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Even Capped Prediction Markets Can Be Manipulated
In my last article, I wrote:
There could be rules and safeguards to prevent abuses of the system (rules that could be imposed by U.S. law, even if they're not enforced by overseas betting markets), such as not allowing individuals to bet more than $500. (This is already enforced by the Iowa Electronic Markets.) That's small enough to stop individual bettors from trying to manipulate the market through enormous wagers (although they might find ways to do that anyway). It's also small enough that it wouldn't be worth it for any one individual to try and influence a political outcome just to win a bet. You could try to enlist your friends to help you place a collective $10,000 bet on a single outcome, but the more people you rope into your coalition, the greater the chances of someone (a) turning you in for violating the betting laws, or (b) taking the $500 you lent them, and then refusing to pay it back if they win their portion of the wager.
There's an error here, but one subtle enough that even all the commenters (with no shortage of the usual snark) missed it. To begin with, consider what happens if two different betting markets are taking bets at different odds for the same event.
Suppose CappedEx, a futures exchange that limits each user to betting $500, is publishing 4:1 odds of an Obama victory. If you bet $40 that Obama will win and he wins, you get paid $10 (from other users on the exchange), but if he loses, you pay out $40. Meanwhile FreedomEx, an exchange that has no betting limit for any user, is publishing 6:1 odds for Obama winning. Bet $60 on Obama, and you get $10 if he wins, but pay $60 if he loses. On both markets, of course you can bet in the other direction as well.
What do you conclude from this? That the un-capped FreedomEx probably has more accurate odds, and that as James Surowiecki (author of The Wisdom of Crowds) said, betting limits "make [the markets] less accurate" and "real money is what makes it work"? Or that CappedEx, with its safeguards against manipulation, is more reliable, and FreedomEx is being manipulated by someone trying to change the reported odds of their favored candidate winning? Or that there is simply some random fluctuation in the odds as reported by various markets, so they'll naturally diverge at times?
The correct answer is: you should stop wasting time "concluding" things, and get online as soon as possible and make bets in both markets, because if they're allowing bets to be placed at different odds, you can guarantee yourself a profit.
Make a $50 bet in CappedEx on Obama to win (4:1 odds), and a $10 bet in FreedomEx on Romney to win (1:6 odds). If Obama wins, you win $12.50 in the CappedEx market and lose your $10 in FreedomEx, for a $2.50 profit. If Romney wins, you lose $50 in the CappedEx market but win $60 in FreedomEx, for a $10 profit. With a little algebra, you can show that any time the two markets allow you to place bets at different odds ratios, you can make a guaranteed profit by picking a ratio somewhere in the middle (in this case, the two ratios were 1:4 and 1:6, so we picked 1:5) and making separate bets in the two markets in opposite directions, for amounts in that ratio. (A commenter on the Marginal Revolution blog describes exactly how he made an almost risk-free profit through this kind of "pure arbitrage play". He said it was "almost" risk free because of other factors like currency conversion fluctuations.)
Now, any time a good is trading for a lower price in market A than it is in market B, and the costs of shifting the good between the two markets is negligible, traders will start to buy the good in market A and re-sell it for a profit in market B (the traditional definition of "arbitrage"). This increases demand in market A (driving the price up) and increases supply in market B (driving the price down) until the price difference disappears. In the same way, any time two prediction markets have different "market odds" for the same event, as arbitrage players lock in guaranteed profits by placing opposite bets in the two markets, the market odds in the two markets will converge toward each other until the gap is negligible. This is true even if one of the markets has a cap on what people can invest or how much they can stake on any particular outcome.
For Intrade, there couldn't be a worse time for someone to be pointing this out, but it seems logically inescapable: As long as there is a prediction market anywhere in the world that allows unlimited wagering on a particular outcome, all other prediction markets (whether they are capped or not) can be manipulated indirectly, by playing a large wager in the non-capped market. I was wrong to say that you would have to "enlist your friends" to place bets in the capped market, building a large coalition of market-manipulators (and hoping that none of them would rat you out for using them to circumvent wager-limiting rules). By placing a large wager in the non-capped market, and shifting the market odds there so that they're different from the odds in the capped market, you can indirectly "enlist" all the users in the capped market, to place arbitrage bets and make a guaranteed profit. When this happens, the odds in both the capped market and the non-capped market will shift, as the gap between them narrows -- which means you have manipulated the market odds in the capped market, without ever going near it yourself.
