Prediction Market

InTrade question: will gold be above $1000 at 2008 end?



Prediction Markets are a basic set of techniques developed within Experimental Economics labs. Basically, people bet on a future event, and  will gain a sum negatively correlated with the integral, or area measure of their mistakes (how much they were wrong along all the prediction market duration). Therefore, they act as rational evaluators of the available information under uncertainty: both if they bet real or virtual, play money. Their average predicts better than any other known technique. In political elections, where the Iowa University was a pioneer, polls are completely outperformed, killed. Except for the fact that they allow to disaggregate data by political issues and social groups, which prediction markets don’t (in fact, they are biased toward focussing upon the median elector); but you might see trees and miss the forest. In fact, although we cannot generalise,  the Obama vs Clinton case has pointed to a likely superiority of:

a) a marketing – social networking – systems approach, personified by David Axelrod, 

b) versus the parcellised, a-systemic and piecemeal poll approach (rise a certain issue for a specific target, on the basis of a matrix information crossing issues and people groups), as personified by Mark Penn. See March 13 Matt Bai:     



A good oL introduction to the issue is the Predictocracy blog:       




APPLICATIONS: Academia, Business, Government, Law, Politics  


Predictocracy: a risk for the little left of democracy


Robin Hanson, the originator of prediction markets, has sketched out a vision that he calls “futarchy,” imagining that this might arise in some country after successful experiments with prediction markets for corporate and administrative agency decision making have been conducted. At the heart of Hanson’s proposal is the use of conditional markets to estimate the effect of proposed policies on a measure of national welfare. Initially, Hanson suggests, futarchy might depend on an existing imperfect measure of national welfare, such as gross domestic product (GDP).

The existing legislature, however, could pass legislation to change the welfare measure, producing what he calls GDP+, a measure that “could include measures of lifespan, leisure, environmental assets, cultural prowess, and happiness.” Any policy that, according to a prediction market, would clearly improve GDP+ would be automatically adopted, at least unless another prediction market produced an opposite forecast. The legislature would continue to have a role in determining the ends that the state should seek, but prediction markets would determine how we would get there. Hanson thus appropriately titles his paper “Shall We Vote on Values, But Bet on Beliefs?

COMMENT. Predictocracy colludes with this proposal: it is inherent to fascism an apology of the middleman, to hide a dictatorship reducing real wages and representing agrarians, big business, military industrial complex and rentiers.  

PREDICTIONS updated July 10

We report some basic predictions from the oL, real money market


Obama VS McCain (the latter is falling in last weeks):  64.9 vs 31.2%.   Osama Bin Laden to be captured/neutralised by 31 Mar 2009: 20.1%.   Robert Mugabe to depart as President of Zimbabwe on/before 31 Mar 2009: 45%.   Hugo Chavez to depart as President of Venezuela on/before 31 Mar 2009: 10%.   USIsrael overt  air strike on Iran: 20% by  30 Sept. 2008, 35% by  31 Dec. 2008, 43% by 31 March 2009.   An Israeli-Palestinian Peace Treaty to be signed on/before 20 Jan 2009: 16%.


ENERGY – cold nuclear fusion: Dr ARATA’s experiment replicated and peer reviewed before Dec. 2009? 27%


Jerry Yang to resign as CEO of Yahoo on/before: 30 Sep 2008 35%; 31 Dec 2008 50%.    The Italian Economy will go into Recession during 2009: 40%. Japan 20%, Germany 25%, France 30%, UK 52.5%, Ireland 55%, US 59.5% – scarcely reliable predictions: low trade volume.  

Will gold (now $930) be over $1000 at year end? Now the answer is slightly positive (56.5%), as a result of an inflationary expectations (by intrade players) drift in the last month: for most of the year expectations were well below 50%.

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