Intrade, the betting market for news events, closed abruptly over the weekend, and Neil Irwin at the Post thinks it will damage pundit accountability:
On Intrade, by contrast, the traders who participate and collectively set market prices, are forced to choose—and put money where their mouths are. Will the United States enter a recession in 2013? Before it shut down, the prices for that contract on InTrade implied a 16.9 percent chance that the answer was “yes.” In a world in which people hold their pundits to a higher standard, people spouting off on the economy (or politics, or foreign affairs, or the selection of the pope) would be forced to make specific, testable predictions, and attach probabilities to those guesses.
As someone who’s sat at a blackjack table and watched players split tens, let me cast a little bit of skepticism towards the notion that the willingness of a human being to put money behind a proposition somehow holds them to a higher standard, or leads to an accurate market.
I can’t find any definitive studies on the accuracy of Intrade, but as far as I could ever tell, Intrade pretty much tracked conventional wisdom on any given topic, and as such it had no real predictive value above “what everybody was thinking”. But it did launch a thousand ledes: “what Intrade says”, accompanied by an impressive-looking chart (it has nubmers! must be right!), was a staple of throwaway political reporting. Good riddance to those pieces, and good riddance to Intrade. Intrade’s “traders” (really, betters or suckers) will have no shortage of other places to go and lose their money, and I’m sure some other Intrade-like casino will open up soon enough to take full advantage of their folly.
like the real stock market, I doubt there was much real information left once people figured out how to make money off the short-term movement/noise in the system and started gaming things that way. (esp as it was easy purchased astroturf)
Just another ca$ino for rich white folks to play with. Nothing more to see here, move along.
On the other hand, this guy will definitely be missed (via TPM):
Maybe the most interesting man in the world. And he didn’t always drink beer, but when he did, it damn sure wasn’t Dos Equis!
Jeebus but people who have money to waste and who used to use it on Intrade should just give it to me. I’ll be able to give them an actual idea of how likely something is and no one can game me.
Much as I love ya trolling, Doug, on this one, I think you’re wrong. I don’t know what happened with intrade.
But I did some work under a econ professor who worked with Vernon Smith, who won a Nobel for his pioneering work in experimental economics, and there is evidence to support the concept in general, if done right.
That disagreement noted, give us some more Elvis Costello quips and wing nut trolling
On the other hand, this guy will definitely be missed (via <a href="http://“>TPM):
Maybe the most interesting man in the world. And he didn’t always drink beer, but when he did, it damn sure wasn’t Dos Equis!
It will be interesting to see what those ‘financial irregularities are’. If any kind BJ commenters know of good analyses of Intrade’s accuracy, I would be interested. (Edit: I am thinking of at least three episodes of suspected manipulative trades on election markets)
Many economists may be embarrassed too. A certain kind of economist just loves them some Intrade. And they made claims about how Intrade was more accurate than polls or other data for prediction. Because, free unregulated market is better.
However, I do not recall seeing intrade as an element of Princeton election or Silver’s predictions, which beat the pundits, and some economic models.
Of course, even in the theory world of economics, there are conditions where futures do not work, and unregulated futures and options markets go wrong. Lot’s of derivative markets are tried out on exchanges and are closed down because they cannot produce enough benefit in information to justify the cost.
And then there were the nutty proposals for things that would be horribly gamed and could actually turn very harmful, dangerous and misleading, like the proposed options market for terrorist attacks.
Disagree. “Conventional wisdom” in our politics is much more fluid and far more likely to be bullshit based on nothing but the latest rumor or sexy talking point from the beltway media.
Intrade was never 100% accurate and was usually less reliable than many other electronic markets (like the Iowa Electronic markets, which have a much longer history and are generally bettter) or most scientific modelers like Nate Silver. Still, Intrade was a lot more sober and reality based than 90% of what we get from our pundit class. That’s not a very high bar to clear, but its still true.
Was any pundit ever punished (or even scolded) for getting the Iraq war wrong? So what’s this accountability thing that Irwin is talking about?
Getting things right on certain topics (like the Iraq war) does seem to be a punishable offense, though. Phil Donohue can tell you about that.
