Tuesday, January 29, 2008

Explaining Prediction Markets

One of my classmates was anxiously checking the primary results in Florida today.  I recommended for him to check out Tradesports.com and, sure enough, they predicted a McCain victory

My friend was asking me to explain a little more about prediction markets.  Here is a great explanation of prediction markets, covering things such as:

  • Fundamentals of Prediction Markets
  • Different types of Prediction Markets
  • Problem #1 – Understanding Probabilities
  • Problem #2 – Prediction timescale
  • Problem #3 – Assessing accuracy
  • Problem #4 - Compared to what?
  • Summary – How have the political prediction markets really performed?

Follow the link to read about how these brilliantly simple markets work and why they tend to outperform the polls in political predictions.

(HT Midas Oracle)

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