prediction markets

As we flew home from our trip to South America we changed planes in Washington DC and saw this scene:

I'd say that this is a pretty clear indication that, at least in the opinion of this airport shop owner, Hillary Clinton's chances of becoming president are pretty low. That's what you might describe as a general market indicator that Hillary is done.

And, of course there's the prediction markets...

Prediction Markets - HubDub Says Hillary Clinton to Withdraw Before the Convention

According to the HubDub market there is an 82% chance she'll withdraw prior to the convention.

Yeah, the thing about a prediction market people can mess with is that people can mess with it.

So, what information do you want to see in prediction markets?

Reports and Alerts for Prediction Markets

Certainly graphs that show the price history and volume with Open/High/Low/Close is mandatory. It would be nice if these graphs could be both snapshots and updating (i.e. provide links that show a period in time and links that show most recent).

For an individual they (and admins) will want to know Open Orders and Order History on a per user or a per security basis (or per user per security, perhaps).

Another graph I've heard of is the "Shape of the Book" that would show a list of all open orders with their volume on bid and ask sides. This would let a trader know how far they would need to go in price to fulfill an order of a certain size. Interestingly enough InTrade provides a small amount of this information (the first 20 records or so) while some of the others you have to sign up to get to a point where you could see so I don't know...

The first order of business in any options exchange is getting options onto the market.

Issuing new Contracts

Tradesports achieves this (as far as I can tell) by allowing every member of the exchange to either buy or sell any option. Everything is done on margin until the option expires. If you "buy" a position, (i.e. there is an offer order at or below your bid) the price at which your order was bid multiplied by the number of contracts you purchased is placed into a holding status in your account. If you "sell" a position then the sale price minus the expiration value is also put into holding status in your account. When the contracts expire - "buy" accounts are given a dollar if the event occurred - "sell" holders are given a dollar if the event didn't. Frankly, that makes my head hurt

I'm doing some research into how electronic options markets work - and specifically those used primarily for prediction purposes. I'm familiar with them (previously wrote about prediction markets and political contracts).

Predictive Markets

Predictive Markets are a really neat idea. Basically, you let knowledgable people bet on the likelihood of a particular event happening: Bush getting re-elected, 10 inches of snow falling in one day on New York City by 2008, or Nikki letting me buy a new computer this year. Then the price of the contract for that particular event will then reflect the collective knowledge of the community about that event. If you have something that is hard to analzye or hard to predict, this is a great way to get a fairly reliable answer.

Greed is good