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Futures Marketplace

October 4th, 2003 · No Comments

Trying to predicting the future is a fun exercise. Now, one can take bets on it. NYTimes writes:

In the simplest systems, players buy and sell contracts to pay 100 units of fake or real money at some future point – like the end of a game or an election. In Mr. Peters’s case, he was buying and selling the right to get 100 points if, “by Nov. 16, the Secretary of State has certified elections results in which a majority of voters elect to remove Gray Davis from office.”

These marketplaces synthesize a prediction for the future by letting the price fluctuate as everyone chooses how much to pay for the contracts. Someone who spends 50 points to buy a Davis contract is effectively betting with 1-to-1 odds that Governor Davis will be recalled by the voters. Paying 50 points will yield a profit of 50 points if he is voted out. Someone who paid 33 points would be getting 2-to-1 odds and someone who paid 10 points would be getting 9 to 1 odds.

Robin Hanson, an assistant professor of economics at George Mason University and an organizer of both the Foresight Exchange and the Pentagon project, said: “What’s nice about these institutions is they always come up with a number. When you talk to academics, they might say, ‘That’s not possible. We don’t have the right data. We don’t have the right insight.’ These markets cough up a number. There may be a lot of error, but at least you get something.”

Markets like these are most accurate when the players have a stake in the question at hand and the result is determined by a large number of people. The Iowa Electronic Markets, for instance, collect small bets made with real money on the outcome of elections. They report that the prices of futures contracts pegged to the results of elections are often better predictors than most polls.

One of the sites mentioned is Futures Exchange.

In IndiaWorld, we had created a marketplace for the elections many years ago – we had called in the “Indian Political Stock Exchange”. Given that elections are due next year in India, it may be a good idea to revive such a site.

Tags: General

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