Oddhead Blog

If ever there was an excuse for me to use the cliché pregnant with possibilities, this is it.

May 1, 2008 could signal a turning point for the prediction markets industry.*

Yesterday, the US Commodity Futures Trading Commission (CFTC) issued a request for public comments as they mull over the legal and regulatory status of prediction markets.

I read the Concept Release in detail, and I am happy to report that it is a careful, thoughtful, even scholarly document that reflects a solid understanding of the goals of prediction markets, and that appears to signal a real willingness on the part of the CFTC to consider reasonable options and arguments.

In short, this development leaves the optimist in me dreaming of a day in the not so distant future when US companies can try out some truly innovative products.

It’s not often that an industry in its infancy cries out for more government oversight. But the CFTC is certainly preferable to the gambling Gestapo.

Anyone who desires to see more prediction markets in the US, please let the CFTC know what you think!

Reuters recently ran a story on political prediction markets, quoting prices from intrade and IEM. (Apparently the story was buzzed up to the Yahoo! homepage and made the Drudge Report.)

The reporter phrased prices in terms of the candidates’ percent chance of winning:

Traders … gave Democratic front-runner Barack Obama an 86 percent chance of being the Democratic presidential nominee, versus a 12.8 percent for Clinton…

…traders were betting the Democratic nominee would ultimately become president. They gave the Democrat a 59.1 percent chance of winning, versus a 48.8 percent chance for the Republican.

The latter numbers imply an embarrassingly incoherent market, giving the Democrats and Republicans together a 107.9% chance of winning. This is almost certainly the result of a typo, since the Republican candidate on intrade has not been much above 40 since mid 2007.

Still, typos aside, we know that the last-trade prices of candidates on intrade and IEM often don’t sum to exactly 100. So how should journalists report prediction market prices?

Byrne Hobart suggests they should stick to something strictly factual like "For $4.00, an investor could purchase a contract which would yield $10.00" if the Republican wins.

I disagree. I believe that phrasing prices as probabilities is desirable. The general public understands “percent chance” without further explanation, and interpreting prices in this way directly aligns with the prediction market industry’s message.

When converting prices to probabilities, is a journalist obligated to normalize them so they sum to 100? Should journalists report last-trade prices or bid-ask spreads or something else?

My inclination is that bid-ask spreads are better. Something like "traders gave the Democrats between a 22 and 30 percent chance of winning the state of Arkansas". These will rarely be inconsistent (otherwise arbitrage is sitting on the table) and the phrasing is still relatively easy to understand.

Avoiding this (admittedly nitpicky) dilemma is another advantage of automated market makers like Hanson’s. The market maker’s prices always sum to exactly 100, and the bid, ask, and last-trade prices are one and the same. Auction-type mechanisms like intrade’s can also be designed better so that prices are automatically kept consistent.

The absurdity of gambling laws in the US leads to such silliness as:

• In 2007, Google, Microsoft, and Yahoo! paid millions in penalties for placing gambling ads, something they haven’t done since they were told to stop in 2004.
• Yahoo! can quote prices from intrade, but can’t link to intrade.
• Google can’t advertise for intrade/tradesports, but can place AdSense ads on intrade.com and tradesports.com. In other words, Google can’t sell eyeballs to gambling sites, but can sell eyeballs on gambling sites.

I am fascinated by thingnaming.

In some ways there is no more straightforward way to certify your influence on the world than to count the number of times people use a word or phrase you invented.

On this count, James Surowiecki is a champion.¹ His catch phrase the wisdom of crowds — a brilliant feat of thingnaming — has in four short years spread to over 2.1 million nooks and crannies around the web.²

In fact, BusinessWeek reporter Jennifer L. Schenker recently termed it the “proverbial wisdom of the crowd”. [Finding faces in the e-crowd, Businessweek, Dec 24, 2007, p.70]

At first I meant to poke fun at Schenker for attributing this adjective associated with adages of ancient origin to a four-year-old artifact.

