Fun with Information Markets

Just over a year ago the Department of Defense cancelled their program on using markets to predict future world events, an overreaction that stopped funding a potentially powerful prediction tool. Robin Hanson has a comprehensive web page giving a history and plenty of links.

Information markets live in limited academic-based markets like the Iowa Electronic Market and offshore sites like Tradesports. For example the current price on Tradesports for Bush winning the election is 51.5 which translates to a 0.515 probability that Bush will win indicating a very close contest.

For each state, Tradesports has a security on whether Bush will win that state. They also have some bundles of states. The price for Florida is 50.1, Ohio 55.4 and Bush winning both Florida and Ohio is 47.1. This gives a surprising correlation between Florida and Ohio. If you believe the theory there is a very high 0.94 probability that Bush wins Ohio given that he wins Florida and with a 0.89 probability these two very different swing states will go the same way.

Tradesports gives David Vitter a 59 percent chance of becoming a senator from Louisiana. David Vitter is the brother of CS theorist and former SIGACT chair Jeff Vitter.