Speaker: Rick Whitener
A prediction market is where individuals trade contracts based on the outcomes of unknown future events such as election results or sports competitions. The earliest US market is the Iowa Eletronis Market which has been run by the Univeristy of Iowa as an education tool since 1988. This talk will outline areas where these markets have proved to be useful and areas where problems have been created.
Rick Whitener has a BA in Economics from Davidson College. He is a former banker and IT consultant.
Program: Prediction Markets: The Good and the Bad
Speaker: Rick Whitener, BA, banking and IT (retired), Scientech Club member
Introduced By: Marvin Miller
Attendance: NESC: 84; Zoom: 25
Guest(s): Jennifer Aldridge, Melinda Kite, Susan Kopecky, Mark Kratky, Sara Zeckel
Scribe: Benny Ko
Editor: Carl Warner
Talk’s Zoom recording found at: https://www.scientechclubvideos.org/zoom/06292026.mp4
Humans have always had a desire to know about the future; this is evidenced by the historical accounts of oracles, prophecies, and literature. Modern society also relies on experts, pollsters, futurists, and weather forecasters to do the same.
Prediction markets are a relatively new method of future prediction, somewhat analogous to the stock market. The earliest example of one is Iowa University's Iowa Electronic Markets. The contract price reflects the percentage chance of an event's occurrence. As more contracts are made, the aggregation reveals an event's realistic probability, and it changes continuously in real-time. It has been shown that prediction markets have outperformed traditional polls.
A prediction market offers risk management, e.g., city municipalities can hedge against adverse events and the related expenses, akin to purchasing insurance. On the other hand, the prediction market still faces regulatory ambiguity, both on a state and federal level. To detect and prevent insider trading, market manipulation, sports activity and game cheating, and dealing with gambling addiction among subscribers are additional challenges confronting the industry. Market odds may unduly influence public opinion and voting outcomes.
Contract design should be sensitive to the moral qualms of betting on tragedies or civic processes.
Surely, prediction markets encourage analytical engagement but may also normalize commodification of politics.
There are also abuses. Recent cases have implicated a uniformed service member betting on the military activity that he was directly involved in, politicians engaged in insider trading, and NBA personalities caught in game outcome betting.
Prediction market firms accept contracts from both ends of an event/issue. Their platforms take about 5% in fees on transactions. Users can create new contracts subject to rules: the subject event must be verifiable, unambiguous, and extremely confirmable.
Rick Whitener
