I have added a significant update to my post about the TradeSports prediction market.
Month: July 2006
Short Tour of Humor Friends
Harry Hutton links to a music video (via Sullivan). Probably a general rule of thumb might be that the male singer should have less cleavage than the female. (By the way, this doesn’t look or sound American to me – does anyone know where it’s from?)
Back to the midwest, which I (if not others) always find a pleasant alternative. Iowahawk is, well, the man. Anyway, the winner of Iowahawk’s Iowahawk Hoosegow Honey is Jesika – who is, indeed, quite attractive. Those that find that contest in bad taste may be entertained by his “Hungry Like Naomi Wolf” retro. Of course, rarified sensibilities might be offended by his treatment of butt-cracks & the victims of feminist voyeurs.
Reading Hutton’s complaint about the Yanks and Colombia: “They’ve been having a quagmire ever since they got independence from Spain, and I resent the way these Americans try to claim the credit for everything.” I laughed out loud. This would probably not seem quite as funny to someone who had not just subjected themselves to about half of a Booktv session with Morris Berman. Those guys (and I suspect he’s about my age) figure since they are in decline & since most of us are beginning to suspect the seventies didn’t work, the only conclusion must be that America is heading toward the dark ages. One of the problems with my generation is a lack of humility.
Prediction Market Problems
Chris Masse provides a lengthy analysis of an ongoing controversy about how the Tradesports prediction exchange handled its contract on North Korean missile launches.
The short description of what happened is that Tradesports defined its NK-missile-launch contract as requiring US Defense Department confirmation of “a test missile that leaves North Korean air space on/before 31st July 2006.” Thus a confirmed launch on or before July 31 would settle the contract at 100, while no confirmation by the end of July 31 would mean the contract would expire at zero. The NK government on July 4 launched missiles that left NK air space and should have resulted in the contract settling at 100. However, because the US DOD did not provide what Tradesports considers to be official confirmation that the missiles left NK air space, Tradesports has not settled the contract and many traders who were betting on the launch are upset.
Chris thinks that this dispute will discourage trader participation in, and may damage the credibility of, prediction markets. He may be right but I suspect the long-run costs will not be as big as he fears. There have been many similar instances of badly handled contracts in traditional equities and derivatives markets, and I think what generally happens is that traders note what transpired and try to avoid getting caught in similar situations in the future. At the same time exchange officials tend to quietly learn from their mistakes, as do the people who run competing exchanges.
For example, in the past few years on electronic futures exchanges there have been several well-known occasions in which traders made fat-finger mistakes where they entered buy or sell orders for, say, ten thousand contracts when they had meant to type “1”. (And where their employers or brokers had neglected to set contract-size limits in their trading software, but that is another issue.) What happens then is a huge and instantaneous price spike, followed by gradual recovery to prior levels as participants sort out what happened. Such screwups create big losers and winners, and the exchange has to decide whether to let the trades stand, or to invalidate all trades for the period defined as the mistake or to make some kind of compromise. Sometimes, particularly at exchanges that are dominated by big institutions and where the mistake is made by an institutional trader, the at-fault institution is let off the hook. Such outcomes are very aggravating, and often costly, for other traders, but trading continues.
It will be interesting to see what ultimately happens in the case of Tradesports and the NK missile contract.
UPDATE (07/23): I may have been too optimistic. Chris Masse posts critical comments from a trader in response to what I wrote. (Click on the link and scroll down.)
He also posts several comments from other traders on the general topic of TradeSports and how it defines its contracts. These comments are reasonable but do not agree on whether the contract’s terms for a missile launch have been satisfied, suggesting that TradeSports is doing something wrong in a big way. There should be no uncertainty about such a fundamental issue.
The comments also remind me of a point that I should have mentioned earlier. By handling the NK contract so confusingly, TradeSports has transformed it, for the remainder of its life, into a contract on the TradeSports decisionmaking process — albeit with a knockout provision in the event of DOD confirmation of the July 4 launch or another launch before the end of July 31. That’s not progress.
UPDATE 2: Bo Cowgill comments.
UPDATE 3: Chris Masse reminds me that Bo Cowgill is the guy at Google who is experimenting with internal prediction markets.
UPDATE 4 (07/25): Tradesports, apparently in response to complaints, introduced improved procedures for dealing with settlement controversies like the one surrounding the NK missile-test contract.
(Disclosure: This blog is a Tradesports affiliate.)
An Interview
A portrait of a marriage as much as an interview – the Friedmans discuss history & economics.
Actually, I’ve got a sweet anecdote about the romantic nature of economics. One of my husband’s friends got a Ph.D. in Eco (I think Savings chaired it) and then, later, went to law school. He was working for the state regulatory board when he wrote the regulations for the telephone company (I think). By then his first marriage had dissolved. A woman economist was given his work to study. She said she read it closely, going again and again over it, fastening post-its, marking passages. Then she was introduced to him and found him as lucid as his prose. She had fallen in love with him for his regulatory philosophy and the beauty of his writing. They’ve been married for a dozen years or more; their smiles are caught in one of the more charming pictures from my daughter’s wedding last month. I tell this story every semester to my freshman writing students, but I’m not sure if they believe me. It is, however, true.
Reynolds — An Army of Davids
[cross-posted on Albion’s Seedlings]
Reynolds, Glenn, An Army of Davids: How Markets and technology empower ordinary people to beat big media, Big Government, and other Goliaths
Glenn Reynolds (the Instapundit) has carved out a unique niche in the blogosphere for the last five years with an amazing stream of interesting links (often with brief commentary), an eclectic set of hobbies and intellectual enthusiasms, and a law professor’s expertise in sorting through the legislative and legal whims of American society. Mostly libertarian, with a proactive attitude on personal and national safety, he remains as one of the few prominent “one-man band” bloggers to remain active through the years since 9/11. His energy and productivity are legendary and his influence, I believe, is substantial and growing.
In Army of Davids (AoD), he summarizes his personal experiences with the changes wrought by technology in the last decade, especially those which allow ordinary people to create goods and services which were once the province of large organizations. And he investigates topics that have long held his interest: beer-making, music, the Internet and broadcast media, games, nanotechnology, politics, space exploration, and life extension.