The 'prediction markets' Tag Archive

Below you'll find all my writing tagged with the word prediction markets. The posts are listed in chronological order. Click the post title to read more.

October 20th, 2008

Idiots Out Wandering Around

What is the IEM?

The IEM is an on-line futures market where contract payoffs are based on real-world events such as political outcomes, companies’ earnings per share (EPS), and stock price returns. The market is operated by University of Iowa Henry B. Tippie College of Business faculty as an educational and research project.  

Who can participate in the IEM?

The IEM is operated for research and teaching purposes. All interested participants world-wide can trade in our political markets. Other markets–such as the earnings and returns markets–are open only to academic traders.

Are the participants playing with real money?

YES. Trading accounts can be opened for $5 to $500. Participants then use their funds to buy and sell contracts. Traders therefore have the opportunity to profit from their trades but must also bear the risk of losing money.

Is the IEM regulated?

The IEM is an experimental market operated for academic research and teaching purposes. The IEM is not regulated by, nor are its operators registered with, the Commodity Futures Trading Commission or any other regulatory authority.

Why would anyone operate a not-for-profit real-money market?

The IEM is operated by faculty at the University of Iowa Henry B. Tippie College of Business for educational and research purposes.

As business educators, we are concerned with preparing our students to be intelligent market participants. We and many of our colleagues at other institutions integrate the IEM into our courses. Students in these courses learn first-hand about the operation of financial markets and as a result become more well-informed traders in their future market interactions.

As business researchers, we are interested in market and trader behavior. The IEM provides a rich source of data for our research.

How does the IEM safeguard my money?

The IEM is operated under the auspices of the University of Iowa. You write your check to the University of Iowa and the funds are deposited to a University of Iowa account. When funds are withdrawn from your account, the University of Iowa accounting group (a group independent of the IEM) writes a check and mails it directly to your last known address. As a university operation, the IEM is subject to audits by university and state auditors.

Can I try out the IEM without investing money?

YES. Login to the IEM and follow the directions on the screen to log into the practice market. You will be able to do everything a trader can do, except trade in our real-money contracts.

October 20th, 2008

On the meaning of the US futures market

In the last few weeks, Intrade.com, which is based in Dublin, had consistently given John McCain as much as a 10 percentage point edge in his chances to be elected president compared with other large online overseas betting sites. These include the British-based Betfair.com, as well as the Iowa Electronic Markets, a research project at the University of Iowa that allows bets of $500 on election results.

The political explanation — that someone was trying to game the system to give Mr. McCain some momentum — has the advantage of at least appearing rational to economists. Increasing a candidate’s perceived standing would be something of value to offset the irrational decision to waste money buying a share in Mr. McCain for more than the absolute minimum price.

On Thursday, the chief executive of Intrade, John Delaney, responded to allegations that there had been market manipulation — in essence, that somehow Mr. McCain was being favored by artificial means.

Mr. Delaney conceded there had been erratic behavior — including spikes in the direction of Mr. McCain and away from Barack Obama “by up to 10 points.” And he said “trading that caused the unusual price movements and discrepancies was principally due to a single ‘institutional’ member on Intrade.”

“The surprising thing is not that there was some manipulation, it is that it was sustained,” said Forrest Nelson, who teaches at the University of Iowa and has followed Intrade as well.

These developments, he said, go against his instinct that a large market like Intrade with millions of dollars in bets — as opposed to the total $250,000 wagered at the Iowa markets — would be less likely to be an outlier in its odds for candidates.

David Rothschild, a Ph.D. candidate in business and public policy at the Wharton School at the University of Pennsylvania, has tracked these markets. He said of the institutional trader on Intrade: “If their job was to hedge bets, they were not doing a very good job at gaining these positions at a minimal cost. They are overpaying for these positions. I don’t know if they are doing it to manipulate the market, but they are not doing a very good job at minimizing their costs.”

The political explanation — that someone was trying to game the system to give Mr. McCain some momentum — has the advantage of at least appearing rational to economists. Increasing a candidate’s perceived standing would be something of value to offset the irrational decision to waste money buying a share in Mr. McCain for more than the absolute minimum price.

Continue Reading: NY Times

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