However, digging further, I noticed that Schenker is right. Another use of the word proverbial is “having become an object of common mention or reference”, for example “your proverbial inability to get anywhere on time”.

Interestingly, a pun on Surowiecki’s phrase appears in the same issue of BusinessWeek. Stephen Baker’s long (yet remarkably content-free) piece on cloud computing is titled Google and the wisdom of clouds.

It’s amazing how crucial a good thingname can be to the success of a thing. Thanks James!

“No duh,” you might say.

Or, “no it’s not,” you might say.

Still, I find it a powerful thought. One year seems like almost nothing — it can pass in a flash. I’ve procrastinated many projects and reunions well past one year without blinking. Yet 1% of a life seems monstrous. Thinking of a year in this way seems to put it in perspective.

Coming soon: 3.65 days is 1% of a year…
53 minutes is…

Here’s an update on my fractured relationship with The Economist magazine.

To my pleasant surprise, Alan Press, Vice President of Marketing & Circulation at The Economist actually posted a comment on my blog agreeing to cease and desist their renewal scare tactics!

We agree, the language is bad. We are discontinuing the use of this letter going forward, and will replace it with a message that makes clear how much we value readers like you.

(I didn’t notice the concession at first, as his comment got stuck in my Akismet spam folder for several days.)

I thought this was a stand-up gesture. I temporarily felt all warm and fuzzy about the good old days when The Economist and I first met. In all seriousness, I do appreciate the public comment and the prompt/effective action.

So are we getting back together?

That’s none of your business!

In any case, I’m happy to see blogplaining/freedbacking actually have an effect.

Happy 5768 everyone!

Time for some predictions.

1. Apple bites into PC pie. Apple Computer (remember them?) will attain at least 30% PC market share by 5772.

   Probability: 40% ; Willing to stake: $Y20

   On the front lines, silver Powerbooks are infiltrating in droves. At techie conventions and computer science conferences, penetration has gone from almost zero to something approaching 1/3 by anecdotal evidence. Wandering about these venues, it’s not terribly uncommon to see a table of three or four who apparently all agree to think different. At Yahoo!, more and more of Jobs’s ministers are simply preaching to the converted. In our Yahoo! Research New York office, for example, laps are topped at least two to one with half-eaten half-glowing apples. Even tech celeb Marc Andreessen has returned to the fold.

   But can the Apple bug jump from geeks to grandmas? (Well, my daughters’ grandma is already infected.) I’m guessing so. After all, these same alphadopters led the way to mp3s, Google, Wikipedia, Slashdot, blogs, Firefox, Digg, and Homestar Runner, unlocking remarkable truths along the way like “web search can be monetized”, “Really Simple trumps Really Smart”, and “give up now, Friendster has already won”. (Oops.)

   Why is there an Apple renaissance on the desktop? A big reason is that the OS’s natural monopoly is not so natural anymore. Today, the browser is the most important piece of software on your computer, and a viable cross-platform browser (Firefox) exists that almost every web site designs to. A second reason: it turns out that Intel chips are faster and better than PowerPC chips after all, despite decades of vehement Apple fanboy arguments to the contrary. Third, Apple’s built-in iLife software suite really is astonishingly useful and well designed and speaks to the new killer apps of the desktop: pictures, music, video, web, and email. A final reason is, well, Apple is cool, and technology is at least as much about fashion as function, or at least more than geeks would like to admit.

   Disagreers can accept my yootleoffer or put your play money where your mouth is on related bets at PPX and Inkling.

   (Side note: My take on Apple’s fumbled iPhone price cut: I believe that Apple reacted in fear of the looming gPhone. However, if history is a guide, that fear may be an exaggerated fear of the unknown.)

2. Google eats its own dog food. Google buys an advertisement by the end of 5768.

   Probability: 60% ; Willing to stake: $Y20

   Google is the king of selling advertisements. So they must believe that advertising is effective, right? Then why doesn’t Google advertise for itself? (I’m not counting recruiting ads.) I’m guessing the reason is that they don’t have to. As a media darling, they get more than enough free press to catalyze their already monstrous word of mouth. I expect that as the glow wears off, as some of the not not evil jabs — deserved or not — start to stick, and as they settle into Big Company mode, you will start to see Google spots on TV and elsewhere.