In this case, why have caps on the amounts wagered in prediction markets at all? (The Iowa Electronic Markets have a maximum investment balance of $500, and a 2008 paper, "The Promise of Prediction Markets, authored by several prominent economists, advocated the creation of prediction markets with a maximum investment of $2,000.) Presumably the cap is not to prevent unlucky investors from losing their life's savings, since the law already allows multiple ways to do that, by betting on volatile stocks in the stock market. And it won't stop market manipulation, if the capped market can still be manipulated by using another non-capped market as a proxy. Robin Hanson, Professor of Economics at George Mason University and one of the co-authors of the 2008 paper, candidly told me that the cap was just a matter of selling the idea: "As a practical matter, many people's comfort with such markets increases when there is a cap, so they are more likely to accept the proposal with a cap. So it makes one seem more reasonable to propose a cap, if one can get most of the benefits one wanted from such a system that has a cap, relative to one without it."
So is there a solution to the manipulation problem? Actually, is it even a problem? Robin Hansen and Ryan Oprea wrote another paper arguing that manipulators can improve prediction markets, by subsidizing the existing players in the markets and rewarding them for paying attention. (If a "manipulative" bet causes a sudden shift in the reported odds, opportunistic investors can place bets essentially wagering that the odds will return back to their previous level.) Economist Alex Tabarrok makes the same point here. This opportunism also means that the market shift caused by a manipulative bet usually corrects itself within a few minutes.
Presumably, if more people start to take prediction markets seriously, the incentives to manipulate them would increase. As Tabarrok adds, "prediction markets have truly arrived when people think they are worth manipulating". At the same time though, as more people start to take prediction markets seriously, presumably they'll attract more actual users, and since the amount of money required to shift the market is proportional to the amount already invested by everyone else, this means it will require larger amounts of money to shift the market odds to the same degree.
So these economists all seem to think that prediction market manipulation is a good thing, and that the prediction markets themselves are an even better good thing even when they can be manipulated, but now I'm not so sure. If people do think that market odds are worth manipulating, presumably the point is to create a self-fulfilling prophecy: People think that Romney's chances have gone up, so they become more incentivized to support him and vote for him, and soon his chances actually have gone up (although possibly not to the full extent of the boost in the manipulated market odds, so the manipulator may still lose money). If you can boost Romney's market odds even for a few minutes just by spending a few tens of thousands of dollars, how much would it cost to sustain the higher odds for several hours -- and what if those hours were at a crucial time in the election or in the news reporting cycle?
What if, contrary to my last assumption, people start to take prediction markets seriously enough to be influenced by them, but the prediction markets don't see a proportionate influx of actual investors and money -- so the cost of manipulating them remains about the same? IF prediction markets gain more influence in people's actual voting decisions, BUT those markets don't see an influx of new users, AND an election is close enough that the market odds could make a difference depending on when they're reported, AND someone spends enough to sustain the manipulated odds during crucial periods during the election... Well, that's a lot of assumptions you have to grant, but individually they're quite plausible -- and if all of them hold true, you could change the outcome of a presidential election for just a few million dollars spent on the prediction markets.
And in fact, if you successfully swung the election, you'd actually win all the wagers you had just placed -- which means that now rich manipulators can throw their election to their preferred candidate, and make a bundle. It also means that all those opportunists who usually act to "correct" the market odds deviations, by taking your free money when you start placing manipulative bets, could realize that your bets might actually change the outcome, and would decline to take your money -- which in turn means it would be even cheaper for manipulators to change the outcome, creating a self-reinforcing cycle. If smart bettors see that once a behemoth starts the market moving, the behemoth will probably win, they'll just get out of its way and clear an easier path.
The same kind of trick wouldn't normally work on the stock market -- if you're wealthy enough that you can increase the share price of a stock by buying enough of it to shift the market, then when you try to reap your profits by unloading the stock, the price will drift back down as you're selling it off. (Or if your purchases do manage to create a self-fulfilling prophecy -- your infusion of cash into the company enables them to realize their plans and become a genuine success -- well, then you're just a successful angel investor, more power to you.) But a presidential election prediction market would be analogous to a stock where if you can keep the price artificially inflated for several crucial hours on November 6th, 2012, then the price becomes permanently locked in at that point and you can sell it off for a profit, regardless of the value of the underlying company.
So, according to my own reasoning, this idea that I was so gung-ho about a few days ago, could not only be used to create a type of financial instrument that rewards manipulation more perversely than anything we've ever seen, but could also let a Saudi prince pick the next leader of the free world on a bet.
