KISS prediction markets (lingo) goodbye

The lingo of prediction markets varies widely.

The same “thing” might be called an information market, idea future, virtual stock market, financial market, securities market, event market, binary option, betting exchange, bookmaker, market in uncertainty, or gambling/wagering. Only recently has the name prediction market emerged with some sort of consensus.

To place a prediction in the market, you might do any of the following:

[bid/buy/bet on/back] the “yes” [security/contract/coupon/future/outcome] at [price/probability/fractional odds/decimal odds/moneyline] X

Predicting something won’t happen gets even uglier. You might:

[ask/short sell yes/buy no/buy bundle & sell yes/bet against/lay] at [price/probability/fractional odds/decimal odds/moneyline] X

For example, InklingMarkets uses the “short sell yes” variation:

InklingMarkets' explanation of short selling

So what is the clearest language for prediction markets?

A good guiding principle in this regard is KISS: Keep It Simple Stupid. Or, in more grandiose terms, Occam’s razor. All else being equal, one should choose the simplest and most straightforward option.

By this measure, it seems that betting lingo wins hands down. It’s vastly simpler to say “I bet $10 that Obama will lose” than to say “I short sell three shares of Obama at price 67”. The former is more direct and intuitive. Almost everyone understands what it means to place a bet, including subtleties like risk, uncertainty, and competition. On the other hand, even avid stock traders get tripped up by the concept of selling short.

Every prediction can be stated as: “I bet that outcome O will/won’t happen; I’ll risk $X to win $Y”. Betting for things and against things is symmetric. There is no need to short sell, buy bundles first, etc.

Yet most prediction markets don’t KISS, going with financial terminology instead, reflected even in the name itself. Why? I believe it’s because of the legal and social stigma attached to gambling. It’s a shame that such considerations force vendors to make the technology harder to understand and more complicated to use.

6 thoughts on “KISS prediction markets (lingo) goodbye”

  1. my main complaint about using the “short-selling” terminology in prediction markets, is that it uses a term from finance that describes a complicated scenario to describe a simple scenario it doesn’t apply to. In financial markets, short selling means that you accrue money in order to take on a conditional obligation. When you bet against a proposition (on InTrade, Foresight Exchange or (I think) Inkling) you spend money and gain a conditional asset. In the prediction market case, you don’t have any further obligation; there’s no possibility of a margin call. The asset has a non-negative value.

    I actually think the way NewsFutures describes binary outcomes is the simplest. They never talk about selling unless you already own the asset. If you don’t own any of the asset, you can either buy it, or click a button to see the opposite view, which you can also buy. They don’t have “yes” and “no”, they just have complementary wordings and titles for opposing outcomes.

  2. Nice post, I agree. Inkling looks far more confusing than the situation Hibbert describes with Newsfutures.

    Aside from the stigma, I think vendors also embraced the financial terminology because it appeared to be an existing working model. Far easier to copy something that appears to work than create something new, right?

  3. I completely agree with you David. Simplicity is paramount. “I bet £X to win £Y on O” is very simple. I would add event derivatives, for and against, bid and ask/offer to the mix. The odds systems are probability, decimal, fractional and money line.

    At Smarkets we’ve thought a lot about the terminology and we don’t have a clear answer. It’s complicated by the fact different cultures have their own preferences. Hopefully as the industry matures, we’ll come to a consensus.

    In response to Chris’s comment, I personally prefer using long/short terminology. I think just because a short on a prediction market is not technically the same as a financial short, that’s ok. “I’m short Tiger, I’m long overtime, I’m short the Dow closing above 8000”. It’s crisp and describes the side of the contract. Sometimes, also, it’s cumbersome to rephrase every contract in a positive manner a la NewsFutures. “I’m betting on Tiger to not win” vs “short Tiger”. However, I think when a user is not from a trading background, long/short make little sense so generally shouldn’t be used in a public prediction market. The fact that Inkling needs five bullet points and a graph to explain short selling is a good indication it’s too complicated.

  4. Chris: I couldn’t agree more. If you’re going to use stock market terminology, then every new prediction should be phrased in terms of buying. The only time you should sell something is if you already own it. Short selling is an poor analogy and makes things more complicated than necessary. I would just add that the “buy only” phrasing should extend to markets with more than two outcomes (the exact NewsFutures method only works for binary outcomes).

    Daniel: I think there’s some truth to this.

    Jason: Agreed: there is even more lingo associated with both finance and gambling making them both largely “insiders’ worlds”. I added some of your examples into the post: thanks!
    If it’s just a matter of using the word “short” instead of “bet against”, that’s one thing. However, if shorting means you receive cash first, and then have to pay it back and more if you’re wrong, then I believe it’s the wrong (i.e., more confusing) approach.

  5. Dave,

    I couldn’t agree more. Usability is the biggest obstacle to widespread prediction market adoption. We have been working hard here at Crowdcast on a system that it is easy, effective, and engaging. It will allow users to place bets as exactly what they are — the most basic, quantifiable predictions that a person can make. We are finding our users to be quite receptive to the betting analogy. The ability to use the words they would at the watercooler — “I’ll bet $100 that revenues are between $73m and $75m,” is intuitive, precise, and allows a robust prediction with less volume.

    I look forward to sharing more with you soon.

    Leslie Fine
    Chief Scientist

Comments are closed.