Non-profit prediction markets

by on April 19, 2008 at 3:29 pm in Economics | Permalink

At Bet2give, an online electronic prediction market, anyone can “bet”
real money on the outcome of these events but with a twist – the
“winnings” go to a charity of the person’s choice.

Here is the full article, and here is  One of the "problems" with prediction markets is that they are zero-sum investments and traders cannot on average hope to come out ahead.  So why trade?  If only people really "in the know" trade liquidity will be low.  If too many "betting for fun" fools trade, the prices don’t mean that much.  You might get the right mix of informed and uninformed but who knows?  So the idea of doing these in charitable form might make some sense.

1 ryan April 20, 2008 at 12:19 am

“So why trade?”

For hedging purposes.

2 Robin Hanson April 20, 2008 at 6:06 am

Prediction Markets can be directly subsidized with a market maker, allowing all traders who provide info to improve the price to expect to profit. Also, the more fools the more informed traders should be attracted to profit from them, so the mix is endogenous.

3 David Shor April 20, 2008 at 7:16 am

From what I have read, market manipulation is both extremely expensive, and ineffective over even the short term. Once the market figures out that there is an irrational buyer, the market profits heavily. Apparently, attempts at market manipulation can even boost overall accuracy.

4 farg April 20, 2008 at 10:11 am

So why trade? If only people really “in the know” trade liquidity will be low.

By this logic, no one would pick stocks to buy and sell for profit. Sometimes people think they have knowledge when they don’t.

5 mpkomara April 20, 2008 at 3:25 pm

The Fed will never look to Intrade to gain an insight on whether or not America is heading towards recession. Very far-fetched. The Fed shits on Intrade.

6 Matt Gunn April 21, 2008 at 5:02 am

Other than entertainment, the value of a prediction market is that it makes predictions. If people actually made decisions based upon the predictions, I just wonder if the predictions would become less accurate because additional incentives are being introduced beyond trying to maximize profit within the prediction market. (eg. a strategy might be lose $X trying to manipulate an illiquid prediction market but make $X + $Y taking advantage of decisions made using the erroneous prediction.)

Far fetched to be sure, but I don’t think its implausible.

The moment you attach consequences to some measurement, it creates incentives to game the measurement.

7 Kevin Markham April 22, 2008 at 12:00 am

I’m convinced that prediction markets are only going to get better and better. See here for my rationale:

8 Andrew April 22, 2008 at 6:14 am

Maybe taxes on prediction market gains should be reduced and losses should get tax credits.

Another value of the prediction market is the aggregating of the information. This work is done by the predictors and the market. There are people who benefit from the transparency of this information, which justifies tax incentives.

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