UsableMarkets

The Business 2.0 blog recently had a post about the latest prediction market, this one from The Motley Fool called CAPS.

CAPS is very similar to Predict Wall Street. Traders can pick a stock and picks can be made over varying lengths of time. On CAPS, the more accurate you are as a picker, the more weight your pick gets in the community.

One thing that seems notable about CAPS is the number of icons and features that seem to fly at you from every part of the page. This site most certainly suffers from iconitis (an overwhelming number of icons, many of which are incomprehensible), and one has to wonder if this plethora of features is trying to make up for something.

The icons fly

As with any market game, one has to ask what it provides that is not available elsewhere. The selling point here appears to be that the “wisdom of the crowds” can provide better guidance than the market itself. As the tag line says: Investors helping investors beat the market.

But I wonder.

First, there are the usual objections based on survivorship bias, randomness, and so on.

Second, I have to wonder why, if I could beat the market so handily, would I come to this site? Why wouldn’t I just play the market and make my money? It would be a far more profitable way to spend my time.

Thirdly, as a prediction market, CAPS has some work to do. To wit:

- While CAPS incorporates time into the predictions players make, there is no coordination among players about the time they are choosing. This leads to a logical disconnect between the prediction an individual trader makes, and the prediction the community makes. An individual can specify a time frame for their prediction, but the community prediction has no such subtlety.

Timing it

In this context how are we to judge a stock’s prediction?

And finally the rating system CAPS uses is confusing. For example, if MS gets such high ratings from top traders, why only three stars?

Rating it

I’m confused. And I wouldn’t be surprised if other traders are, too.

As always, thanks for listening.
~alex

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