I'm not sure if there's a solution. I'm not a libertarian so I was never in favor of prediction markets as a matter of "personal liberty"; I was in favor of them because they're useful insofar as they can harness the wisdom of crowds to convey important information. But if they can be manipulated to influence real-world events, is it worth it?
In keeping with the theory that money does motivate people to think harder about such things, I'm once again offering $100 to be split between the readers who email me the best-argued solutions to this problem -- or the best counter-argument to any point I've made here. Put "prediction markets" in the subject line. If your submission wins a portion of the award, you can either claim the money for yourself, or to be donated to a preferred charity in your name. (I reserve the right to pay out less than the allotted $100 if there aren't enough worthy submissions, but that didn't happen last time.) Any sufficiently valuable comments are eligible even if they're not strictly counter-arguments or suggested alternatives, and I'll post a follow-up article summarizing what people send in. You can't make as much off of me, as you could have made by taking some market manipulator's intentionally losing bet on Intrade that Romney was going to win the election, but at least it's legal.
I forget where I read this, but it still rings true. "When you sit down at the poker table, look around for the sucker. If you don't see one, it's you."
Put in more concrete terms: the existence of exploits like this means there will be winners and losers. If you didn't find the exploit, you're not the winner. So why would I want to wager in a market that I can't guarantee is fair?
[Sir Garlon] is the marvellest knight that is now living, for he destroyeth many good knights, for he goeth invisible.
Not reading articles is my God-given right as Slashdot reader - it's been a tradition for generations! Not even for $100 will I remotely try to figure out what your article is about before commenting, no sir.
Money is power, to rule, to have, and to change the future.
But back to the piece i can give you an example of a system protecting itself with a cap. If you go to a Casino, you cannot use Martingale, the roulette caps you to protect the house.
Ether the market is large, possibly a decent predictor and more or less manipulation proof due to volume or it's small, a crappy predictor and easy to manipulate. Thinking there are enough people who just want to vote 'for the winner' and will look to a betting line for their vote is just stupid. They will vote the same as their peer group.
Also note: everything said in this manifesto also applies to futures markets. See the Hunts and Silver (or Trading Places and FCOJ) to see what real markets do to big money that thinks it's big enough to move markets for profit.
See also penny stocks to see what relatively big money does to thinly traded stocks. But nobody places any value on the 'predictions' implicit in penny stock prices.
This dude is onto a 'solution' in search of a problem.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
In America, we don't make bets. We make investments.
Is risky to predict something that you can affect if you know the result of that prediction. Specially if there are more players with the same tools.
You have a misunderstanding of how the stock market works. Namely, if you buy company X's stock, company X will probably not get any actual money from the purchase. You're almost certainly purchasing the stock from another investor so you wouldn't be an angel investor. A company can take advantage of a rise in it's stock price by selling it's own stock or by using stock to purchase another company or something like that but that is a side effect of someone pushing up stock prices.
If the author doesn't understand a simple thing like that about financial markets, then I don't have much faith in his ability to talk cogently about markets in general.
"When you sit with a nice girl for two hours, it seems like two minutes. When you sit on a hot stove for two minutes, it
There are people who's job is to think and work with these kind of problems. And some of them get paid nauseatingly large amounts of money. And anyways, since when is being inquisitive and analytical a bad thing?
I read TFA and all I got was this lousy cookie
Oh, please. Presumably, Bennett is just not thinking things through, and the cap is to prevent unlucky investors from losing their life's savings.
It was probably before a lot of people here were around, but in 1999 Slashdot ran a story about someone who couldn't participate in Red Hat's IPO because he didn't have enough financial background or investment experience. In other words, to prevent him from losing his life's savings.
Of course, soon after that was the dot.com bust. I bet that guy stopped complaining at that point.
If you suddenly got a great investment idea, are planning using a large portion of your personal wealth to buy stocks, and have no experience in the stock market, the organizations involved will try to stop you from losing your life's savings, even if the barrier isn't perfect.
Not disputing that two sites might have different odds. Just curious as to why it would be considered a problem? The disparaity should be self-correcting in at least the folloiwing two ways:
1) Savvy bettors will help even it out. If the odds are different, as you point out, a risk-free gain can be made by clever wagering. With free money on the table, people will write automated scripts to detect this sort of thing. They will bet as much as they can when this scenario happens, because hey, why not? This will in effect bring the odds closer together.