Prefect of the Congregation for Divine Worship and the Discipline of the Sacraments, Cardinal mistermix
@Chris & @butler:
I’ll buy that my impression of Intrade was wrong, and that in theory such a market could be right, if you can show me a study that proves that it’s better than conventional wisdom. I looked for one when writing this piece and couldn’t find it. A lot of the stories about Intrade that we saw during primary time were about stupid little boomlets for sure losers. (At one point, IIRC, Huntsman and Santorum were up on Intrade, about the time they were talked up in the press, and both were sure losers not just in hindsight.)
@Chris: There is that critical teeny little step between it works in theory and the actual breathing beast.
Gin & Tonic
@Chris: You mean Doug’s impersonating mistermix now, too? Shit, I can’t keep up.
O/T but a bettin’ man wouldn’t bet that Dead Andy’s corpse-fondlers would fail to fall for another fake news story.
MUST CREDIT KRUGTULU.
I also wonder whether ‘financial irregularities’ is code for the fact that some traders could Dutch book some of the Intrade markets, and they never figures out a way to fix it. There is a little numbers wonky subindustry in financial consulting that trouble shoots options exchanges that traders figure out how to Dutch book.
It would be funny as hell if there were traders in the business of manipulating U.S. elections contracts, and they figured out to Dutch book the exchange.
If you’re counting cards and the count is high enough, you’re supposed to split tens.
That last caveat is the key. These betting markets are unlikely to be efficient, rational markets in the sense that economists are talking about. There have been persistent differences between Intrade pricing and other book making organizations, which is experimental proof that the market is not rational in the economic sense. Intrade is like penny stocks: thinly enough traded that it’s still prone to emotion and market manipulation.
It’s surprising that this doesn’t get brought up more often, what with James Surowiecki and the rest of the “wisdom of the crowds” people who endlessly tout prediction markets, but Intrade decisively failed to predict Al Gore’s popular vote win in 2000. The whole point of prediction markets is to get hard calls like these right, according to these guys. But in the one notable case where these markets could have done better than simply aggregating polls, it failed.
My recollection is that, mid-afternoon on Election Day 2004, when exit polls were supposedly showing Kerry winning, his Intrade showing soared. Which for me ended all notion that Intrade bettors somehow had superior insight.
With regard to Intrade’s accuracy, does anyone know what percentage of the users were Americans? I am guessing it as fairly low since Americans could not easily deposit money to Intrade due to American Internet gambling laws. OTOH, I don’t know if having a more American user base would increase or decrease the accuracy of the market.
Intrade seemed to be somewhere between actual empirical analysis and conventional wisdom to me. They generally pegged Obama as a solid, if not big, favorite for reelection throughout the general campaign, even when the Villagers were looking for any reason at all to create Romney-is-surging! memes and then believe the hype they themselves created.
Silver & Wang >>>>>>>>>>>>>>>>>>>>>Intrade>>>>>>>>> Peggy Noonan’s yard sign straw poll >>>>>> Sean “Romney’s gonna take Minnesota” Hannity >>> Dick “the day he’s right about something is the day the meteor finally gets us” Morris.
One of the points that Nate Silver kept making is that there were persistent differences between Intrade and other places where you could bet on the election. Those other places wound up with odds in the same general range as what you’d get from a smart poll aggregator like 538 or PEC. Intrade was the outlier in giving Romney better odds. Funny how it’s the one that got all the press.
Bet they didn’t see that one coming.
2004, Iowa Dem primary. Dean’s price was astronomical, Kerry was bargain basement. The day after the IA primary they were reversed, but it’s easy to predict what happened in the past.
Prefect of the Congregation for Divine Worship and the Discipline of the Sacraments, Cardinal mistermix
@crash: You’re right, but I doubt the people I saw splitting tens and busting out were counters.
On Jeopardy you’re rewarded for having the facts. On Family Feud you’re rewarded for knowing what other people will say.
Intrade was Family Feud.
@Prefect of the Congregation for Divine Worship and the Discipline of the Sacraments, Cardinal mistermix: Apparently my original response has been eaten by the commment monster.
What kind of “conventional wisdom” are we talking about here? The beltway kind that considered Herman Cain a legit candidate for the GOP nomination for a brief time? Or the boring, sober kind that new it was going to be Romney so long as he didn’t keel over from a heart attack? Because I’ll agree that Intrade basically mirrored the latter.
