The visible hand in economics

Putting your money where your mouth is

Posted on: September 9, 2008

ISCR have just launched New Zealand’s first prediction market.

From iPredict:

Who’s going to be the next Prime Minister – Helen or John? Will the price of petrol be $3 a litre by Christmas? Will Winston be sacked before election day?

These are some of the questions Kiwis may find themselves backing their opinions on with iPredict – http://www.iPredict.co.nz – New Zealand’s first real money online prediction market, which launches tomorrow (9 September).

The online marketplace enables users to trade on their predictions on a broad range of future political and business events that pay real money if their prediction comes true.

Established as a research tool by Victoria University of Wellington and think tank ISCR, iPredict harnesses the wisdom of crowds via the Internet to predict future outcomes and has a strong focus on helping companies, government agencies and academics with research. …

Mr Burgess says that iPredict is like a simple stock exchange, trading real money.

“How it works is that contracts pay $1 if an event comes true – nothing otherwise – and the price these contracts trade for is the prediction. For example, you could have a contract that pays $1 if Helen Clark is the next Prime Minister, and pays nothing otherwise. If that contract trades for 60 cents, then the market’s prediction is a 60% probability that Helen Clark will stay on as Prime Minister.”

Mr Burgess says that prediction markets are the gold standard for forecasting.

“Traders on prediction markets combine information from polls, expert commentary and any other source to produce a prediction that is more accurate than any available alternative,” Mr Burgess says.

“Prediction markets work because they ask traders to put their money where their mouths are, so it pays to be honest, objective, and even do a little homework.” …

Anybody can browse iPredict and see the predictions for free by going to http://www.iPredict.co.nz but traders have to be 18 years and older to set up an account. Accounts are free to set up and people can start trading with as little as $5.

Get some money on your account and get predicting.

Goonix

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8 Responses to "Putting your money where your mouth is"

I’m 80c up already, this is lucrative folks.

Markets operate well where there is public disclosure and a strong market theories apply. There’s way too much information a-symmetry surrounding NZ politics for anyone except a gambler to put their money in the political markets here.

Well I am a gambler…

However, I don’t believe your statement is correct. It only takes one person ‘in the know’ that can use their information asymmetry to their financial advantage to alter the market price. The price is, of course, a function of information, regardless of where the information has come from.

I’m spending a LOT of time on this site. Currently up around 11% right now.

“There’s way too much information a-symmetry surrounding NZ politics for anyone except a gambler to put their money in the political markets here”

If there is information asymmetry then a market price is the way to get the information out – as the people with superior information will be willing to pay up to the appropriate market price (or short if the market price is too high).

That is really the whole point of iPredicit – its a way of creating information.

“I’m spending a LOT of time on this site. Currently up around 11% right now.”

I suppose you’ve been taking advantage of all the arbitrage lying around. It really seems to have cleaned up lately though (now that the market is thickening up a bit).

Markets create information??? I thought they just aggregated information?!

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