Tuesday, April 12, 2005

The Smart Money

John Tierney is apparently the new Op-Ed columnist for the NY Times. In his first column he talks about a futures market in current events.
Do not be fooled by the talking heads in Rome. The journalists handicapping the papal election may sound as confident as ever, authoritatively quoting anonymous cardinals and exclusive sources deep in Opus Dei. But our profession is in trouble. A specter is haunting the punditocracy - the specter of Intrade.

That's an online futures market, based in Dublin and used by more than 50,000 speculators worldwide who put their money where our mouths are. They're expected to spend at least $1 million on futures contracts tied to the election of the pope. And if recent history is any guide, their collective wisdom could be a lot more valuable than ours.
The Business School at the University of Iowa has for a long time run a small stakes but real money electronic market related to politics. (In fact, I once opened an account there. I think they still have some of my money!) Russ Ray of George Mason University lists the Iowa Electronic Market along with a number of what he calls prediction markets in this article. Since these tend to be in the United States, and since this sort of betting is generally illegal, no money is involved. (The University of Iowa received special permission to run their market for real money.) Intrade, however, seems to be the real thing — and I'm sure that with the publicity they will now receive, participation will mushroom.

Intrade seems to have contracts on all sorts of things, from the winner on American Idol to the next Pope to the value of the Euro vs. the Dollar by the end of the year. (The betting seems to be a bit above $1.30.)

I think futures markets like this are fascinating, especially when people use real money. They are a good way to make concrete the lessons that James Surowiecki talks about in The Wisdom of Crowds.

I'm also looking forward to more from John Tierney.

No comments: