David M Rothschild on Posted on

In professional football the Green Bay Packers are undefeated half way through the 2011 season–and forecasters in the prediction markets give them a 27.8 percent likelihood of winning the Super Bowl. The new Twilight movie, The Twilight Saga: Breaking Dawn Part 1, opens next weekend–with the markets predicting a huge opening weekend box office receipt of about $152.9 million, with a running total of $318.5 million over the first four weekends the movie is out. There is about a 25-30 percent likelihood that the global energy and contracting firm Halliburton will see its stock price top $40 per share in a month’s time. (It’s currently trading at 37.21.) And in the global political arena, the markets give Ali Abdullah Saleh, the president of Yemen, a 25 percent likelihood of losing power before the end of the year.

All four of these above predictions are derived from different markets. The sports prediction from Betfair, the box office prediction from the Hollywood Stock Exchange, the stock prediction from the options market, and the political prediction from Intrade. All of these markets have different trading protocols, which can produce distinctive quirks in their prediction models. Among other things, different transaction costs shift incentives (and Hollywood Stock Exchange does not use real money) and different accounting procedures require different methods of calculating probabilities from pricing.

Click Here for the Full Text.