political "futures" markets


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rl2669
September 22, 2004, 11:37 AM
For all you political junkie types - here's something to chew on...

In addition to following polls (the best source of which I have found to be www.realclearpolitics.com by the way), I tend to watch the political futures markets. Two of them that I watch regularly are:

http://www.biz.uiowa.edu/iem/
http://www.intrade.com/jsp/intrade/contractSearch/

We don't want to get too cocky, but Bush is heavily favored to win both the election and even the popular vote, albeit by a smaller margin. By the way, the stock market is heading up a bit too, so the financial community thinks so too.

I think its a good bet (yes, pun intended!) that people who are putting their money where the mouths are tend to more accurately predict the outcome of an event more than those who simply answer polls. There are lots of problems with polling, including selection bias, the way polls are worded, the tendancy some people have to want to provide the acceptable answer, etc.

A good book that really gets into this topic quite a bit is "The Wisdom of Crowds", see http://www.randomhouse.com/features/wisdomofcrowds/ for more details. This is a fantastic book that I just finished reading. I personally believe that the whole CBS scandal and its exposure by the unwashed masses of pajama wearing bloggers warrants a sequel to this book, since it fits so perfectly into his thesis.

Enjoy -
Rob

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tyme
September 22, 2004, 02:46 PM
Surowiecki's thesis was obviously motivated by the DARPA futures market flap last summer. He's tried to formulate a new idea out of that by combining it with rational choice theory. It sounds from the amazon reviews (that's what I'm using as an overview) like he's expanded the real-money-markets-as-good-predictors idea into the idea that polls are good guides of policy, since people voting in polls are voting a particular way to maximize their own wealth. That's pure rational choice theory. Surowieki's restated a heavily defended and heavily criticized political model.

Unfortunately, many people don't form their other opinions but are still more than willing to offer then as long as there's not money on the line. That's why it's so important to use real money. People betting more money on an outcome are more informed and therefore have a better chance of being right. You can take a mult-billionaire and poll him or her on the future of an issue, ask for a $1 bet, and you'll probably get a reasonable response. Ask the billionaire to bet 100 million dollars on that answer and you'll be turned down.

Ideals vs predictions. There's a world of difference. Polls are about ideals. Markets are about predictions. It seems that the author doesn't understand that. If polls about ideal public policy operated the same way as polls about what will happen in public policy, there would be no need for representatives; a pure democracy would be the best government.

The book is misnamed. There's no wisdom in crowds, because the crowd can't form a coherent explanation of why it concluded what it did. Only individuals can try to explain the result of the crowd, and there's no guarantee they'd get the explanation correct. It's merely speculation.

It's important that actual money be used, or that people value the currency being used (see the foresight market). Real money markets like tradesports, intratrade, and IEM are most accurate. If people don't value the currency used, then the market degenerates into a collection of polls about the future.

themic
September 23, 2004, 03:06 AM
don't forget

http://www.tradesports.com

more active trading, better reporting. anything from politics to football games.

rl2669
September 23, 2004, 11:53 AM
It appears tradesports.com and intrade.com access the same trading market, given that the various contract prices (and even trading volumes) are identical.

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