Congratulations to Stanford,
who won DARPA’s Autonomous
race on Saturday, and to
Carnegie Mellon, who had
two vehicles in close contention all day. DARPA also deserves kudos
for running a website that was tracking the vehicles as the race
progressed, showing where each vehicle was on the course and which
ones were still moving. It would be nice if they had enough funding
left to turn the site into something of continuing value–visitors
ought to be able to replay the race, given all the statistics DARPA

But the reason I’m able to categorize this post under the Prediction
Markets label is that the markets on the claim didn’t do anywhere as
well as the robotic cars. There wasn’t much participation in the
markets (14 coupons in circulation, and 57 total trades in the
and 7 coupons traded 19 times in the

scaled claim
.) More importantly, there was a 30 point spread in
the prices offered. The morning of the race, the highest anyone was
offering on the yes/no claim was 25, and the lowest ask was at 50.

Observers must have learned last year’s lessons too well: a year ago,
the best vehicle traveled only 7 miles. This year, all but one of
the 23 finalists beat that mark, with 7 traveling more than 50 miles
through tough, visually confusing terrain, and 5 finishing the course
(4 within the alloted 10 hours.)

Before the race, the rhetoric was very positive. It seemed that most
of the teams were bragging that they had run their own practice
courses, and saying that the real course shouldn’t pose any new
problems. I would have expected that people close to one of the
teams would have been able to gauge their practice successes and
failures and conclude that if the team you know about has a 50 percent
chance of finishing, and there are 25 teams, then someone ought to be
able to finish. The only conclusions that make sense to me are that
no one active on the FX market knew someone who knew someone on one of
the teams, or that everyone was worried that the DARPA course would
hold some new challenge that none of the teams would be prepared for.
But they all already knew that tunnels (cutting off GPS reception),
cattle guards (fooling depth perception), narrow passes and mud
puddles were on the route.

Oh, well. We try not to claim that Prediction Markets can reliably
predict everything; just that they do a better job of coordinating
predictions than any other mechanism we know of. Here’s another
example of a weak prediction. Did any other mechanism do better?

Chris Masse
provided a pointer to a
consent order
between the CFTC and TradeSports
(a.k.a. TEN, the Trade Exchange Network). The
is interesting because in allowing TradeSports to escape punishment by
paying a fine and agreeing not to sell options on commodities
(“without admitting any wrongdoing”), the CFTC is implicitly not
challenging TradeSports’ other markets. This appears to be good news.

The particular markets that the CFTC objected to were markets on the
prices of various commodities (gold, crude oil, and exchange rates)
and speculation on the FOMC’s rate announcements. There’s no mention
of TradeSports’ markets on supreme court appointments, elections
(foreign or domestic), pending legislation (Social Security Reform),
or (!) stock market indexes in several countries. The CFTC could have
declared that by making a market in instruments whose value depends on
the outcome of external events, TradeSports was creating a new
commodity. That would have been sufficient for the CFTC to go after
them. The fact that all these instruments are ignored in the ruling
seems to me at least a signal that the CFTC isn’t intending to try to
stop any of the rest of it. (They can always change their mind
later.) That doesn’t provide any protection from the gambling laws,
of course, but the International Court’s decisions seem to be helping on that front.

The CFTC also points out how cooperative TradeSports has been through
the whole process. Since they are applying to have a subsidiary
covered by the CFTC, this is no surprise.

One of the points in the order is that TradeSports “shall inform
residents of the US of what contracts are unavailable to them for
trade by utilizing a pop-up notice that will appear when such
residents attempt to enter orders on those contracts”. They don’t
seem to have implemented this yet: I was able to enter an order on
the FOMC’s December decision on the funds rate.

The meeting has been rescheduled for December 2 in order to accomodate more participants.

Collabria, which hosts
discussions on new technologies for collaboration and knowledge
management, will be hosting a discussion on
Prediction Markets in San Francisco on October 21stDecember 2. They have a
presence in several
other cities
, and plan to host similar discussions in other
locations. Their modus operandi is to get a small group (~25
people) together, have a few presentations (sans PowerPoint), and
discuss the implications of the ideas.

The San Francisco discussion
features Bernardo Huberman, Ely Dahan, Eric Zitzewitz and me. Bernardo‘s
recent papers (with Tad Hogg) are about techniques to
for some
they’ve identified in small, internal corporate
prediction markets. Ely teaches
marketing at UCLA, and uses Prediction Markets as a replacement for
focus groups to get consumers to
product feature mix
will be most desirable. Eric has written
about how Prediction Markets can
to policy discussions, and demonstrating that the
prices in well-structured markets
correspond to probabilities

I expect to give an
introduction to the idea of Prediction Markets (because I’m speaking
first), talk about how they can be valuable in policy setting and
business planning, and give an update on Zocalo’s status.