There are better electronic markets, like the IEM, which have a longer history of accuracy. The concept can work. Intrade was probably the worst of all the markets, likely because its fame attracked a lot of sentimental or speculative users. Still, it was accurate in the end as it had Obama as a solid favorite for most of the year.
As for hack journalists, their lazy or manipulative use of data to fill inches is not limited to Intrade. Opinion polls, real markets, lots of scientific studies, all get abused by hacks trying to gin up pageviews. That’s a journalism problem, not a market problem.
A few weeks ago I found a discussion in a blog comment section between an econ prof and a high school student.
The high school student had amassed pretty significant evidence that people don’t really behave the same way in the real world vs these econ behavior experiments.
Right, because gamblers never gamble on stupid bets. That’s just weird.
I’m assuming the financial irregularities relate to their troubles with the CFTC. A lot of the things you can do on Intrade look a lot like futures, but Intrade doesn’t (didn’t) comply with the regs for futures trading. So some time back, Intrade entered into a settlement with the CFTC whereby they agreed not to offer certain of the most “future-like” contracts. But Intrade was apparently violating that settlement and a few months ago, the CFTC came back to enforce it and seek penalties.
problem with intrade was that some schmuck was able to tip the scales towards Romney (not totally in his favor, but in his direction) near the end. He made a massive buy and everyone started freaking out that maybe Mittens would pull it off.
In reality, the big buy was intended to do just that. It was not being predictive at all. It was fraudulent.
The thing that annoys me about InTrade et al. is the sort of magical thinking that goes on around it, that herd behavior is meaningful even when there’s incentive for it to be inaccurate (longshot bets and so on. And, ETA, the sort of trolling [email protected] mentions.) You get people acting like it’s an oracle *precisely because* nobody knows how the numbers got to be where they are.
Intrade pretty much tracked conventional wisdom on any given topic
Yes, and that is something useful. One doesn’t have to accept the conclusions of Conventional Wisdom, but sometimes it’s good to know what it’s telling us. If I wondered how Angela Markel was playing inside Germany, I could go to Intrade and see that $10 contracts predicting that her party will win the next election were trading at around $8. If I wanted to get an idea of who was seen to have a serious chance of becoming Pope, or Leader of the Liberal Party of Canada, that was the place to go. The first time I ever saw Samuel Alito’s name, a few days before his nomination, was when out of nowhere he started to sell for $5 on Intrade.
This. Say what you will, but no one on Intrade that I could see was betting a 10-point win for Romney in Ohio or whatever equally ludicrous talking point Dick Morris and “Unskewed Polls” happened to be pushing.
WRONG, Cardinal Mistermix! Intrade was great! I took all kinds of money from wingnut deniers in the climate and political markets. Every time they unskewed another poll, I would cheeer, because it would mean more money for me. Intrade announced that ONE TRADER lost $7 million on Willard. I like to think it was Sheldon.
The thing about Intrade was that it was a much better bet than a casino. If you figured out the right way to bet on climate markets, for example, you wind up taking money from global warming deniers all day long. If you knew how to read a Nate Silver column, you could take money from wingnut idiots all day. It was like a poker game where the other side’s cards ended at 10s.
There are no current options for me to make bets like that. Even the no pass line is worse than my chances betting on global warming.
I would think you would be all for taking money out of wingnut and denier pockets. Think of it as a stupid tax.
As for predictive power, it’s pretty damn good. The science behind it is solid, and when it’s bad it’s usually because there’s not enough volume. So, please, next time it’s raining money from some wingnut betting on unskewed polls or what Anthony Watts tells him about global warming, come get some of it and help make the predictions even more accurate!
@Turgidson: I know someone who paid down a substantial chunk of his student loans by betting on Obama at InTrade last year. He also gave a chunk to the League of Women Voters (no tax deduction for the donation because he’s Canadian.)
So as malevolent as InTrade was on the macro level, this one guy (and the LWV) made out well.
@Ron Thompson: Still, about as representative as walking into a random bar and asking everyone what they think including the trolling drunks, allowing for the self-selection of traders and the existence of jokers there to spend money moving metrics rather than making more. Sure, it’s a demographic critical to many.