2) Typical bettors will help even it out. Suppose you think Obama is going to win. You're pretty sure of it. You check the two sites, and and see odds of 4:1 and 6:1, respectively. Why on EARTH would you place a bet on the 6:1 site? If you only have $100 to bet, it will go further on the 4:1 market. When this situation occurs, the average Obama bettors will flock to the 4:1 site, while the Romney bettors will go to the 6:1 site. The odds will converge.
If, in a scenario where someone has money to burn and continually manipulates the market, then these markets lose their predictive value, yes. However, in that case, there is easy money to be had... Might as well stop complaining and ride that train.
A higher share price (for the same number of shares, obviously) makes it easier for the company to get more money though. They can issue new stock or more likely be able to borrow more money. Though the statement you quote does seem to imply a direct transfer of cash which certainly isn't the case.
I'll start by admitting there's a lot of that I didn't understand. I think that's because a lot of it is gibberish.
There are some strange ideas as to what constitutes "manipulation". If I go to a store and purchase an item, I've decreased the inventory of that item at that store. That's not manipulation, that's using the market as designed. If I make a bet and the odds adjust to encourage betting against me, that's not manipulation. That's the way the system is designed. Unless the game is fixed, the house doesn't care who wins. The odds are calculated to encourage equality in wagers, so the losers pay the winners and the house takes the vig, no matter what the outcome. Changing odds isn't manipulation.
To think a prediction market would influence the outcome of a presidential election--what, because no money depends on election results now? You've been reading too many comic books or seen too many Bond films if you're worried about a US election being affected by a villain looking to win a bet. How about a villain looking to win a defense contract, get foreign aid, get a military base relocated to/from his country?
You don't have issue with a Saudi prince picking the next president of the US, but do have issue if the pick is to win a bet in a prediction market? How is that any better or worse than a Saudi prince picking picking the next president of the US to keep arm sales to the Middle East flowing, or keep aid going to Israel?
I think the above ramblings fit in to the "navel gazing" category. That you wrote about two markets with different prices for the same wager/good and didn't immediately address the opportunity for arbitrage makes me think the odds for an insightful conclusion are low.
This analysis presupposes that movement in the prediction markets will cause movement in the actual election. This is not obviously true, to this humble observer. Frankly, the most recent election tends to contradict that entire line of reasoning. The overwhelming media analysis matched what was on the prediction markets (very close election with maybe Obama slightly favored). Meanwhile, it really wasn't close at all, at the end of the day.
In my opinion, it's a little silly to believe that billions in advertising, direct mail, social media, etc. was unable to close the gap, but manipulation of the Intrade trading range could swing the whole thing. (I'm not trying to claim those billions had no effect. I'm only claiming that with all the noise in the election, the signal from any manipulation of the prediction markets would likely be swamped.)
The second major confusion is that you think that a capped market would be forced to make a bet available:
Suppose CappedEx, a futures exchange that limits each user to betting $500, is publishing 4:1 odds of an Obama victory. If you bet $40 that Obama will win and he wins, you get paid $10 (from other users on the exchange), but if he loses, you pay out $40. Meanwhile FreedomEx, an exchange that has no betting limit for any user, is publishing 6:1 odds for Obama winning. Bet $60 on Obama, and you get $10 if he wins, but pay $60 if he loses. On both markets, of course you can bet in the other direction as well.
The answer to this is simple: CappedEx would not offer the bet that creates an arbitrage against FreedomEx.
Let me explain this to you in sports. If the Yankees (a good baseball team) were playing the Houston Astros (one of the worst baseball teams and yes, I know thye're not in the same division) there would be two types of bets for each team. The money line and the spread. The money line bet is is simply that they beat the other team. The spread bet has different odds and usually requires one team beat another team by X points. The spread bet often pays close to 2:1 because the people who calculate those odds that then fluctuate are saying it's 50/50 where it comes down on that line. Then they lower it a bit for their cut. Often times, the bet for the Yankees to beat the Astros just won't be offered. Let's say that if you bet the money line on the Yankees you get $1 for every $100 you bet. Not a great payout but you have to worry about a millionaire showing up and putting a million down and fleecing you for $1,000. As a result there is no way to bet the money line on "for sure" games. Of course if you want to bet money line on the Astros, they'll gladly take your money at, say, 20 to 1 odds. I've been in Vegas during march to watch my alma mater get bounced, I know they'll smile as they take your money on those longshot bets. But they won't let the converse bet happen. There simply is no long tail that they continually push out.
