Betting Markets, Polls, and the Human Drama: We're Wasting Resources and Throwing Away Information
Anarchy in the UK? Not so much. Scottish voters have decided to stay in the UK, and Justin Wolfers calls this “a loss for pollsters and a win for betting markets.” I agree: betting markets produce a much higher signal-to-noise ratio than polls.
In spite of this, they are routinely ignored. I suspect this is because they don’t produce the same human drama we get from a poll, they are morally suspect because they take very emotional questions of meaning (e.g., “who are we as Americans/Scots/whoever?” and turn them into relatively dry statistical calculations, and betting is already morally suspect among a lot of people. We’re poorer for it: we’re substituting noise for signal by talking about polls when we should be talking about betting markets.
So how do we change it? In response to my post on pricing driving, Robin Hanson suggested that economists who care about influencing public policy would
1. Identify a few strong candidate policies that are a) widely endorsed by economists, b) based on relatively simple clean analysis, c) not much adopted in the wider world, and d) should bring big gains.
2. Try to engage other intellectuals in detail on one or a few of these, seeking to either gain their endorsement, or to understand better the barriers that block them. If possible, do this as a group, and using all our status levers to make them respond in detail. If we succeed in persuading intellectuals, then join with them to try to persuade policy-makers, again either succeeding or better understanding barriers.
3. Once we better understand barriers, focus our economic research on doing what it takes to overcome them.
I think betting markets likely fit #1. So what’s the next step?
READER COMMENTS
Scott Sumner
Sep 19 2014 at 12:42pm
Right now I’m in discussion with some people about a NGDP futures market. I hope to be able to announce something soon.
JB
Sep 19 2014 at 2:36pm
I’m a professional gambler that has successfully competed in prediction markets for years. I am keenly interested when economists talk about prediction markets because in my experience they are about the only people that share my respect for them.
There are two points I’d like to make. Prediction markets don’t magically attract liquidity, and prediction markets don’t always have enough liquidity to attract non-obvious insights. When I see economists act to build prediction markets, I am consistently left with the feeling that they did not understand those two points.
ThomasH
Sep 19 2014 at 3:01pm
The performance of polls and betting markets would make many good journal articles.
mucgoo
Sep 19 2014 at 7:07pm
For 2012 presidential Romney had ~30% odds on the US accessible and now defunct intrade. The odds were much lower on European exchanges and there was good 15% return arbitrage opportunity although with horrendous capital controls in place in the form of gambling laws.
Even without laws stopping arbitrage they should of been within a few percent of each other if “efficient”.
Rick Hull
Sep 21 2014 at 2:58am
We should hear from Robin Hanson about driving adoption for prediction markets. I don’t recall all the details, but it seemed like we were on the cusp of something big when the rug was pulled.
Found the link for FutureMAP http://en.m.wikipedia.org/wiki/Policy_Analysis_Market
It must have been extremely frustrating, to say the least.
Comments are closed.