I though this may be interesting to users of the simExchange as we are a prediction market and this article is all about prediction markets.
It is in the June 2008 issue of WIRED. The article is fairly long to type out, so I have selected a few tidbits from the article below. If you want to read the rest of the article, it can be found in the June 2008 issue of WIRED or wait for WIRED to make the article available online.
“Like financial markets, prediction markets are big information processors, distilling the collective wisdom of their traders. But the success of any market depends upon the stakes and the pool of traders. Most prediction markets aren’t anywhere near as robust as those they emulate on Wall Street. ‘They are thin, trading volumes are anemic, and the dollar amounts at risk are pitifully small,’ market analyst Barry Ritholtz wrote in January. That opens them up to all kinds of problems as information processors.”
“So how can prediction markets be rectified? For starters, they need to have real stakes. There is some debate about whether this means money or something else, like reputation.”
“Beyond this, it’s important to improve the pool of traders. According to economists, this requires a certain alchemy of expertise and stupidity. With more experts and insiders, the markets can get out ahead of conventional wisdom. But forecasting also needs more so-called noise traders, who do business with almost no information. Noise traders boost accuracy by increasing volume and the potential profits of informed traders.”
“Diversity helps, too. If you can get different types of people to play, experts say not only do you get a bigger pool and more information, but differing random guesses will cancel each other out, leaving real signals to rise above the noise. Plus, if you have a critical mass of investors with a variety of backgrounds, locations, and interests, they are less likely to move as a herd.”
“…pay attention to whether a given market is likely to have a good variety of traders and that they’re playing for something meaningful. If not, stay away. Unless, of course, you happen to have some inside information yourself. In that case, by all means jump in and clean up.”
it's a shame you feel that way. i think you should at least wait till NPDs this Thursday and then see how the community activity goes. I think a lot of people are waiting with bated breath for those numbers. I personally have a decent amount invested and that will be both directly (futures) and indirectly (GLS) affected by Thursday's report.
I'll probably take a break from the Sim Exchange for a while, at least in terms of commenting & posting less content. I'm sick of being downbid on a regular basis even when I do not post anything. My interest in trading is lower than it used to be, due in part to there being too many old stocks and not enough new stocks in my opinion. And it seems there hasn't been much activity in the forum that focuses on trading.
@Gaara42, Yes we did, but I could not remember (and its basically impossible to find) what the recommendations were. So I told KuC that and that I would try and get dialogue on the issue to see if others remembered or what they think now. Ah yes I remember those now, thank you for refreshing my memory. Perhaps we could decide which we like best and inform KuC of our ideas, or all of the ideas.
Did we not already have such a discussion several months ago? That discussion brought up several systems, from limiting what people can do to an automated system.
I supported an automated system that detected mass downbidding or upbidding in a manner too fast for the person to have actually read or looked at all the content.
Others supported limiting the number of downbids (but oddly enough not the number of upbids) that a person could either perform in a certain period of time or during the entire day.
There may have been other types of systems proposed during that discussion, but I do not recall them at the moment.
@Mushashi, I agree. The PS2 is still readily available (I just saw someone buying one at Best Buy yesterday), but the consumer that is buying the PS3 right now overlaps very little with the consumer that is buying the PS2 right now.
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Sorry about the formatting issues with the quotes not showing up correctly on this post of mine.