4 ms·

People in this market aren't a random sample of people in the street. They are self-selected based on their willingness to bet money on the event. If they are p

by dejb 19y ago

People in this market aren't a random sample of people in the street. They are self-selected based on their willingness to bet money on the event. If they are poor predictors they will lose money on average and if they are good they will gain money. After many events the good predictors will tend to prevail over the poor ones because they have more money to bet and they'll be more eager to bet... Oh screw it I give up... some people just don't get odds or markets.

foonamefoo 19y ago
And you don't get Einstein's Random Walk.
- dejb 19y ago
  I have a reasonable understanding of Brownian motion. Your comment indicates that you don't really understand markets. In an efficient market system (one which is perfectly predictive of chance of an event occurring based on observable information) it should not be possible to know if the price is going to go up or down. If could know for certain then obviously the price is wrong (and you could make a risk-free profit). So yes this would obviously look a lot like a random walk. However if you look at the graph of the odds through time (say for Obama winning the democratic nomination) you'll see it is responding to new information (such as poll results etc). It represents the aggregate opinion of the participants. If you were confident that your opinion is more accurate than this group then you could profit by betting. Oh crap I just wasted more time on this.
mattmaroon 19y ago
If there's one thing I know about gamblers, it's that their willingness to bet money on something generally has no correlation whatsoever to their knowledge about it. Their ability to continue betting over their lifetime certainly does, which of course means that any prediction market that doesn't run on real dollars is essentially useless. But that doesn't mean the for money ones are useful. This particular one is not. The infrequent nature of bets of this type, plus the small number of people able to get money onto sites like that in any reasonable timeframe keep it (at least where politics is concerned) from becoming anywhere near efficient. It's simply too small for much in the way of smart money to even bother with, so what you see is mostly just the result of sports bettors who watched an hour of CNN yesterday and have nothing else interesting to wager on. I wouldn't be surprised if they were extremely accurate for European sports, but for American politics they've been way off recently. The good news is, they're very easy to exploit in any close election year. Perhaps I'll blog about how after I do it in November.
- aston 19y ago
  I assume the technique involves betting on whoever's losing, and inversely so based on how much they're losing by assuming that the numbers will come to 50/50 in the end?
- dejb 19y ago
  I admit the volume isn't huge. Maybe 10K per day on the presidential nominations. So you might be able to average placing 1K on per day without destroying your odds. If you had even a 10% edge then that's $100 gain which most people wouldn't be giving up their day job for. There are other markets though. Betfair had turned over $3 million on the Dem Nom. The funny thing is the more accurate the market is the less 'smart money' would be attracted to profits and vice versa. Good luck with your trading. By participating you will presumably increase the accuracy of the market. But I think the average trader might be more knowledgeable than you give them credit for (even ones from those non-US places). And you never know... there might actually be something in this 'Wisdom of the Crowds' thing.
  - mattmaroon 19y ago
    My trading in November (assuming a close race) is more predicated on knowledge of what happens to those betting markets throughout the day of the election than any political knowledge. As you pointed out though, I can't make retirement money on that small of volume. I might be able to make vacation money though. Also I should check to see if there's a difference in odds between betfair and intrade. Might be able to run some sort of cross-site arbitrage if possible.

by dejb 19y ago

foonamefoo 19y ago

And you don't get Einstein's Random Walk.

dejb 19y ago
I have a reasonable understanding of Brownian motion. Your comment indicates that you don't really understand markets. In an efficient market system (one which is perfectly predictive of chance of an event occurring based on observable information) it should not be possible to know if the price is going to go up or down. If could know for certain then obviously the price is wrong (and you could make a risk-free profit). So yes this would obviously look a lot like a random walk. However if you look at the graph of the odds through time (say for Obama winning the democratic nomination) you'll see it is responding to new information (such as poll results etc). It represents the aggregate opinion of the participants. If you were confident that your opinion is more accurate than this group then you could profit by betting. Oh crap I just wasted more time on this.

mattmaroon 19y ago

If there's one thing I know about gamblers, it's that their willingness to bet money on something generally has no correlation whatsoever to their knowledge about it. Their ability to continue betting over their lifetime certainly does, which of course means that any prediction market that doesn't run on real dollars is essentially useless. But that doesn't mean the for money ones are useful. This particular one is not. The infrequent nature of bets of this type, plus the small number of people able to get money onto sites like that in any reasonable timeframe keep it (at least where politics is concerned) from becoming anywhere near efficient. It's simply too small for much in the way of smart money to even bother with, so what you see is mostly just the result of sports bettors who watched an hour of CNN yesterday and have nothing else interesting to wager on. I wouldn't be surprised if they were extremely accurate for European sports, but for American politics they've been way off recently. The good news is, they're very easy to exploit in any close election year. Perhaps I'll blog about how after I do it in November.

aston 19y ago
I assume the technique involves betting on whoever's losing, and inversely so based on how much they're losing by assuming that the numbers will come to 50/50 in the end?
dejb 19y ago
I admit the volume isn't huge. Maybe 10K per day on the presidential nominations. So you might be able to average placing 1K on per day without destroying your odds. If you had even a 10% edge then that's $100 gain which most people wouldn't be giving up their day job for. There are other markets though. Betfair had turned over $3 million on the Dem Nom. The funny thing is the more accurate the market is the less 'smart money' would be attracted to profits and vice versa. Good luck with your trading. By participating you will presumably increase the accuracy of the market. But I think the average trader might be more knowledgeable than you give them credit for (even ones from those non-US places). And you never know... there might actually be something in this 'Wisdom of the Crowds' thing.
- mattmaroon 19y ago
  My trading in November (assuming a close race) is more predicated on knowledge of what happens to those betting markets throughout the day of the election than any political knowledge. As you pointed out though, I can't make retirement money on that small of volume. I might be able to make vacation money though. Also I should check to see if there's a difference in odds between betfair and intrade. Might be able to run some sort of cross-site arbitrage if possible.