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The Chris. F. Masse 2005 Awards — Prediction Markets & Decision Markets — by Chris. F. Masse — 2006-03-06 — Updated (including addenda): 2006-08-03

The questions I pose today to Enterprise Commanders are these:
  1. In the field of prediction markets, what were the most memorable moments of the year 2005?
  2. Who is the scholar of the year?

Forget the gay cowboys —they crashed... Forget Jon Stewart's tired jokes —this guy is a sideshow phony... Here are the real awards —with a minute dose of causticity... The envelope, please!

1Blog of the Year 2005: Jason Ruspini (a quantitative analyst at a NYC hedge fund, and a new entrant in the prediction market commentariat) — I give the 2005 award to Jason Ruspini's blog, in spite of the fact that only his postings made during the last quarter of 2005 are newsworthy. (And what I read from him in the first quarter of 2006 confirms that he is on a good rail track.) There aren't many prediction market blogs out there, and in my judgment, Jason Ruspini displays seven important characteristics: intellectual curiosity, academic approach (including acceptable knowledge of the papers on prediction markets), Wall Street know-how, mind independence, (overly inflated) professional ambition in the field, verbal prudence (bordering paranoia, I'll get to that in a moment), and a knack for (ultra-light but thoughtful) blogging. Of all the pajamas bloggers that I index, Jason Ruspini is probably the most obsessive with prediction markets. (And on a lighter note, as I said, I know for a fact that he's midly paranoid —he'll probably take this Blog Of The Year award as ultimate proof that the entire field of prediction markets is conspiring against him. If you're a shrink and you've just hung out your shingle in Manhattan, then this guy is your natural first prospect.) ... In February 2006, Jason Ruspini, intrepid prediction market reporter, has exhaustively covered the recent NYC prediction market conference (part 1 - part 2). ...

2. Book of the Year 2005: My apology to all of the book writers who published in 2005, but the most talked-about book of 2005 was actually published in 2004 by James Surowiecki, The Wisdom of Crowds - Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations.

3. Consultant of the Year 2005: To date, consulting firm NewsFutures has made the biggest infiltration in the Fortune 500 crowd. It's my understanding that their success should be attributed to both their good looking and efficient market technology (based on Robin Hanson's ideas) and performing sales team (headed by a guy named Norris Clark, a former Perot Systems manager).

4. Exchange of the Year 2005: BetFair — I give the award to this British-based prediction exchange for two good reasons. Number one, BetFair managed to obtain a legal status in Australia (thru Tasmania, which is the little island just South of the Australian mainland)Tom Bell was not involved in the deal, if that's your next question. Number two, BetFair managed to prove that a betting exchange can help fighting the corruption that it suscitates. As said one of its co-founders, Mark Davies, BetFair makes it easier to use insider knowledge to bet on a losing runner "but harder to do it undetected". This is done thanks to BetFair's top notch IT system (Big Brother is tracing you), and thanks to memorandums of understanding that the betting exchange signed with some of the (European and Australian) sporting bodies. You have it all in the five news articles excerpted just below —beware: British English used all over the place.

5. Market of the Year 2005: The Harriet Miers confirmation prediction market @ InTrade/TradeSports — Eddy Elfenbein (who daily blogs at Crossing Wall Street) noticed an implied Miers withdrawal contract worth 55.8%, on October 22, 2005, five days before it was disclosed that she bowed out of the race. Eddy Elfenbein's computation: 1-(30%/68%) = 55.8%. Congrats, kudos, thanks, etc., to market-watcher Eddy Elfenbein (and to publisher Donald Luskin).

6. Media of the Year 2005: Which media has most inflated the prediction market bubble in 2005?... Humm... I think it's Fortune magazine, with this story, Making a Market in (Almost) Anything. Andy Serwer wrote: "A fledgling website with some big-name backers, Intrade allows regular people to investnot beton the current events they know best." See the problem with that line??? The trouble is that Andy Serwer equates speculating and risk-free investing. This is a big no-no for the CFTC, which devotes not one, but two didactic webpages explaining the economic purpose and risky business of speculating on futures markets, for individual investors. I also take strong exception to Andy Serwer's bold papal statement: "It also correctly signaled that Cardinal Ratzinger would be chosen as the new Pope, arguably the most secret vote on the planet." Surely you're joking, Mister Serwer! (Read my 2005 story: How the BBC, Fortune and the New York Times went overboard claiming that the prediction markets had foreseen the name of the new pope!) Gee, Fortune has truly become the business magazine of record —for the Elvis sightings, that is.

