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Prediction Markets Again Utterly Fail To Predict Econ Nobel

Prediction Markets Again Utterly Fail To Predict Econ Nobel

I made a lot of predictions about the Econ Nobel (noticed Williamson and said environmental, which Ostrom is, at least partly). However, one I made was that once again the prediction markets for the Econ Nobel would fail, and they have, spectacularly.

Ladbroke’s had Fama as top at 2 to 1, followed by Paul Romer at 4 to 1, and Fehr, French, and Barro at 6 to 1. Williamson and Ostrom were both far down the list at 50 to 1.

The Harvard betting pool had as their tops in order: Jean Tirole, John Taylor, Paul Milgrom, and Martin Weitzman (who I said was likely, and was also in the top ten at Ladbroke’s, as was Tirole).

Thomson Reuters had their tops as Ernst Fehr, Matthew Rabin (also in top ten of Ladbroke’s) and William Nordhaus, also sort of on my list.

others mentioned in a Real Time Economics post included Christopher Sims, Richard Thaler, Oliver Hart, Halbert White, Thomas Sargent, Lars Hansen, and Peter Diamond. Neither of the actual winners anywhere in sight.

October 13, 2009 - Posted by | Indicator setup

7 Comments »

  1. The Nobelists are difficult to guess this year, with the Peace Nobel went to US President Barack Obama while the Physics Nobel went to Charles Kao. All I can say is the authority usually give surprise and it is not a good idea to bet on this.

    Comment by Angelo | October 14, 2009 | Reply

  2. I wonder if prediction market can be indicator to trade.

    For example, if there is a big divergence between prediction market and financial market, would that mean something? Or some trading rule to establish? It would be good to explore.

    Comment by vicktorquant | October 14, 2009 | Reply

    • Prediction market sometimes reflect how the market makers think. Their experience worths our reference, but of course they can be wrong.

      If there is a big divergence between prediction market and financial market, I think it is a great chance to make money.

      Prediction can be wrong, if it is divergent from reality, it has to shift back to the reality when people find their prediction are wrong. So there is a lasting trend for this correction. If you can pounce on this trend, it is a good chance to make big money.

      For trading rules to apply, I think fundamental analysis + technical analysis.

      Comment by Angelo | October 14, 2009 | Reply

    • If big divergence exists, I think the technical analysis would be much more important than fundamental analysis in short term.

      Just like the eurodollar story mentioned in Nassim Nicholas Taleb’s The Black Swan, the big divergence between prediction market and reality can lead to unimaginable outsized returns.

      Comment by Bowen | October 15, 2009 | Reply

  3. Like the eurodollar story mentioned in Nassim Nicholas Taleb’s The Black Swan, big divergence between prediction market and financial market can lead to unimaginable outsized returns.

    Technical analysis may provide some tiny clues for catching the market sudden changes.

    Comment by Bowen | October 15, 2009 | Reply

    • Fundamental analysis tells why is it so, while technical analysis tells when to do what. All these can be incorporated to make trading rules.

      For examples, if the 20 days simple moving average line of SP 500 crossover with that of 50 days, and the PE/PB/Divident Yield of SP 500 is near to historical lows, then it maybe a buy signal, and vice versa.

      The above criteria is for example purpose only. If we can discover more indicators like like, either technical or fundamental, then we can program more trading rules.

      Comment by Angelo | October 15, 2009 | Reply

  4. Yes, I think Bowen’s comment about The Black Swan theory would be provide a good description when a large divergence between prediction and real finance market.

    Black Swan events describe the extreme outliers. There are some occasions that is hard to predict and rare to happen; however, if these occur, a huge impact will occur.

    For example, before the outbreak of financial crisis, everyone think banks/bulge bracket investment bank are very robust corporates. However, with the high leverage ratio, if a bank with 20X leverage ratio lost 5% of its assets, the bank’s stock price will be zero! Normally banks have strict credit policy and a lost of 5% in assets is rare, but this extreme rare case occurs in the credit crisis!

    Comment by Angelo | October 15, 2009 | Reply


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