UsableMarkets

Item #3 (and my final one) from the 2007 NY Prediction Market Conference

Perhaps the most interesting talk of the day was given by Jed Christiansen of Mercury Consulting. He reviewed the results of his study, where people used a prediction market to make bets on the outcomes of a series of boat races. (Apparently rowing is something of a thing in England.)

Among the many interesting things he said, he also presented this slide:

This shows how Jed categorized the people in his prediction market by the level of their activity, the main split being between people who made one trade and then let it ride (“Voters”), and those who frequently adjusted their positions (“Shapers”).

As the name implies, Shapers helped the prediction market be more accurate by continually incorporating new information into the market. Voters, on the other hand, took their best guess, and hey, if they were wrong, they were a juicy profit opportunity for someone else.

But it would be misleading to assume that Shapers were more accurate in their predictions. As Jed says:

It’s difficult to judge each person’s accuracy, because they’re trading on the market at a specific time, and the price at that time may not reflect their opinion. They could buy at $10, but really believe the price should be $50, even though they can’t move it there alone.

In other words, while Shapers traded more, they weren’t necessarily better predictors, at least as far as the data can say.

That said, Shapers did appear to perform better overall. Of the top five traders in Jed’s prediction market four were Shapers. It’s may be hard to say why Shapers performed better, but they certainly gave themselves more profit opportunities (in other words, more opportunities to revise predictions based on new information). And perhaps they more quickly sold off losers to avoid large losses.

What would be fascinating to see is how Jed’s study, and the make up of the traders in his prediction market, compares with traders in other prediction markets … and perhaps even other markets.

But that’s for another day ….

As always, thanks for listening.
~alex