2007/09/17 Update: Sean McNee noticed that Google is advertising Google Apps to enterprise customers on VentureBeat and the Seattle Times [example ad image]. As a result, let me update my prediction to “Google buys a TV ad for Google.com aimed at mass consumers”.

2007/09/19 Update: Maverick blogger, Maverick owner, Yahoo! benefactor, and uber alphadopter Mark Cuban is dancing with the Steves.

Have you ever broken up with someone and their reaction was so ugly that that it made you realize how glad you are to be out of the relationship?

Me either.

But that’s how I felt after dropping my subscription to The Economist magazine.

Here is the text of my final renewal notice:

Dear David Pennock,

Your timing could hardly be worse.

Just as the world is connecting,
opening up unprecedented opportunities …

…you go and break your connection to The Economist.

Is it the bottom line? Cost cutting? It’s true you’ll save a bit by cutting The Economist. But think what you’ll lose. Bottom lines don’t replace communication lines. Won’t you please use this opportunity to reinstate your subscription and restore your special world-connection?

Or, as I interpret it: “Please please please, you stupid cheapskate.” I guess there’s nothing like a pretentious magazine marketing department scorned.

Sorry, Economist, you have a lot going for you and I enjoyed our time together, but it’s time to move on.

That didn’t take long.

Betcha is (was) an honor-based peer-to-peer betting service based in Seattle. On July 9, the Washington State Gambling Commission swept into Betcha’s offices, Gestapo style, confiscating everything, right down to their Programming PHP manual. Founder Nick Jenkins is now staring straight in the face of our country’s unconscionable forfeiture laws: you know, the ones that give law enforcement the right to sell Nick’s stuff on eBay and keep the proceeds, without ever charging him with a crime.

The Seattle Post-Intelligencer reported on the raid. The vast majority of the commenters sided with Betcha, urging Washington State officials to find better uses for their time and tax money, lamenting Washington’s ever-growing “Nanny State” credentials, and decrying the seemingly corrupt and hypocritical gambling politics involved.

To Nick and other Betcha employees and investors: Thank you for taking this risk and putting your stake in the ground, even if the current outcome is not what you’d hoped for. I hope you have the wherewithal to see this through to your day in court so that, if nothing else, we can get some clarity in the law. Here’s to hoping you’ve simply lost a battle and not the war.

Readers: Go to Betcha’s site to sign up for email updates and find out how to help.

Betcha is bold. To say the least. The founder Nick Jenkins is either crazy, brilliant, or, like many founders, both. Betcha is a platform for peer to peer betting not unlike gottabet, betfair, or intrade. Except for two (intimately related) details: (1) all debts are on the honor system, and (2) it’s based in Seattle, WA, UIGEA. Betcha makes no bones about it ( no “wink wink” here): they expect users to bet on anything and everything including sports. But because coughing up is not strictly enforced, the site evades the letter of the gambling laws. To engender trust, Betcha verifies its users’ credit cards and tracks their reputation scores, but in the end all payments are voluntary. The site earns money via listing fees.

I can’t help but admire Jenkins and Co., and I hope their gambit succeeds: my heart is with them even if my head is a step behind. (For more legal discussion see Tom Bell and The Boston Globe.)

And as much as I like the concept, I do have to ding Betcha for one of the most convoluted, head-scratching explainers I’ve heard in a long time:

“As an open, honor-based betting platform, Betcha is like an auction site, Las Vegas, a marketplace of ideas, and The Golden Rule — all rolled into one. [1]

[1] “The Golden Rule” refers to the idea that you should do unto others as you’d have them do unto you. It is the fundamental principle behind most of the world’s major religions. And while we aren’t here to push religion on anyone, doing well by others is a principle we’d like to see more of.

Whaa? Four (weak) analogies plus a long-winded footnote? C’mon, Betcha, please KISS.