I didn’t even know stuff like this existed…


This is a predictions market, as in people trade contracts on predictions of things that will happen. These predictions include things such as when Bin Laden will be captured or killed, when we will launch an air strike on Iran, when the Yahoo CEO will resign, who the next Supreme Court Justice to depart the bench will be, or how much Damien Hurst paintings will auction off for.

The way it works is you start up and fund an account, and then you purchase contracts stating the outcome of whatever predictions you want to take a shot at. The prices that you purchase them at or sell that at are represented in points ranging from 0 to 100, which also serve as probabilities of that outcome. The more a single contract is being purchased, the more valuable it becomes. The more one is being sold, the less valuable it becomes. Also, the day’s news has an effect on the value of a contract. When the outcome of an event is known, the contract for the correct outcome is closed at 100, and you make a profit of 100 points minus whatever you paid for it. Contracts for incorrect outcomes are closed at 0 and you lose whatever you paid for it. You can also opt to sell your contracts at any time to make a profit or loss.

For instance, I checked a couple of hours ago to see what the prices are on contracts for McCain’s VP pick. At that time Romney’s price was the highest at around 55 or so and Tim Pawlenty’s price was about 40. Two hours later (with the announcement of his VP pick looming), Pawlenty’s contract has skyrocketed to 81 points and Romney has plummeted to 5.3. You have to wonder if people in the know are using this site to bid on predictions that they already know the outcome for. This could be a very good indicator of who McCain has picked as his running mate, considering we know he has already picked him and just has yet to reveal him. Heck, maybe even McCain is placing bids! Wouldn’t that be something?

According to Fortune magazine, the capture of Saddam Hussein was predicted by Intrade:

The traders in this case invested in a contract saying that Saddam Hussein would be “captured or neutralized” by the end of December 2003. That contract had bobbed along at a price of 9 (more later on how pricing works) for weeks. But on Thursday, Dec. 11, volume suddenly spiked, and the value of the contract leaped to 30, on no (public) news. Then, on Saturday night, Dec. 13, Hussein was captured in his spider hole near Tikrit. The announcement was made the following day–and the contract settled at 100. A piece of inside info about the progress of U.S. forces (or a bit of inspired guesswork) made those investors a bundle.

( Source -> )

If that was inside information, it probably came from pretty high up the chain. I remember reading a story for which one of the soldiers that found him was being interviewed, and I seem to recall that he said finding him was a complete surprise.

This is really all very interesting. Whenever I start making some more money, I might have to invest in the predictions market myself and see how it goes.

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