Too busy to google it atm, but if memory serves both in 08 and last year there were very real questions about whether someone was gaming Intrade’s system to make the Repub candidate’s odds appear stronger. I believe it was around the Repub convention, each time. Didn’t take much money to do it, and produced a fair number of mentions in the press.
The idea that it was some sort of reflection of the crowd wisdom of the market always struck me as a bit of “the market” cultism. Small, self-selecting sample always meant it would do little more than reflect on itself.
That might be helpful if betting was limited to people actually in Germany, and if the market was big enough to absorb bets placed explicitly to drive up the price.
I pointed out the Iowa 2004 Democratic primary. People from all over the world saw Dean on TV every hour of the day. Kerry had precinct organizers in every last polling place in Iowa, and they delivered, while Dean won Iowa City. People who were actually there and knew what was going on could have told you that Kerry was out organizing Dean a month in advance, but the CW was Dean juggernaut. And the CW didn’t tell you anything about the actual outcome.
Speaking as someone who was happy that Intrade had arbitrage opportunities – and made money on them for three cycles running – I was sorry to see it go.
Also, the IEM is even more thinly traded, does not involve real money at all, and tracked Intrade very closely in 2012. The only people who think it was a better predictor are just the ones who didn’t pay attention.
And for anyone missing intrade, Ladbrokes takes bets on lots of things. They’ve got Tony Blair at 500-1 for next pope. He is ahead of Italian sportscaster Tiziano Crudeli who is at 1000-1.
Yep, behold the predictive power of the IEM markets.
@lol: 2008 wasn’t quite as dramatic, but the spikes still always happened after the fact.
Which makes for lousy predicting.
This warms my heart, really.
“A bet is a tax on bullshit”. (Original source without the bad word is “What Does the Betting Norm Tax?”)
Full Metal Wingnut
@Bill Arnold: like the lottery-tax on people who don’t know math. Although, admittedly, those little scratch offs can be fun. They’re just a neat little “adult” entertainment every once in a when I’m in a convenience store. They’re a waste of money, but then again, so is a movie at $12.50 a pop.
Yer welcome. JC is getting chintzy on the ahi.
Intrade was the embodiment of the bizarre and foolish delusion that “markets are smarter than individuals.” This was the halfwitted fantasy (now long debunked by the dot-com bubble, the housing bubble, ad infinitum) of “the wisdom of crowds.”
Crowds are idiots. A crowd is a beast with a million heads and no brain. This is the natural and absurd endpoint of the extreme mania for privatization that has swept Shithole America in a perfect shitstorm of collective stupidity ever since the election of the senile sociopath Ronald Reagan.
You know, I used to wonder why people in previous eras went collectively insane in mass panics like tulipomania and the medieval dancing mania and the Seattle windshield pitting epidemic and the Salem witch trials.
I no longer wonder.
Humans are irrational. End of story.
The total number of days during which the United Snakes of Amnesia has exhibit collectively sane behavior during my lifetime sums up to about a week.
The only measure that matters is whether prediction markets like InTrade have(had) predictive value. By that measure, InTrade wasn’t bad, certainly a lot better than many pundits/cheerleaders. One feature that prediction markets have is a fixed timeline, which helps.
Of course it wasn’t giving better predictions than conventional knowledge. The Intrade market was large enough that even if clever people with real foresight were betting, they were a small percentage of the total.
Think about it like this. Let’s suppose 1% of the general population has real insight on any single specific topic, and Intrade was a highly informed subset of that population. Once it became well known as a name, the people using Intrade would become less and less significantly different than the population at large; so perhaps 2% of Intrade betters had real insight. That’s still double the rate in the general population, but it means that if you took a poll of 1020 Intrade bets, 1000 of them would be mimicking the conventional wisdom while 20 would be made based on some real insight.
But which ones? And there are plausible insights possible in both betting directions, so some of this select group might even cancel each other out. The end result is that Intrade still looks like conventional wisdom even though it has double the population average of insightful people.
A similar analogy could be made to the stock market. I’m sure you can fill in the details – heck, you’ve probably heard that one before.
