[Michael Abramowicz, guest-blogging, February 4, 2008 at 9:05am] Trackbacks
The Biggest Prediction Market of the Year:

The graph is of the last hour of the Giants' season, as viewed through the prediction market.

This Giants fan thanks Eugene and the rest of the Conspiracy for letting me guest-blog the past week about my book Predictocracy and about prediction markets. I hope that I have persuaded you at least that prediction markets have the potential to be useful inputs into our public and private decision-making processes.

Meanwhile, I hope to have encouraged at least a few of you to consider writing about the possible use of prediction markets in decision-making institutions. My future research will mostly take me away from prediction markets, but I would be happy to chat with anybody (including, of course, law students) who are interested in doing work in this area. I have many further ideas for applications, experiments, and analyses that did not make it into the book, and would enjoy hearing about your own ideas.

Seems to me that the Tradesports market was reflecting what was happening on the field, rather than predicting it.
2.4.2008 10:19am
Adam J:
Maybe it's just me, but volume should probably be better defined then a single bar for 10 and 1000- kinda hard to tell if its 50 shares or 500 shares being traded
2.4.2008 11:59am
Zathras (mail):
I apologize if this has been asked and answered, but I haven't seen this yet. Prediction markets differ from regular markets in that they have an absolute price ceiling (100) in addition to a price floor. Has there been any research on the effect of such a ceiling?
2.4.2008 2:25pm
Michael Abramowicz (mail):
Floridan — Yes, all the markets do is track the informed conventional wisdom. If prediction markets had told us on Saturday that the Giants were sure to win, then you wouldn't need me to argue that they are useful.

Zathras — I'm not sure that I've seen any specific research on this question. One can have prediction markets without this feature (for example, a market that will pay off $x for every million votes that the Democratic presidential nominee receives), and I'm also not sure that it's problematic. After all, you could allow people to enter bid/ask offers outside of 0 to 100, but if the market is set up so that the market will pay at most $100, no one will choose to.
2.4.2008 2:32pm
Zathras (mail):
I was thinking of the issue from a more mathematical perspective. If you use Black-Scholes (the starting point for much in financial analysis), you obtain a lognormal distribution. However, such a distribution has a scalability that does not really fit with an absolute cap on prices.
2.5.2008 8:15am