Some folks at Google have set up an internal prediction market, and they seem pretty pleased with the results. There’s also a lively discussion at slashdot.

The names on the project that I recognize are Hal Varian, an economist at Berkeley, who has written about prediction markets before, and Patri Friedman, son and grandson of David and Milton respectively, and a regular on the Catallarchy blog, who’s currently working for Google.

They didn’t say anything about the form of the market, or what software they’re using (homebrew, or borrowed from one of the existing providers.) Patri says that his part of the project was analysing the data in order to show that it has some predictive utility, and (gasp!) the predictive power gets better as the deadline approaches.

I will have to talk to some of the people I know at Google (everyone in Silicon Valley knows a few people at Google, I’m not claiming to have any special connections) and find out what they’re doing, and how it’s working for them.

There are no hints that they are considering setting up public markets. There are plenty of reasons for large companies to run internal markets, and software companies in particular can benefit from better predictability of their software development efforts, and better tools for aggregating opinions about what is likely to succeed in the marketplace.

Kevin Compton, star VC at Kleiner, Perkins, has invested personally in a venture more closely related to the NHL than EAI… Protrade appears to be a market that tracks prices set by the house, based on detailed models of “player performance” — the game (of skill) is to track that synthetic index, it seems.

This is well short of gambling, I’d wager :)

New Net venture: Sports stock mart / Online startup to trade ‘shares’ in pro athletes

New Net venture: Sports stock mart
Online startup to trade ‘shares’ in pro athletes
Benny Evangelista, Chronicle Staff Writer
Monday, September 19, 2005

Sports fans may soon be wondering whether their “shares” in 49ers quarterback Tim Rattay are falling or whether they should add Raiders wide receiver Randy Moss to their portfolio.

That’s because a San Mateo startup called Protrade Inc., which has key backing from well-known sports figures such as Brent Jones, Jeff Moorad, Bill Walsh and Jerry West, plans to launch an online venture that assigns a value to pro athletes as though they were publicly traded companies.”It’s much more similar to a sports stock market than a fantasy sports league,” said Protrade co-founder Mike Kerns. The other co-founder is Jeff Ma, onetime member of the infamous team of blackjack players from the Massachusetts Institute of Technology, which devised ways to beat Las Vegas casinos.

Kerns and Ma plan to open the firm’s Web site, at, to the public today.

Read more

HedgeStreet has been running ads on the radio locally. A couple of people (Marty was the first) have told me that they’ve heard the ad on KCBS. I couldn’t find anything on or on KCBS about it. (Don’t people ask broadcasters and advertisers about ads they’re running often enough to make it standard practice to announce the campaign in a public place?) Anyway, after googling around for a while, I discovered that Michael Covel of Trend Spotting has a short note about the campaign with a pointer to a recording.

The ad starts out by asking “Are you a person with strong opinions?” The pitch seems to be focused on argumentative people. (“Do you find yourself getting into little debates with your buddies about things like whether Bay Area housing prices will continue to go up?”) The pitch includes a short list of areas in which they have claims (“gas prices, housing prices, oil, gold and more”), and touts the fact that the trades (they never say “bet”) are person-to-person. (“If you buy a Hedgelet that says that gas prices will rise, then someone else is buying one that says that gas prices will fall.”)

I think HedgeStreet could turn out to be very interesting and quite valuable, but at this point, their set of claims is still quite limited and all very short term. It might be fun for some people to bet on the short term direction of gas and crude oil prices (they have claims due September 1, September 30, and December 30), but in order for people to realistically hedge on housing prices, they need much longer time horizons.

They have been adding to their list of subjects. They now have metals, crops, currencies, economic indicators (sales, employment, CPI, interest and mortgage rates), as well as fuel and housing prices. This is much broader than when they started. And the markets are quite thinly traded. If they could add automated market makers to narrow the spreads, it might make it much more interesting for people to make trades which would be good for price makers, too.

Courtesy of Marginal Revolution’s Tyler Cowen, I read about the bet between Matthew Simmons (a Peak Oil pundit) and John Tierney (a NY Times columnist). It looked like another case of interesting public bets demonstrating that there was a contentious issue going unresolved in the public debate, so I proposed a claim for the FX market modeled on my previous claimNLud on a 1995 bet between Kevin Kelley and self-proclaimed Neo-Luddite Kirkpatrick Sale. I persevered, even in the face of James Annan, claiming that it was all a publicity stunt, and that Simmon’s bet shouldn’t be taken seriously, and even pointing out the financial markets where similar claims could be traded. Today I read EconBrowser’s take on it all (thanks to Tyler for the pointer) and decided to withdraw the claim.

