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In case of Brexit they didn't work at all. See e.g. http://www.economist.com/blogs/graphicdetail/2016/06/polls-versus-prediction-markets http://www.economist.co

by tobias3 10y ago

In case of Brexit they didn't work at all. See e.g. http://www.economist.com/blogs/graphicdetail/2016/06/polls-versus-prediction-markets http://www.economist.com/blogs/graphicdetail/2016/06/polls-v...

jessriedel 10y ago
That's silly. Prediction markets still gave a ~15% change to "Leave" at their most pessimistic, and no one says the roulette wheel "didn't work" when black comes up three times in a row. The vote outcome was clearly a surprise to the prediction markets, to newspaper, to the pundits, and to the real markets where people lost billions of dollars. Prediction markets aren't magic, they aggregate views. If they say there's a 15% chance of something happening, by golly, sometimes it will happen. The point is (1) they are self-correcting and (2) they have a much better track record that polls. Not even the "market can stay irrational longer than you can stay solvent" rule applies. With prediction markets, you know exactly when and how the outcome will be settled.
- TheOtherHobbes 10y ago
  That makes prediction markets non-falsifiable. There's a simple fallacy here - you can't use a market mechanism to define the probability of the outcome of a one-off event like a major referendum. All you have are hopes and fears about the probability, which are always - by definition - limited and subjective. In fact you're simply quantifying opinions about opinions. That's one step removed from what polls do. Polls fail because of practical sampling errors (and sometimes because of political bias) - not because no one understands the theory of polling. There's no way a prediction market mechanism can be self-correcting, because by the time you have real data the question is settled. Some people may find this kind of thing useful. I'm not convinced it's any more than entertainment.
  - Rexxar 10y ago
    I'm not particularly interested in prediction markets but ... > That makes prediction markets non-falsifiable. Why ? We can just make a sufficiently big list of prevision which are estimated around 15% now and check in one year that around 15% of them happened.
  - jessriedel 10y ago
    > That makes prediction markets non-falsifiable. No, it means you can't assess prediction markets, or any mechanism for making probabilistic predictions, from a one-off event. I was responding to tobias3 regarding Brexit. > There's no way a prediction market mechanism can be self-correcting, because by the time you have real data the question is settled. You misunderstand. I'm not claiming that the market for a single event is self-correcting. I'm claiming that if someone discovers a bias in prediction markets as a whole (e.g., the pop-science biases discussed in the Economist article), then traders can profit off this bias and it will be removed from the market's prediction. There's a lot wrong with your other points, but it would take too much discussion to draw it out.
- anon1385 10y ago
  >Prediction markets still gave a ~15% change to "Leave" at their most pessimistic It was 10% in the hours after the polls closed. The odds for a Leave victory in England were out of step with the odds for a UK wide leave vote for many hours (even though overall Leave was never going to be happen without England going Leave).
- deleted 10y ago
  [deleted]
yummyfajitas 10y ago
People seem to think prediction markets not making a specific prediction implies they don't work. That's not even wrong. Consider a perfect prediction market. This means that if it says "the probability of X is 0.6" 100 times, then approximately 60/100 times X will occur. If you wrongly interpret that to mean "X will occur", a perfect prediction market will be "wrong" 40/100 times. That's your failure to interpret the market, nothing else.
- tobias3 10y ago
  "Not working" means not assigning the correct probabilities to the outcomes over time with regard to the information available. The article mentions some of the biases which could cause this. Of course this is difficult to measure, because there are not enough natural experiments (i.e. 100x Brexit) and there are many variables at play here. We'll have to wait for papers with regards to Brexit + predicition markets for a more detailed analiysis, but still, for the time my trust in prediction markets is down a bit.
- vegabook 10y ago
  That is too simple. There was strong autocorrelation in prediction market odds changes which suggests herding. You are not taking this additional important information into account.

by tobias3 10y ago

jessriedel 10y ago

That's silly. Prediction markets still gave a ~15% change to "Leave" at their most pessimistic, and no one says the roulette wheel "didn't work" when black comes up three times in a row. The vote outcome was clearly a surprise to the prediction markets, to newspaper, to the pundits, and to the real markets where people lost billions of dollars. Prediction markets aren't magic, they aggregate views. If they say there's a 15% chance of something happening, by golly, sometimes it will happen. The point is (1) they are self-correcting and (2) they have a much better track record that polls. Not even the "market can stay irrational longer than you can stay solvent" rule applies. With prediction markets, you know exactly when and how the outcome will be settled.

TheOtherHobbes 10y ago
That makes prediction markets non-falsifiable. There's a simple fallacy here - you can't use a market mechanism to define the probability of the outcome of a one-off event like a major referendum. All you have are hopes and fears about the probability, which are always - by definition - limited and subjective. In fact you're simply quantifying opinions about opinions. That's one step removed from what polls do. Polls fail because of practical sampling errors (and sometimes because of political bias) - not because no one understands the theory of polling. There's no way a prediction market mechanism can be self-correcting, because by the time you have real data the question is settled. Some people may find this kind of thing useful. I'm not convinced it's any more than entertainment.
- Rexxar 10y ago
  I'm not particularly interested in prediction markets but ... > That makes prediction markets non-falsifiable. Why ? We can just make a sufficiently big list of prevision which are estimated around 15% now and check in one year that around 15% of them happened.
- jessriedel 10y ago
  > That makes prediction markets non-falsifiable. No, it means you can't assess prediction markets, or any mechanism for making probabilistic predictions, from a one-off event. I was responding to tobias3 regarding Brexit. > There's no way a prediction market mechanism can be self-correcting, because by the time you have real data the question is settled. You misunderstand. I'm not claiming that the market for a single event is self-correcting. I'm claiming that if someone discovers a bias in prediction markets as a whole (e.g., the pop-science biases discussed in the Economist article), then traders can profit off this bias and it will be removed from the market's prediction. There's a lot wrong with your other points, but it would take too much discussion to draw it out.
anon1385 10y ago
>Prediction markets still gave a ~15% change to "Leave" at their most pessimistic It was 10% in the hours after the polls closed. The odds for a Leave victory in England were out of step with the odds for a UK wide leave vote for many hours (even though overall Leave was never going to be happen without England going Leave).
deleted 10y ago
[deleted]

yummyfajitas 10y ago

People seem to think prediction markets not making a specific prediction implies they don't work. That's not even wrong. Consider a perfect prediction market. This means that if it says "the probability of X is 0.6" 100 times, then approximately 60/100 times X will occur. If you wrongly interpret that to mean "X will occur", a perfect prediction market will be "wrong" 40/100 times. That's your failure to interpret the market, nothing else.

tobias3 10y ago
"Not working" means not assigning the correct probabilities to the outcomes over time with regard to the information available. The article mentions some of the biases which could cause this. Of course this is difficult to measure, because there are not enough natural experiments (i.e. 100x Brexit) and there are many variables at play here. We'll have to wait for papers with regards to Brexit + predicition markets for a more detailed analiysis, but still, for the time my trust in prediction markets is down a bit.
vegabook 10y ago
That is too simple. There was strong autocorrelation in prediction market odds changes which suggests herding. You are not taking this additional important information into account.