Wednesday, November 5, 2008

Prediction Markets correct skew of false equality

Last night's election of Barack Obama was indeed a defining moment for America. First-time voters wept alongside moderate supporters. The great crescendo of Change, mounting so long, finally struck home, sweeping the GOP from the White House and the Senate as well. But looking back, this victory was hardly a surprise. Intrade’s investors called it long ago. And we can use this crowd wisdom to vet more than upcoming elections.

The election’s eventual outcome was clear to many. The Economist boldly went to press this week with a cover bearing Barack Obama’s photo (alone), beneath the headline '"It’s time". The polls have long shown Obama with a widening lead (though nail-biters admittedly agonized over a potential 'Bradley effect' that would snatch the apparent vote away from the minority candidate.) Most telling of all, a great sage predicted in this very space that Obama at 63 was "just free money."

A month ago, the Intrade prediction markets may not have shown 100% for Obama, but they did reflect a clear skew, enough to bolster the many pronouncements now proven correct. Anyone forced to call the election a month ago using only Intrade markets would have done so correctly. How else can we use this tool?

We can begin by attacking the myth of the two-sided story in the major media.

There are certain issues for which the truth is not a matter of opinion, and if a counterpoint is to be presented, it is rightly cast as a fringe or minority view. History will reveal, for instance, that opponents of global warming – those who believe human activity could not possibly impact our climate on a large scale – are simply wrong, their pseudoscience overwhelmed by the steady accumulation of reliable, falsifiable data. Why, then, has climate change so long been presented as a ‘debate’? When scientists overwhelmingly support a single hypothesis, and the issue in question is a scientific one, we are likely best to defer to their collective expertise. (Put differently, if we are willing to weigh seriously the scientific whims of the masses, why bother training scientists at all?) Yet the media tiptoes around such results, deeply pressured to present a balancing view – regardless who they must tap to voice it.

By carefully affording equal space to opposing views in this way, journalists create false dichotomies. By seeking to avoid bias, we unwittingly introduce it.

It happens quite often. For a time, evolution could hardly be mentioned without a respectful nod to those who believe it hogwash and have made it their mission to replace it with religious teaching in schools. The implication? That there are two sides; that all are not convinced; that experts are split down the middle and it’s up to you to decide.

Such pandering empowers the audience, who find themselves suddenly elevated from mere consumers of news to the swing voters in major issues of the day. But this is of course misleading. Dig a little and you will find there is, really, no debate. It’s not up to you.

Evolution is fact. Climate change is real. And when the media stretches to present opposing views in the name of balance, the result is sometimes to present as uncertain and up for grabs something that in no way actually is.

That said, this quest for balance comes from a good place – presenting both sides often yields the most fair and nuanced approach. I don’t think major media reform is in order. Systemic change toward one-sided reporting would not be a good thing. (Fox News, anyone?)

But Intrade can help. A prediction market can restore the weight of mass opinion, the wisdom of crowds. It can remind us that in a false dichotomy, opposing views do not enjoy equal support.

In this sense, Intrade is not just a means to stake claims on the future, and it is more than a valuable predictor of election returns.

It offers a valuable lens through which to consume news. If you’re lucky enough to find a market that tracks a false dichotomy, Intrade can be a great clarifier.


Intrade said...

chris said :

    great piece. nothing more to comment on.

Intrade said...

mike said :

    Michael Seringhaus has written an excellent piece. Over the past couple weeks I have been thinking about the same thing. I could never have explained or written it as well as Seringhaus.

Intrade said...

Ask Dr. Stupid said :

    Well said Mr. Seringhaus!! You have perfectly delineated something that I have been wrestling with! Thanks! It has been bizarre and comical to watch the effect that you desrcibe play out on centre\centre-left CNN and right-wing Fox. They both seemed desperate to frame the election as much more of a question than it was (at least after the end of September). I think these two (and others) barrelled past 'fairness' and striaght into a justify-our-existence never-never-land of having their own pundits ask each other questions to eat up time and space. Intrade, and the Princeton election project all nailed it. The future of news is right here (you can't use that, by the way, it's copyrighted!:). If you want a real prediction ask the money.

Intrade said...

