The Prediction Markets Chalk Another One Up!
At the risk of starting up another controversy, I must point out that the InTrade prediction market got this about as wrong as you possibly could:
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Jackson-Guilty of AT LEAST 1 of 2 counts of administering an intoxicating agent to a minor
click for larger chart
Source: InTrade
On average, the Alcohol issue was an over 50% likelihood for nearly the entire length of the contract, but briefly dropped towards 20% for a few weeks last month.
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Jackson - Guilty of AT LEAST 1 of 7 counts alleging lewd or lascivious acts against a minor
click for larger chart
Source: InTrade
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The Lewd issue started out at 40%, spend almost a year near 60%, bottomed at 35% before climbing back towards 60%.
Okay, Chris -- before I say anything else, I will wait for your deconstruction of this -- where and how did it go wrong, and why?
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UPDATE: June 15, 2005 6:26am
Not only did the crowds get it wrong, but as the brilliant Daily Show reveals, the experts did just as poorly. (warning: hysterical video)
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Monday, June 13, 2005 | 05:33 PM | Permalink
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» When do markets work? from Stumbling and Mumbling
Barry Ritholtz is celebrating Michael Jackson's acquittal more than most, because it corroborates his view that prediction markets can be wrong; Intrade bettors were backing a guilty verdict on the charge of supplying alcohol to minors.However, Barry i... [Read More]
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Comments
Hello Barry Ritholtz,
There are two ways to assess the predictive power of the prediction markets. Number one, you judge their predictions against the outcomes of the events in question. Number two, you compare the prediction markets' accuracy against other institutions' performance.
#1. As you demonstrated, the two MJ futures markets got it wrong. They got an F grade.
#2. Who were the legal experts who got it spot on? Which poll foretold us of MJ being exonerated? Delphi method anyone? Think tank? Focus group? Group of experts? A comparative analysis would bring us light on this.
Now that I have declared defeat on point #1 (point #2 is up in the air, but I suspect Barry won't be forthcoming with any competitive institution that got it spot on), I should mitigate with two arguments.
A/ Scholars are rather interested in analyzing long series. They would love to have a set of 1,000 court futures markets. They would draw conclusion only out of long series. That's this kind of study that IEM put forward to prove that prediction markets are more predictive than polls --- OVERALL. (16 years of experience and counting.)
B/ Not all prediction markets are created equal. Some events are more difficult to predict than others. Events whose outcomes are determined in a conclave by sequestrated jury members are among the hardest to divine. "A market can't aggregate information unless there is some way for traders to get access to it." (Quote from Matt Einbinder, PhD student from the University of Virginia, in an e-mail to me.) On that one, the burden is on us to refine the kind of bets that exchanges float.
So, Barry Ritholtz, you will certainly celebrate your small victory with a cup of champagne tonight ---a genuine French champagne, of course. Here's a French proverb for you:
"Une hirondelle ne fait pas le printemps."
"Spotting one single swallow does not prove that the spring is here yet."
The trick is: think long series!
One reminder: the Martha Stewart futures market was predictive!
One admission: the papacy futures markets were not bright either. One hit; two misses.
Micro-prediction: the 2012-Olympics futures markets will come up as a great victory. Paris, France, is in ---big time. On July 6th, I will drink champagne till I can't stand on my two legs. Hope you will share joy with my people and with the prediction markets crowd.
Your minute is up!
Best regards to you and to all your readers,
Chris. F. Masse
PS: To be fair with everyone, the main prediction exchanges are:
- TradeSports.com (= InTrade.com)
- BetFair.com
- Betdaq.com
- SpreadFair.com
Posted by: Chris. F. Masse | Jun 13, 2005 7:35:05 PM
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