Likewise if you were a capped exchange and you felt like you were getting fleeced, you would simply stop offering that prediction. Sometimes bets and prediction aren't offered just because there's too much randomness that can't be seen yet. Is there something forcing these prediction exchanges to post all possible outcomes?
My work here is dung.
Since someone is letting him use slashdot as a blog - for things he admits changing his mind on in under week.
A higher share price (for the same number of shares, obviously) makes it easier for the company to get more money though. They can issue new stock or more likely be able to borrow more money. Though the statement you quote does seem to imply a direct transfer of cash which certainly isn't the case.
Enormously important for acquisitions.
vlmdotcom inc stock price $10/share, 1M shares outstanding, I wanna buy drkoopdotcom for $100M ... um... somethings not adding up in the balance sheet there
vlmdotcom inc stock price $1000/share same 1M shares outstanding, I wanna buy drkoopdotcom for $100M... OK lets talk, I'll dilute my current shares by 10% and exchange those new shares for full ownership of all your patents and blah... etc etc.
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
Systems don't generally exist in locally-unstable equilbria, because if perturbations generate their own positive feedback and if the system isn't carefully protected from even the slightest perturbation, then it will have already left the unstable equilibrium.
So, although it sounds cynically wise to claim that "people want to vote for whoever they think will win the vote", any such effect must not be very strong. The first partisan victory would have tilted the scales toward a partisan landslide which would have set up a partisan shut-out, and we'd shortly be laughing about "second-party voters who throw their votes away" the way we talk about "third-party voters" (where plurality counting really *does* create such positive feedback) today.
No it doesn't. Issuing new shares dilutes the stock and the price will change almost over night to reflect that change. The selling of the new shares will still bring in money, but this is independent of the price - almost. The amount of dilution required to bring in a particular amount of money will depend on the valuation of the company. But short term IIRC this doesn't work anyway because the company will probably have to do a vote on issuing new shares which will take some time and will not be able to benefit from a short-term market manipulator.
And you could have earned even more than that in the time it took you to learn all the stuff that allows you to make $100 in that amount of time.
I could have made thousands of dollars digging ditches in the time it took me to learn everything that I needed to know in order to make $100/hr, but that wouldn't have made it worth while in the long run.
I also could have made thousands of dollars in the time it took me to read some philosophy books that never netted me any money directly, but that wouldn't have made it worth it either.
Sometimes it is just worth it to learn a new concept or think in a way you hadn't thought before.
I hear this a lot from shoddy engineers (my field, but equally true in other fields) who can't be bothered to learn anything new unless it's on the company's dime because their time is somehow worth too much to take the time to learn more.
This pervasive attitude that only what makes you the most money in the here-and-now is all that's worth doing is a real problem.
This. And that's not the least of what worries me about this betting. Consider this scenario:
Some bigwig figures he can get a financial break from a candidate worth 10x a political contribution, based on whatever happens in a smoke-filled-room, if the candidate receiving the contribution wins.
He then spends that 10% of the desired return on campaign contributions, and then goes over to e.g. Intrade where, early in the election, odds are fairly even. He takes a bet out on the opponent of the guy he just supported of equal value to the campaign contribution.
If his campaign contribution works and the favor is curried, he's up in cash by virtue of the politician's kickback being worth more than the bet he placed. If it doesn't then he has no loss -- the money he won betting on Intrade covers the cost of the dud political contribution.
This amounts to risk-free bribery on the financial plane. (As to the risk on the legal plane for having such a conversation in a smoke-filled room, that's another matter.)
Someone had to do it.
Time for the old line that any "real" investor knows, "The market can remain insane longer than you can remain solvent". In both the short term and for any individual contract it would be a miracle if this was the first market in the history of humanity that couldn't be gamed or scammed in the short term. In the long term I think it would even out.
One solution is publicity. I see no reason the record of the market cannot be held open or psuedo-open. It shouldn't be very hard to detect even a distributed moneybomb activity.
Another way to look at it, is we've basically got a representative bribe-o-cracy right now where the lobbyist with the most PAC funds to donate "influences" if not outright controls the elected official. Its not any more corrupt to just purchase the elected official on an exchange. In fact its much more honest.
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
I think a lot of the confusion comes from calling this a "market". In a market you place "bets" on pork bellies, the S&P 500, the future value of the yen, whatever. Placing bets on the outcome of an indeterminate event (as opposed to the future price of an asset) is simple gambling, pure and simple.
