potential weapon to attack him.

Also, major media outlets should not compared to Tradesports especially after media stumbled in 2000. They would be very cautious about calling. If they had called opposite then I would have been surprised but not calling doesn't count.
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[User Picture]From: arvindn
2006-11-11 03:55 pm (UTC)
Good points.
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From: nicertry
2006-11-08 10:49 pm (UTC)
im guessing theres some sort of cascading effect for nominations right -- the guys who are perceived as likely winners get more funding which implies that they have more resources -- so the optimal strategy seems to make sense ..
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From: (Anonymous)
2006-11-11 03:51 pm (UTC)
"Prediction markets are always accurate"

If that were the case, with $10K I would be the president and I am not even a citizen!
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[User Picture]From: arvindn
2006-11-11 03:55 pm (UTC)
Are you saying that a single person with $10K can game the system and fix the price of some stock? I'm far from seeing how that's true.
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From: (Anonymous)
2006-11-11 06:45 pm (UTC)
Ofcourse you haven't seen this as hardly anybody has $10k to waste as the presidential nominee or for that matter anything else is not based on tradesports. If it were, then things would be much different as I believe it is easy to game tradesports.
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[User Picture]From: arvindn
2006-11-11 08:17 pm (UTC)
If you're an academic, I'd like to talk to you about this. This is actually something I've been looking into from a research perspective.
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From: (Anonymous)
2006-11-14 04:37 am (UTC)
Talk to you after STOC deadline.
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[User Picture]From: arvindn
2006-11-14 04:50 am (UTC)
Cool, thanks.
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