Prediction Markets

[nslay]

I thought these were amusing:
http://intrade.com/
http://intrade.net/

A prediction market is a forum of trade where contracts on the outcomes of future events are bought and sold. Each contract pays the contract face value if the outcome is realized (well it could pay in other ways too). The incentive to profit motivates market participants to predict correctly. The trading prices of these contracts can be interpreted as the market's confidence that an event will realize those corresponding outcomes. The trading price is a fusion of all information publicly and privately known by the participants as a whole. Some studies have shown that the trading price even estimates the true probability of the outcome.

There have also been studies that indicate that these markets are more accurate at prediction than individual experts and polling methods. Of course, as with anything with humans, I'm sure there are cases when it breaks down. These types of markets have reliably predicted outcomes of political elections, sporting events, etc... and have been used internally for decision making in some companies.  There's also a concept of a futarchy which is a form of government that makes decisions based on the trading prices of decision contracts. It's like a form of weighted voting.

Anyway, I'm no expert at these markets or economics. My research primarily focuses on applying this concept in Machine Learning and so all my markets are artificial in nature. It can be used to fuse the predictions of a collection of models into a more accurate prediction. I have even developed theory that backs the claim that the trading price estimates the true probability (at least in my artificial markets). Regardless, I thought these sites were really cool (and amusing) and thought I would share them with you all.