I have no problem with gambling, but stop trying to pretend it's something different by calling it a "prediction market." You aren't buying or selling anything, you are gambling. Call a spade a spade.
If people do think that market odds are worth manipulating, presumably the point is to create a self-fulfilling prophecy:
this is not solely a financial market phenomena. supposedly womens skirt lengths predict some economic BS or ground hogs seeing shadows means something. You've always had people trying to push microskirts and shoot groundhogs (presumably not both at the same time). I would hazard a guess that irrational beliefs will always lead to irrational results, in all three cases. So why worry about regulating a futures market, when it would be no less stupid to create a national dress code for womens skirts and shade umbrellas for groundhogs?
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
Arbitrage has been a problem since the price of transport became a minor expense in selling goods. It is caused by a difference in supply-demand not by capping the investment in markets. If the price in market A is different to market B, a profit can be made if both have investment caps, if neither has investment caps, or if only one has an investment cap.
The main purpose of the stock market itself is arbitrage. Not via a different market but by putting a premium on the time-value of money. If a shareholder thinks certain shares will appreciate faster than the current time-value of money, (because so many companies do attempt to manipulate their share price) he can make a profit by short-selling.
TL;DR: Multiple markets always cause arbitrage. Having capped/uncapped investments simply changes the process of profiting from that arbitrage.
Maybe if you provided even the slightest bit of evidence for the huge premise that odds offered by betting markets will change voting behavior in a predictable manner it might matter.
Many of tne objections to such markets could be solved not with a maximum cap, but with a minimum of say $100,000 or $1 million. The proper use of such markets is as a hedge. If a chain of grocery stores, for example, thinks that an Obama win will make them lose $3 million, they can reduce or eliminate the risk by putting $1 or $1.5 million on Obama. (If he wins the election, his policies cost them $3 million, but the trade makes them $1.5, so they only lose $1.5 net.) At $1 million minimum, Bubba Gambler wouldn't be involved. It would only be used by people and companies who are really affected by these events, who would think carefully about what kind of hedge really makes sense.
I follow it all and it makes sense. Except for the influence it has on the outcome of the bet. I am sure there is some measurable influence on the outcome of an election, but I'm not sold on it being able to sway an election to the point of being a good use of marketing dollars. Do we have any research in this field?
In his example the bettor trying to make money has to put 5x as large of a bet on the capped market than he puts on the uncapped market, thus making the limit far smaller on the uncapped market. Couldn't this make the arbitrage betting so inefficient, or even impossible (if the smaller amount falls below the minimum unit you can bet) that in fact the markets can remain with different odds?
Brilliant proposal. In September, when Obama was at 80% on Intrade, I asked on a blog why betters were so confident, given the likelihood of an "October surprise." The best answer was from a guy who said he was "hedging his bets" buying Obama stock. If Obama wins, he said his taxes would go up, but at least he'd make money on Intrade.
I doubt there's a better way to get rich than buying up land (or other assets), and then paying politicians to make it more valuable. You can do it in towns all across America. It's almost entirely legal. I mean, why wouldn't you contribute to the guy who's in favor of the development you seek? Why wouldn't you throw a fundraiser for him, and why would anyone think less of you for doing so? Many towns wind up with a greedy combination of politicians and developers running the place.
Another interesting thing on Intrade was watching the guy who was trying to manipulate the market dump around $2M selling Obama stock. For several days before the election he repeatedly dumped many thousands of dollars all at once, tanking the market back down to about 60%, and then let it recover. The fact that he did it so consistently, every half hour to an hour, made it clear to anyone watching trades that there would be plenty of future opportunities to buy Obama stock at $6. So why did it rapidly recover every time? Two theories: first, it's possible and maybe even likely that most betters were not watching carefully, and were simply paying whatever the price happened to be when they logged on. Second, it's possible that a pro-Obama manipulator was constantly buying through small trades, regardless of the price. I'd love to know what actually happened.
Celebrate failure, and then learn from it - Nolan Bushnell
In a literal sense, taking time to learn new stuff is only worthwhile when the new stuff you learned is at least more valuable than what you already know.
Knowing mechanical skills is valuable. But I'm a software engineer, and I get paid significantly more than I pay my mechanic. So, learning how to fix cars would be antiproductive two-fold; I would not only waste time learning something less valuable than what I already know how to do, I would also spend time learning to do this that I could be spending to earn money.