EconBrowser points out (as James tried to tell us) that Simmons is making a cheap public bet when he could be making an extremely lucrative investment ($130,000 return for a little more than the $5000 he put in the bet, or $1.3 Million in 5 years if he believed it enough to invest $50,000) if he believed what he was saying. If he made the investment (at much better odds than his cheap public bet) he would be telling the market that oil is getting rarer in way that the market would react to. As it is, I’m sure those who trade in oil futures either laughed at Tierney’s article or ignored it entirely. A friendly bar bet (even at $5000) doesn’t impress the traders the way a change in the price or number outstanding of call options would. So I’m going to withdraw the claim. I was already convinced that it wouldn’t trade at interesting prices; apparently everyone else knew it, too.

I’ve just uploaded a new version of Zocalo to SourceForge. It’s available as a file download or via CVS. Here are the Release Notes and Change List. (Set your CVSROOT to

Kevin Hughes built us a pretty home page in the obvious project location on sourceforge. People who know the project name and that we’re on SourceForge will now be able to quickly find a reasonable description of the project.

The new version displays explanations to an experiment’s subjects of the values behind their scores. It also adds a countdown timer so the “Time Remaining” field updates as the experiment proceeds. We’ve changed the login page so the users have to supply a user name rather than choosing one from a list. We also fixed a performance bug in the javascript that was slowing down redisplay significantly.

Kragen Sittaker reviewed The bulk of the javascript code (stripchart.js, used mostly for updating the strip chart), and his suggestions have been incorporated. Mike Linksvayer noticed some mistakes in the INSTALL notes which have been corrected, and suggested the CVS release.

The Wall Street Journal (registration required; bugmenot didn’t work) has an article on rising prices at the pump, titled “New Options for Saving at the Pump”. Most of the article discusses credit card enticements, membership club inducements and websites that help you find the cheapest gas in town. But they also have a paragraph on a web site that is now accepting wagers on the price of gas. The side bar (see image) suggests that “one way to cut fuel costs” is to “bet on the price of gas.”

One Web site,, started taking wagers earlier this month on where gas prices are headed. The site effectively allows people with long commutes to hedge their exposure. For example, if you think average gas prices in New York or Los Angeles will hit $3 by Jan. 1, you can bet $110 to win an additional $100. If you think prices won’t hit that level, you can bet $110 to win an additional $100.     [chris: that’s the same as .476 bid/.485 ask].

Among my top few prediction Market sites, the only other one that is covering gas prices is Foresight Exchange. There was a recent spike (to 90¢!), but the odds there are 22% for the national average to reach $3 by the end of the year.

Two responses to the WSJ article:

  • Is the WSJ going to make a habit of looking for market odds or a betting market whenever they can connect it to a story? This would be good built-in advertising for any provider that can move quickly to add topical claims.
  • doesn’t meet even pretty loose definitions of a prediction market. The odds seem to be set by a bookie rather than by offsetting bets of people with different opinions, and the odds are presented in a few different gambler-centric formats that are hard to read as probabilities.

There’s a new prediction market coming soon with some interesting attributes. ProTrade is going to join the ranks of real money markets, and will concentrate on pro athletes. Their big twist on the market is that they’re going to follow the ideas of Billy Beane as presented by Michael Lewis in the book Moneyball. I’m a big fan of the book, and it seems like a wonderful basis for metrics for measuring athletes generally. ProTrade promises to develop statistics for all the major sports (starting with football, basketball, and baseball) that will actually reflect the contribution of each player to winning and losing the game.

Similar in concept to Yahoo!’s Tech Buzz game, the securities have a market price, and pay dividends as the season progresses based on the individual athlete’s on-field performance. Traders are encouraged by the dividends to ensure that the market price reflects the future stream of dividend income. I suspect that all involved understand that some traders will be buying their favorites regardless of what the statistics say, and they will help increase liquidity so that traders who care about the fundamentals will be able to continually make money.

I have some doubts that creating useful statistics is as straightforward as ProTrade makes it sound. One of the things that Lewis made clear in Moneyball was that Beane had to continually evaluate the statistics that the Sabremetricians presented to him, to figure out which ones not only described the past, but could be used as a guide to action in the future. As more coaches and athletes figure out which statistics actually correlate with success, the smart money has to find more reliable and more obscure statistics in order to maintain an edge.

I think ProTrade may have a winner here, but I won’t be putting my money on the line until they add hockey to the list. (Other sports on their coming soon list: golf, auto racing, and soccer.) I haven’t followed the big three sports recently enough to have any instincts about players to compare to the statistics. And I’m not going to learn who all the players are in order to join the game. After all, it just entertainment

Thanks for the pointer to Art Hutchinson

Addendum: Dave Porter pointed out that ProTrade seems to be play money. That’s what I thought at first, and apparently got confused while writing the post since they have FAQs on
financial matters, and on whether it is gambling. As I look again, its’s clear that it’s all play money.