Will Taylor

LEANZ March 09 Wellington Seminar

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Topic: Seeing the future: Prediction markets and the wisdom of crowds

Speaker: Matt Burgess, Chief Executive, iPredict

Date: Monday 23 March 2009

Venue: Level 17, Chapman Tripp, 10 Customhouse Quay, Wellington (please note that there is no access to the building after 6pm)

Time: Refreshments from 5:30pm, seminar at 6pm

RSVP: to: angela.bamford@bellgully.com (please note that an RSVP is not compulsory, but we would appreciate hearing from you if you plan to attend)

Topic

Prediction markets have been counted among the most intriguing institutional innovations of the last quarter-century. A prediction market is a share market for future events in any field, including politics, business, and social outcomes. Traders in a prediction market take a position on the likelihood or expected outcome of a future event. The market price that emerges from trading is the prediction, and reflects the wisdom of the crowd.

In the twenty years since their invention in the United States, prediction markets have developed an extraordinary forecasting record and have outperformed every competing forecasting institution, most notably election polling. Prediction markets have several characteristics that give them strong advantages over rival forecasting methods. They are robust to manipulation, they require only a few traders to produce excellent forecasts, they can be run using real or play money, and market-based forecasts are a low cost alternative to polling, experts and group deliberation.

Matt Burgess describes what prediction markets are and their history, shows that they are one example of a recent harnessing of the wisdom of crowds, compares their performance to a range of alternative forecasting methods, and looks at the performance of New Zealand’s real money prediction market iPredict since its launch in September 2008.

Speaker

    Matt Burgess is the Chief Executive of iPredict, the real money prediction market owned by Victoria University and the Institute for the Study of Competition and Regulation (ISCR). He is a Research Associate at the ISCR.
Matt Nolan

Crampton, Walker on policy

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Over at Eric Crampton’s excellent blog he did a round up of NZ economic issues.  In this round up he stated:

On the whole, Key’s National government has so far done a lot less harm than have others

I agree.

Paul Walker takes issue with this stating:

This government can, in my view, do a lot better than it is

I agree.

These guys are both completely right.  The government has been relatively constrained in the face of the crisis, which given our priors is a good thing.  However, the policies that they have put through just aren’t good policies as we have suggested here (as even if what they are aiming to do is the right thing to do – there are far better ways of doing it).

If I had to pick a position then I would say I’m currently with Paul – I would rather try to push the government towards optimal policies than accept that what they are doing is “relatively better”.  If everyone was jumping off a cliff would I think it was a better policy for my friend to jump off into a relatively soft area or not to jump at all …

Matt Nolan

The failure of contemporary macroeconomic theory?

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Macroeconomics may have incentive problems, and there may be a lot of room for improvement or refocus, but I think saying that “contemporary macroeconomic theory has failed” is going too far.

Now, I’ve shown myself to be no fan of some of the economics that has, and will, be performed – I quoted approvingly when Dani Rodrik said that some economists had abused the theory. Similarly I nodded my head when Arnold Kling said the same thing. When Agoraphilia pointed out that the “rational expectations hypothesis” is constrictively narrow (namely in how it treats beliefs and expectations) I jumped around in an orgy of agreement.

However, I don’t think we can call contemporary macroeconomics on its predictive failures and then not attack the rest of the economics discipline on similar grounds.

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jamesz

Drug companies vs doctors

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Ezra Klein reports that

A review of seventy-four clinical trials of antidepressants found that thirty-seven of thirty-eight positive studies were published. Of the thirty-six negative studies, thirty-three were either not published or published in a form that implied a positive outcome. … To a doctor reading the published literature, 94% of the trials conducted were positive. In reality, 51% were positive.

He concludes that “[i]f the pharmaceutical companies will not fund research, then someone else must.” I’m not so sure. Read more

goonix

Bernanke on ‘too big to fail’ and incentives

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Yesterday Federal Reserve Chairman Ben Bernanke gave a speech to the Council of Foreign Relations. I heard a few soundbytes on Radio NZ National on my way home last night and was particularly interested in his comments on the concept of ‘too big to fail’.

Bernanke identifies that in a crisis, authorities have strong incentives to prevent the failure of large, interconnected firms, due to the negative externalities that arise from their failure. Such firms might be considered ‘too big to fail’.

However, Bernanke also identifies the undesirable effects that stem from the belief of market participants that a particular firm is considered too big to fail: Read more

jamesz

Carbon cost of cities

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There’s an interesting post at the NYT’s economics blog about the environmental cost of living in a city:

In almost every metropolitan area, we found the central city residents emitted less carbon than the suburban counterparts.
…
cars represent … one-third of the gap in carbon emissions between New Yorkers and their suburbanites. The gap in electricity usage [is] about two tons. The gap in emissions from home heating is almost three tons [of a seven ton total].

The decreased carbon cost of transport and Heating and Cooling in cities is predictable, but there are still questions remaining here.
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