A Market for Everything
Straightforward neoclassical economics argues that we may have suboptimal equilibria because of incomplete markets: in other words, there may be some things on which you just can't contract.
A market failure? Of course not. It's a market opportunity, and the people at intrade.com recognize that.
intrade.com is linked at marginalrevolution.com.
Comments (3)
Seems to me like this is basically betting between the members, facilitated by Intrade for a fee (not that I'm against that). Rather like betting on who's going to win the NBA Finals (though that wouldn't be much of a bet, since everyone knows it is going to be LA again). If someone can explain how this isn't betting, I'd be interested.
Published: May 19, 2004 2:21 PM
Assuming that I have understood the terms of the contracts correctly, this seems to be an interesting way to harness a concensus on a number of speculative predictions. The obvious caveat is that this market will be a biased sample. In some cases, that won't matter. In others, there is significant insider knowledge available. For example, while the Democratic Party exerts pressure on it's presidential nominee concerning the selection of a running mate, in the end, the decision is made by the presidential candidate.
Does someone with more knowledge of the pricing models on futures have some insight into how the bid and ask will reflect on the odds of the event actually occurring? Obviously, there's money to be made when the actual probability differs from the current pricing, which will drive the price towards the probability of the event. However, assuming that the estimate of this market is correct, I would expect a somewhat wider spread. The spread has to price in several things: a small commission, the time value of the money involved, the risk involved, some expectation of profits.
Published: May 19, 2004 3:33 PM
Last year, DARPA created a market for trading futures on events similar to intrade.com, but focused on the likelihood of specific terrorist events such as bombings and assassinations. The thinking goes that a large market with people from diverse backgrounds and schools of thought "betting" on the likelihood of those events with the incentive of a profit would be a much better model of intelligence-gathering than a select few analysts working in CIA offices, or at least would be a good supplement to their reports. I was originally signed up as a trader until it was shut down after several members of Congress expressed outrage over the trading of "terrorist futures."
It's good to see a private corporation taking over this niche, and I'll be sure to join.
Published: May 21, 2004 1:02 PM