Scott Sumner’s nominal gdp market is in its early stages

by on October 3, 2014 at 3:01 am in Economics | Permalink

Scott writes:

I’m finally ready to announce the first step in creating an NGDP future market.

And here he is quoting Robert Quigley-McBride from iPredict:

iPredict is a real-money prediction market run by Victoria University of Wellington. With over 8000 traders, iPredict is operated by students of the University with the purpose of forecasting social, economic and political events. iPredict has designed contracts for trading to allow forecasting of nominal GDP (NGDP). Traders will be able to buy and sell contracts paying $1 if NGDP falls within a particular range in a particular quarter.

An example contract would pay $1 if the US GDP for Q1 2014 were greater than or equal to $17,250 Billion and less than $17,500 Billion, based upon the [initial estimate for quarterly nominal GDP from] BEA Table in Section 1 – Domestic Product and Income, Table 1.1.5, Line 1. We would establish similar contracts spanning the intervals $250 Billion above and below the example contract, with two open ended intervals beyond those for outcomes above or below the ranges.

The set of contracts, for each quarter, will generate probability estimates for the different levels of NGDP, as well as providing a gauge of the traders’ uncertainty, or margin of error, on this estimate.

To support the accuracy of the forecasting, we wish to provide the market with an injection of liquidity. This will help by ensuring there is sufficient incentive for traders with beneficial information to bring it to the market. To support contracts for forecasting NGDP for the next 3 years, we will need to raise $1500. This will be used to provide a market maker on the contracts, which will ensure there is always a reasonable bid-ask spread, and that any trader wanting to bring information to the market can do so even if there is not necessarily another trader to take the other side in the trade.

The full post is here, and you will note that Scott also is looking for private funding.

1 Turpentine October 3, 2014 at 4:16 am

I have to say, this is one of those instances in which I fear that the masses will not be too receptive to the obsession of an individual… But best of luck!

2 Ray Lopez October 3, 2014 at 4:48 am

I love this! I can gamble on GDP. I have a non-US passport so it’s legal for me. I also hope the Feds don’t hunt down poor professor Scott, and frog march him in front of cameras, for aiding and abetting gambling in the USA (as was done to some US citizens and/or US residents a while ago, when they visited the USA after starting a legal betting site in the UK that accepts US customers).

3 CMA October 3, 2014 at 8:04 am

I wonder if ngdp prediction markets will fare better than inflation predicting ones?

4 Anon October 3, 2014 at 8:18 am

I often don’t understand the technicalities on Prof.Sumner’s blog but I am always impressed by the civility in the comments and his responses to them.

5 yo October 3, 2014 at 9:04 am

If it’s so great why doesn’t he fund it himself? A classical market for lemons.

6 Joe Teicher October 3, 2014 at 12:34 pm

I am underwhelmed. When I read that he was going to make an announcement, I thought that was pretty cool. I like the idea of NGDP targeting and I like subsidized futures, but I thought that it would be a little better. If he is going to do US NGDP futures, they should be on a US exchange. I can’t imagine it would be that hard to convince Nadex to list them. What the hell else do those guys have to do?
If he could only find a New Zealand exchange to do it, why not do NZ NDGP and denominate it in NZD? That way, it might potentially have some relevance. As it is, I think it will be less important than the blog post about it.

7 Ryan October 3, 2014 at 2:40 pm

Right now ipredict is a super-thin market… I’d be surprised if there was more than NZD 100,000 in it. I presume you require a larger number of participants in order to elicit “the wisdom of crowds”?

8 chuck martel October 3, 2014 at 3:01 pm

If you’re going to gamble, what’s wrong with horse racing?

9 Yancey Ward October 3, 2014 at 6:00 pm

I look forward to a prediction market where all the bets are on the same side, and for someone to tell me why anyone thinks it matters.

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