Engineers as well as skilled workers of many different fields face this exact dilemma. It's not so much a problem as it is reality.
That said, I take the time to learn stuff (including mechanical skills) anyway because I invariably come away from it with a point of view that I didn't previously understand and that makes me more valuable in all terms, near and far, and I simply enjoy understanding stuff, from piloting a plane to rebuilding an engine to understanding canvas manipulation algorithms in javascript.
I have no problem with your religion until you decide it's reason to deprive others of the truth.
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This is incorrect. An investor could buy up the stock and take a profit by investing in options that expire at the value peak.
So, learning how to fix cars would be antiproductive
You are correct and a lot of people miss this fact, thinking they are saving themselves money by doing their own mechanic work, but this was not the point I was making.
Learning new concepts, such as the intracacies of how economies work prove to be extremely useful in cases well beyond economics. This is not peculiar to economics either but is true of all things where you must learn to think in a new and abstract way.
I know a lot about how quantum mechanic works. I'll never put this knowledge to direct work. But the concepts learned have proved useful anyway. I will never be an evolutionary biologist either, but understanding concepts which allow irreducibly complex things are built by evolution have proved to be useful conceptual tools.
This was the point I was trying to make. There's an indirect benefit to understanding new concepts.
What about knowing enough about fixing cars not to get sold a 3K$ muffler bearing job?
Don't even start on what a new set of piston return springs cost, much less installation. Many amateur mechanics can't even find them.
Note: if you wrench your own car you can fix it better. OEMs (all of them) make all sorts of compromises you never would. Also it's fun to make horsepower and get it to hookup.
If you didn't learn to wrench while you were young, you never will. Bet you got a new car on your 16th.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
Discovered, but doesn't quite understand how it works in the real world yet. If you allow unlimited betting and there are two "exchanges" that give different odds, what happens next is that someone will place arbitrage bets on the pair until they are even. This is how trading markets force that sort of gap to zero once it appears.
Most trading vehicles come with some sort of spread between the buying and selling price, like the "bid" and "ask" for stocks. That small loss is the only real limit keeping people from exploiting any tiny gap between offers across markets into an arbitrage profit. Even if the profit per share on a trade is 0.01, put enough volume behind that and it turns into real money. But if you make entering and existing a trade typically result in a 0.01 loss--due to the difference between the bid and the ask--that puts a lower limit on how small of an arbitrage gap can be traded profitably. Adding a per-transaction fee is also useful for that.
Traditional gambling, via something like a bookie or a casino, doesn't have this problem because the odds aren't symmetrical. They are not a market that allows someone to play all sides of a bet and come close to breaking even. Roulette is a good example, where the zero value on the wheel makes it unprofitable to try and cover the board with a red/black or even/odd pair of bets.
The problem is not a problem in the sense you are thinking of it. If you have a small market and a large one, then the small market is going to have network effect problems (similar to Metcalfe's Law). It can still provide value if something about the smaller market (the traders or the sort of claims covered) is different enough. The Iowa Election Market (IEM) has an interesting trading group with a bunch of US and academic traders (and US traders no longer can trade on Intrade at present). It also has some rather unique markets.
So as you're thinking of it, it's not a real problem. The big market will push the small market, but most people trading on the small market would want that since it gives them a more accurate price and maybe a bit of liquidity from the arbitragers.
Second, uncapped markets have the potential for considerable moral hazard as the market capitalization grows. If there's a trillion dollars on who becomes the next US President, you can bet a lot of people with a lot of money are going to have some ideas, both legal and illegal, about how they can improve the odds in their favor. That's why real life markets of this sort (such as futures markets) have caps.
Well, that's how hedging works and the bigwig would be using the market as most people think it should be used (speculation gets a bad rap here). The bribery still has risk since the candidate need not actually do what the bigwig wants. If you're giving money to a campaign and expecting more in return, then that's incentive for the politician to shake you down for more. You also might have some other bigwig with conflicting interests and bigger campaign donations.
This strikes me as another discussion suggesting mob rule is a good substitute for fundamental truth. For decades people in financial markets have suggested mob rule is the best method of predicting prices based on supply & demand theory. Yet time and time again we see "irrational" financial bubbles, which have nothing to do with real surpluses or shortages, grow and bust. Future market prices are set by mobs, but future supply & demand changes are not known.
