Pop!Tech's new prediction market

Pop!Tech have just joined the throng of prediction markets by launching their own. It’s in association with Inkling which provides prediction market tools that other companies, like Pop!Tech, can brand as their own.

Kevin Kelly recently compared the predictions on a single issue across several markets. He concluded that those which don’t use real money (such as Pop!Tech’s) are as accurate as those that use cash. I wondered then whether this would hold up across a wider range of predictions, and according to Wikipedia it does:

A common belief among economists and the financial community in general is that prediction markets based on play money cannot possibly generate credible predictions. However, the data collected so far disagrees. Analyzed data from the Hollywood Stock Exchange and the Foresight Exchange concluded that market prices predicted actual outcomes and/or outcome frequencies in the real world. Comparing an entire season’s worth of NFL predictions from NewsFutures’ play-money exchange to those of Tradesports, an equivalent real-money exchange based in Ireland, both exchanges performed equally well. In this case, using real money did not lead to better predictions.

Wikipedia cites two studies, Prediction Markets: Does Money Matter from 2004 and The Real Power of Artificial Markets from 2001 (both PDFs).

Another interesting fact is that the Iowa Electronic Market, which uses real money, has apparently “correctly predicted the outcome of every presidential election since 1988, and its predictions have been consistently more accurate than the polls.”

Interpreting the IEM’s graphs and their most recent press release I think the market is currently saying there’s around an 85 percent probability that Obama will win the popular vote and that he will receive around 54 percent of the two-party popular vote.

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