Markets in Female Talk and Markets in Markets
posted by Nate Oman
I love Intrade. For example, I have stopped paying that much attention to political polls. When something happens, I click over to Intrade to see what the markets have to say about Romeny’s prospects of getting the nod (currently trading at about 23) or Obama’s continuing plunge from grace (his share price has gone from a July high of about 38 to about 13 today). I was recently explaining these markets to my mother-in-law who asked, “So it is just gambling, right?” Well, sort of, I replied. However, there are also reasons that investors would want to buy shares in, say, a Clinton victory as a way of hedging against political risk. I explained that politics might be like the weather — a random event that can create real costs for a business — and buying rights to payment in the event of bad weather allows you to get rid of some risk. I felt that I had made the whole thing sound very hip, serious, and respectable at the same time.
Then today I noticed that Intrade has been selling a contract on whether or not the next publicized study of adult talkativeness will find that women are at least 10% more talkative than men. As you can see, there was a bit of initial price fluctuation, with the market pushing the price of female chatter up to about 85, but things have since settled down to the current price of about 75.
I have to confess that I am a bit stumped on how one would use this as a hedging device. What exactly is the risk that one is trying to avoid here? It turns out that the market was suggested by Robin Hanson, of Oxford’s Future of Humanity Institute and George Mason University. This fact doesn’t help me see any real financial use for this contract, but it does show the power of the market to satisfy even the demand of academics for markets in odd things.
October 10, 2007 at 10:04 am
Posted in: Contract Law & Beyond
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Responses (5)
Shannon - October 10, 2007 at 12:46 pm
you never took that conclusion all the way… naked in all its futility, the “market” for adult talkativeness is indeed gambling. (and potentially problematic, rife with opportunities for insider trading – in market terms…)
Robin Hanson - October 11, 2007 at 9:52 am
There are other purposes such markets can serve beyond hedging. They can aggregate info.
A.J. Sutter - October 11, 2007 at 11:33 pm
But (i) of what quality is the info, (ii) of what use is it? and (iii) how do you extract the info from the price, anyway?
As for (i), I suppose that as long as you interpret the info as reflecting people’s beliefs it can have some value. But not if you interpret it as reflecting the actual likelihood of an event happening, if it’s outside the voter’s control. E.g. a market for predicting whether an earth orbit-crossing asteroid will be discovered within the next 12 or 24 months might be useful if you want to test the level of public anxiety, but not whether the event will really happen.
Here, the aggregated info is people’s beliefs about an event in the media’s control — what’s the next talkativeness study that media will publicize. I suppose that in theory some editors might consult this market (some might even vote in it). But if they consult it without voting, and then decide to act in a contrary way (to thwart popular expectation), how accurate was the info to begin with? What justification is there for assuming that this is a perfect market that will reflect all such self-relfective events?
(ii) Even assuming market perfection, of what use is this info? The asteroid info might be more useful for a marketer of asteroid-protection suits and survival gear. But a prediction about a media story?
(iii) Even we could find some use for it, how do we extract the info from the price? Looking at this price, I can’t figure out what people are thinking — what level of probability are they estimating? Is the price normailzed to $100 = 100% likelihood? (maybe some reader knows the answer). say the price went to $105 — what would that mean? And wouldn’t it be more informative to see bid and asked prices?
A.J. Sutter - October 11, 2007 at 11:34 pm
But (i) of what quality is the info, (ii) of what use is it? and (iii) how do you extract the info from the price, anyway?
As for (i), I suppose that as long as you interpret the info as reflecting people’s beliefs it can have some value. But not if you interpret it as reflecting the actual likelihood of an event happening, if it’s outside the voter’s control. E.g. a market for predicting whether an earth orbit-crossing asteroid will be discovered within the next 12 or 24 months might be useful if you want to test the level of public anxiety, but not whether the event will really happen.
Here, the aggregated info is people’s beliefs about an event in the media’s control — what’s the next talkativeness study that media will publicize. I suppose that in theory some editors might consult this market (some might even vote in it). But if they consult it without voting, and then decide to act in a contrary way (to thwart popular expectation), how accurate was the info to begin with? What justification is there for assuming that this is a perfect market that will reflect all such self-relfective events?
(ii) Even assuming market perfection, of what use is this info? The asteroid info might be more useful for a marketer of asteroid-protection suits and survival gear. But a prediction about a media story?
(iii) Even we could find some use for it, how do we extract the info from the price? Looking at this price, I can’t figure out what people are thinking — what level of probability are they estimating? Is the price normalized to $100 = 100% likelihood? (maybe some reader knows the answer). say the price went to $105 — what would that mean? And wouldn’t it be more informative to see bid and asked prices?
A.J. Sutter - October 11, 2007 at 11:36 pm
apologies for the double entry — notwithstanding my clicking on “cancel” after noticing a typo in the first version. Some way of deleting posts would be welcome!
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