@Bill Arnold: Well, I was using the world Bullshit in the philosophical sense. See Frankfurt, On Bullshit, Princeton Press. Jon Stewart got permission to say bullshit on the air for that interview. Really!
Thanks for the link, though. Very interesting.
@Full Metal Wingnut: Kinda like that, yes, the lottery is a tax on people, mostly poor, unfortunately, that don’t understand the odds.
But the lottery is all about luck, where Intrade was about using your head, and listening to people with good track records of predicting things, like Hansen on AGW or Nate Silver on politics. So, in many ways, lotteries are worse because it’s not encouraging people to listen to and promote people who are right over people who are wrong most often.
Nope. Not even close. You’d be surprised. I spent a lot of time there during the election season, commenting on the comment sections, and in the forums. The people there are really smart. Even most of the conservatives were pretty careful, which is why Obama’s price was six or over most of the last few months. It was really only held down by one large investor who poured $7 million into making Willard’s chances look better. And if more people like you had been there scooping up some more of that money, the price would have gone higher, like to 7, earlier, which would have been a much more accurate forecast of Obama’s chances than 6.
As for the “real insight” question, well, again, I don’t really have any particular “insight” into global warming or politics, but Hansen and Silver do, and I can read, sift through the opinions, and make a pretty rational decision about how to bet.
Now I’m no expert on markets, but I did learn a lot last year, and one thing I learned is that big, clumsy, ignorant bets actually help the market predict more by putting up some money for the rest of us to grab, if we think it’s worth while. So, when the Rombot was dumping 1000 share lots of Obama shares at 6 all day long, I was all over it, and so were many of my friends there. Would we have bought as many at 8? Of course not. So, I don’t know all the market speak for that phenomenon, but it’s a real thing. We were just outgunned by Sheldon, or whoever lost that 7 mil. Nothing a few more bettors wouldn’t fix,
Finally, I really don’t care so much about the predictability, although Intrade has been astoundingly good in markets with good volume. Last years Ocsars, for example, which had heavy volume, got 99% of predictions correct. I don’t care for the entertainment markets my self, but the precision is a matter of record. Same on politics. On big volume markets, Intrade was amazingly accurate. And fast. While Ham Head Rove was baking on live TV with his whiny Ohio BS, you could just go to intrade and see Obama’s price at 9.90, and know it was over.
In the long run, I really didn’t care about whether it was an accurate predictor or not. I just like betting on something with better odds than the don’t pass line. In that sense, though, I was making it a better predictor!
Sam Wang seemed to think there were problems with Intrade too.
As for the price of 6 or 7 on Obama, that helps make the point against Intrade. He should have been trading at 9 or higher. Intrade was lousy at predicting the election, even with the correct outcome.
The markets need to be small enough that only people who know what is happening are betting, but big enough that people can’t purposely skew the results. You can’t really have both things at the same time.
@MikeJ: Easy to say now that Obama should have been at nine. Not even Drew Linzer, who was most bullish at 330 EVs, was that bullish on the outright price. Most folks who aggregated and weighted polls put Obama’s chances in the sixes, low sevens. Even lower after the first debate. But again, hindsight is easy. Putting money on it before hand is hard.
And, again, I disagree. I’ve seen market theory that says irrational people make the market overall better, by giving rational people a price to act on (take or leave). The fact that higher volume markets were, by and large, better predictors suggest that not only did we know what we were talking about, but we were taking some suckers for their cash. The more suckers, the more cash for the rest of us to make, and the more efficient the market gets, because of the incentive to take advantage of the irregularity presented by Sheldon, or whomever, making the big stupid bets.
My problem with Intrade is that someone with a big account can move those markets pretty easily. And since intelligence and net worth are not really correlated, then that means that the big money driving prices, if stupid and not met by smart money, will set the prices way off. Nothing more smart people with a few bucks can’t fix. So, if they do come back, please get in there with a small balance that you consider a risky investment with possible good returns, make some good bets, and help make it a better predictor!
It’s a sign of great intelligence to call Obama as 6 over in the last election? Seriously? The election was pretty clearly going Obama’s way weeks in advance. I’ll grant that your evidence shows it beats inside-the-Beltway pundit nonsense, but MikeJ just stated my point more concisely than I could so I’ll just nod in his general direction.