Show us something better. Markets work amazingly well. Even those bubbles and bursts cull traders who follow the herd. What else is so effective at that? Fundamental truth is at best, an ideal. IMHO, markets do a better job of approaching that ideal than anything, including the scientific method, for evaluating the value of financial securities.
What about knowing enough about fixing cars not to get sold a 3K$ muffler bearing job?
What, you mean my $4.5k muffler bearing job was overpriced?
Don't even start on what a new set of piston return springs cost, much less installation. Many amateur mechanics can't even find them.
Having fixed them on my mom's car, the piston return springs (called "valves" on an interference engine after the cam belt breaks) were found, and were broken (well, bent).
The best thing about turning your own wrench is not knowing how to fix it, but knowing what problems are terminal, and which are just annoying. Limping home in a "sick" car knowing that you'll not be doing additional damage is much better than worrying that the sound signals an impending complete failure. Like squeaky or thumpy brakes. Will you lose brakes completely soon, or can you make it to your scheduled repair appointment?
Learn to love Alaska
This is just another dude who thinks we want to read his diary.
Use of the words "good", "bad" or "evil" is almost invariably the result of oversimplification.
Yes it does. For the reason you then went on to state.
I didn't say it was alikely scenario - in fact I implied it wasn't by giving a "mire likely" - but as you went on to state anyway it's an example of a situation in which a higher share price can result in cash being transferred to the company itself.
So, learning how to fix cars would be antiproductive
You are correct and a lot of people miss this fact, thinking they are saving themselves money by doing their own mechanic work, .... There's an indirect benefit to understanding new concepts.
What we can't know is how much something will be worth to us over a lifetime, value is personalized. A poor person stands to gain a lot more learning about their car so they don't get screwed at the auto shop, a rich person shouldn't care about what their car repair costs and would make much more from understanding investments. There is no reason not to learn everything you can, just don't try to manage things you can't.
How concrete is it? If you own a solar company with no products and no real chance of ever making a useful product, it's pretty concrete. If Obama wins, he hands you $100 million of tax payer money. If Obama loses, you have to get a job and work for a living. Pretty concrete indeed.
> The correct answer is: you should stop wasting time "concluding" things, and get online as soon as possible and make bets in both markets, because if they're allowing bets to be placed at different odds, you can guarantee yourself a profit ..
I don't think so, the only people who will win are the house. All's happening here, is the clients money gets moved round the table ...
AccountKiller
I would have to disagree with this. Markets react to irrational bubbles by ruthlessly bursting them, bringing prices back to reality.
In the UK we have had uncapped order-matching betting on virtually anything for over a decade. There has been a steady flow of attempts to profit from insider information (the identity of the new Archbishop of Canterbury is the most recent!) and manipulate events (darts and snooker seem to be frequent offenders). There were even attempts to cut power to the floodlights at Premiership evening games if they were heading for an unprofitable result. However the betting exchanges are perfectly willing to suspend markets and co-operate with the relevant sporting authorities when suspicious betting occurs.
This only works in one flavor of the universe where people vote based on prediction markets.
Only Romney diehards would do so, therefore the point is moot.
In the future this might work in a MMORG populated by ADHD maniacs. They have drunk the kool-aid and trapped themselves in a parallel crazy universe where there is no difference between voting for mayor of Tunesville and mousing over a +1 button. Real world, people think between stepping away from computer and driving to the polls.
I have a feeling the world is approaching what he is saying, with asymptote 50-100 years away, but at the moment it seems you screw yourself the deeper you work out the game theory. Or in other words, naive cyber markets are doomed to fall to the army of financial math experts paid oodles to learn how to play real markets, once they notice you. Pray for obscurity...
> People think that Romney's chances have gone up,
> so they become more incentivized to support him and
> vote for him, and soon his chances actually have gone up
And you could have earned even more than that in the time it took you to learn all the stuff that allows you to make $100 in that amount of time.
In that much time, AC could have filled the universe with copies of AC. I wouldn't point out what he could have done with the time. It's not prudent.
American SS? Do they have cool uniforms like the German ones?
The K.I. SS have flamboyant uniforms and face paint.
/. needs a way to mod down articles.
Did you try Firehose?
So why worry about regulating a futures market, when it would be no less stupid to create a national dress code for womens skirts and shade umbrellas for groundhogs?
Governments do have a dress code. It's called an indecent exposure law. And it's why every baby is born a criminal.
You need not predict markets.
Hire a Congress man as your proxy.
http://www.cnbc.com/id/43471561
Casteism