7. News of the Year 2005: The CFTC spanked TEN (TradeSports / InTrade), hard. — Believe it or not, the Voice of America was the only news organization to report this news (see second paragraph below) —more than one month after that Chris Masse broke the news. (No comment. No crack. Nothing. I will just let it lie. My readers will make up their own mind on the state of the American media.)

8. Opinion of the Year 2005: (Are you sitting? The last thing I want is to be responsible for you, my dear readers, falling to the ground out of an emotional shock and hence busting your ass.) Well, here's how Chapman university law professor Tom Bell blogged his reaction to the above story: "Good News: CFTC Busts Intrade." (Excerpts in the paragraph just below.) — Was it an attempt at humor??? Does Tom Bell need a timeout??? — Part of it is the Californian attitude (a mix of denial and audacity, maybe, coolness run amok, more surely), and the other part of it is Tom Bell's clever (but economically unrealistic) attempt at finding a loophole or shaping a bill on which to base the legality of U.S.-based prediction exchanges.

9. Paper of the Year 2005: Justin Wolfers and Eric Zitzewitz's 2005 answer (Interpreting Prediction Market Prices as Probabilities) to Charles Manski's 2004 question (PDF), "What is the logical basis for interpreting the price of an all-or-nothing futures contract as a market probability that the event will occur?". — Here's a short list of papers, with excerpts:

10. Presentation of the Year 2005: John Ledyard lecturing at Northwestern University, last spring. — What I liked: one can read his slides like a paper. Very didactic. He takes you from the basics and brings you to the hotest research topics. Smart guy. — What I disliked: his choice of the phrase "information markets" (as opposed to "prediction markets", "idea futures markets", or "event-driven futures markets"), which I labeled a quasi-fraud (in my trademarked, outrageous, take-no-prisoner rhetorical style). — Here's a short list of presentations, with excerpts:

11. Resource of the Year 2005: / tag / predictionmarkets — Probably the most vibrant (though, unfiltered and unorganized) prediction market directory on Earth (besides mine, it goes without saying).

12. Scholar of the Year 2005: David Pennock — The boy scout of the field came out in May 2004 with a paper (PDF) introducing his invention, the dynamic pari-mutual market, a brand-new design for prediction markets. In his own words: "Like a pari-mutuel market, a DPM offers infinite buy-in liquidity and zero risk for the market institution; like a CDA, a DPM can continuously react to new information, dynamically incorporate information into prices, and allow traders to lock in gains or limit losses by selling prior to event resolution." In March 2005, David Pennock and his Yahoo! Research team turned his invention into an innovation and pre-marketed it as the Yahoo! Tech Buzz Game. You can read the story of its setting up in this July 2005 paper authored by all of its proud (and pragmatic) genitors.

13. Software of the Year 2005: Consensus Point's Idea Futures — David Perry has teamed up with Canadian Ken Kittlitz (historically speaking, the first Robin Hanson-follower, circa 1994) in order to offer two versions of the software that powers the ForeSight Exchange (the most prestigious play-money prediction exchange): one open-source version that they hand out for free (Idea Futures), and one proprietary version that they license or webhost for a fee. See, Consensus Point open sources a major portion of its software so the user base grows larger. Humm... David Perry, clever guy!... His marketing strategy reminds me of the James Bond villain in Live And Let Die. His plan was to inundate the American market with cheap cocaine, and then, when just everybody in the nation is hooked, hop, he would engineer a giant price hike so as to pluck clean the hordes of addicts and secure his seat in the billionaires' club.

Question: Is my analysis dominantly correct or dominantly incorrect?

Thanks for hanging in there with me!

Chris. F. Masse


2006-03-06: Oh, I almost forgot...

2006-03-06+: Pajamas bloggers who linked to this story...


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