@Roger Moore: These betting markets are unlikely to be efficient, rational markets in the sense that economists are talking about.
In fairness, no markets are efficient, rational markets in the sense that economists are talking about. They’re sort of like the frictionless planes and massless pulleys of high-school physics, a simplifying assumption that makes the math easier.
“I can’t find any definitive studies on the accuracy of Intrade … ”
The inimitable Sam Wang — in the same league as Nate Silver, just not as famous — wrote a couple of pieces on this very subject. And he basically agrees with you.
On this one, the stuff about Intrade begins about 1/8 of the way down the page:
@OmerosPeanut: It’s a sign of intelligence to get the best odds on a bet you can get. And if you looked at what Nate, Sam, and Drew were all saying, there was a chance that Willard could pull some kind of upset. I never thought it was a good chance, and honestly thought Obama’s price should have been much higher, like I said. But it was only held down by the one big bettor. That makes my point for me–that aside from the big money guys who can really swing a market with their cash (at least until the rest of us get our wire transfers in to take advantage) that market was damned accurate. I haven’t seen any actual math on it, but I bet if you took Sheldon or the Donald or whoever it was out of the equation, the price would have been around seven for a long time, with a dip after the second debate, and then a run up to top dollar as the polls got more accurate (as did Nate and Sam) right up to election day.
@Ken: Yes, I agree. Greenspan’s “notably rare exceptions” aren’t nearly as rare as he’d like to think. And the “invisible hand” is clear as day up on capitol hill where lobbyists rig the markets to make them less fair, and not in any sense of the word, “free.”
Intrade is no different. So, again, I care less about the accuracy of the predictions than I do about taking money from ignorant wingnuts. It’s the least I can do.
@priscianus jr: Yes. Excellent. Note from the first link:
“InTrade bettors appear to skew Republican.” He doesn’t offer any evidence of it, but I’ve got lots of anecdotal, and exit polls show Willard did well with rich people, so… But, again, even if they didn’t, all it would take is one Republican with a LOT more money than everyone else combined, and he could set the price.
” InTrade bettors are habitually underconfident in the face of polling data, even on the eve of an election. Even a 10-point lead in a race is insufficient to drive a market-based probability estimate above 80%. This is perplexing since such a lead is basically a sure thing.”
Yes! I made a lot of money based on this fact. Is this a flaw of Intrade’s? Well, in the sense that they didn’t attact enough people who understand that bit of math, or enough people who read Sam. In this sense, it is all you people who don’t go in there and pick up free money who are at fault, not the market.
From this link, “At this data-driven site I have given the Obama re-elect probability as close to 90% since the end of July.” Yes, and as a reader of Sam’s I knew this, and was betting accordingly. Free money.
I would love to see what Sam would say if he actually dug down in the data and found that one trader and his $7 million throwing the price off.
Your argument is mathematically sound. It’s regression to the mean, a universal found throughout the realm of biology. You don’t get nothing but tall offspring if you breed a bunch of tall people, you get a bell curve of heights clustering around the mean. Mathematically, it’s a subset of the Law of Large Numbers.
None of this involves any magic. The Common Wisdom is usually dumb because it’s the lowest common denominator.
Jaron Lanier calls this peculiar delusion of our digital era “Digital Maoism,” and it’s as perniciously foolish and false as the delusions of past eras, like Social Darwinism and Eugenics and Witch-burning.
Greenspan thought the markets inhabit Normalstan whereas their statistics are actually part of Extremistan, to use Nassim Taleb’s terminology. Human-driven markets don’t exhibit Gaussian (normal) distributions. They have much longer tails, which makes the probability of extreme outcomes radically more probable than in the kind of Gaussian distributions we find in natural phenomena, like shot noise or thermal fluctuations or frequency & magnitude of solar flares.
Billionaires as well as financial crashes are billions of times more probable in the real world than they would be if their statistics followed a normal distribution. The reason for this is obvious: great fortunes tend to be made by people who break the rules and cheat. Natural systems like solar flares follow normal distributions because they can’t cheat, but guys like Bill Gates can. His mom was on the board of IBM. Just a coincidence that Microsoft got chosen to supply the operating system for the IBM PC?
Riiiiiiiiight. Suuuuuuuure it was…