March 7, 2006

New market: Inkling

Prediction Markets By: ams

Google Alerted me to a press
release
from new startup Inkling, which aims to start up another
marketplace for predictions. They are just getting started, but
intend to offer a variety of claims, and allow the users to suggest
new questions. So far, they have sports, entertainment, and
technology (Apple rumors and web traffic comparisons).

They have a couple of different approaches to generating predictions:

  • the market closes on a preannounced judging date (usually the day
    before an expected event.) The correct outcome pays out at $100.

  • Rolling close: In their Apple Rumors and Big 10 Basketball coach exit
    markets, they list a number of choices, and whenever one comes true,
    they cash it out at $100.

In the first case, the bid prices shouldn’t exceed $100, and you
should sell the basket whenever they do. If the offered prices are
below $100, you can safely buy a basket. (Since the markets are
separate, the price swing needs to be significant so you aren’t caught
by price movements due to others trading while you make multiple
transactions. Even though the site seems slow (due to heavy interest,
presumably), I didn’t have trouble selling baskets at advantageous
prices.

They are using an automated market maker. In order to simplify the
user experience, the interface asks whether you think the current
probability (and price) for an issue is too high or too low, then
picking a number of shares to trade from a menu showing what price
you’ll pay.

The bid prices for the markets I looked at were significantly above
$100 bid in exclusive markets. When you sell, the interface implies
that you are selling short (and talks about how much you will get from
the sale), but after the transaction, your balance is lower. I assume
they’re reserving the value of the negative coupons. The software
doesn’t seem to notice that I bought a basket, and so have an assured
payout.

I can’t figure out their accounting. The starting account is 5000
inkles. As you see in the image, I’ve earned almost 4500 inkles
selling assets short (having started from 5000), and they seem to be
holding 4500 against that value, so I still have almost 5000 inkles to
spend.

I couldn’t login with Firefox. I had to fall back on Safari. Their
FAQ says firefox is supported.

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