Me said :

    I too have no comment

Intrade said...

kain10 said :

    Well said Seringhaus! I had been watching CNN for the past 2 months and I was always annoyed at the fact that they kept trying to portray the election as a "tight race." They kept saying too how McCain could still as easily win over Obama, though they did admit that he had a "steep climb." I was wondering too why they don't cover how and other places had it right all along, but I guess you're competitors and they don't want people coming here instead of relying on their polls. Well I certainly did never pay attention to polls, just Intrade. Great job and congratulations Intrade!! (and thanks for helping me make money too!)

Intrade said...

doctorj said :

    So where are the contracts for year-over-year global warming?

Intrade said...

BJB said :

    The concept of anthropogenic global warming (AGW) is not subject to a falsifiable hypothesis. Therefore, to "prove" its existence one has to rely on statistical inference, with the null hypothesis being that there is no AGW. However, in my opinion, there has been a great deal of "curve-fitting" in the supposed proofs that AGW exists. And don't put too much faith in scientists. I work in finance and I have talked to many PhDs that have found a "proven" way to make money in the markets. In fact, they are guilty of curve-fitting. I believe that is what has happened in the AGW debate. Scientists have used the same data to both posit and "prove" the hypothesis. You cannot do that. In addition, the data itself is somewhat suspect.

The correct approach would be to predict outcomes that would occur over the next 25-50 years, which would then be measured against actual outcomes. That is the only way to prove AGW. However, that is too long a time frame for those who want to get going on solving the problem now. I'm sorry but science doesn't work that way. Scientists need to have the requisite amount of patience if they care about their craft.

The earth is 4.6 billion years old. Current temperatures rank in the lowest quarter of temperatures observed over the last 2.5 billion years. When looked at in that context, AGW is a bit hard to take seriously. However I think AGW is a reasonable hypothesis, but it has not been tested sufficiently to reject the null hypothesis that there is no AGW.

Intrade said...

researchgeek said :

    BJB's discussion of scientific methods is technically correct, but misses Seringhaus's point. The best scientific evidence is that global warming is real, and that human activity accounts for a measurable portion of it. Can we know for certain? No. But we often make public policy (for instance, deregulation of financial markets) without certainty about the outcomes. So long as we're reasonably sure about what we're doing, and so long as we insure against the possibility that we're wrong, then we need to go forth with our best educated guess.

The media's focus on the "debate" has caused the public to believe that there is more controversy within the scientific community than actually is there. And that has created a political atmosphere in which even adaptation policies (minimizing the impacts of global warming)are not considered. The debate about whether or not global warming is our fault has led us to ignore actions that we might be taking, regardless of "whose fault" it is.

I would like to see someone focus on the funding of the PR campaign that has misled the public. I suspect that the "global-warming-isn't-real" crowd, which has morphed into the "maybe-it's-real-but-it's-not-our-fault" crowd, is funded by the energy industry.

In the sixties, Phillip Morris funded the American Tobacco Institute, which published studies for years "showing" that smoking doesn't pose a health risk. I wonder if the coal industry isn't behind the "research" that casts doubt on the reality and human causes of global warming.

Intrade said...

BJB said :


I think you miss my point. I don't pay much, if any, attention to the research that supposedly disproves AGW exists. That doesn't count. What counts is whether those who seek to claim that AGW does exist have proved it. I don't think they have, though I readily admit to not having read every single "proof". The burden of proof is on those who want to say that AGW exists. The burden on proof is not on those who say it doesn't exist.

Now if people want to say that we have to do something because it is the right thing to do that is fine. However, that is more akin to religious belief than scientific reason.

Remember, scientists never believe that science is settled when statistical inference is required to come to a conclusion. Good scientists always want their work to be challenged. The law of gravity is settled science. AGW is not.

Intrade said...

BKM said :


The question is not "is the truth of AGW settled?", the question is "is there enough evidence to justify altering our behavior in costly ways to combat AGW if it is in fact the case?". I think the scientific community has answered this question affirmatively. The next question--the one we should be dealing with now--is "how much should we be sacrificing now for gain that will only be realized in the distant future?"

Intrade said...

funkyj said :

    your blog echos a speech given by Bill Moyers:

"I came to believe that objective journalism means describing the object being reported on, including the little fibs and fantasies as well as the Big Lie of the people in power. In no way does this permit journalists to make accusations and allegations. It means, instead, making sure that your reporting and your conclusions can be nailed to the post with confirming evidence.


Objectivity is not satisfied by two opposing people offering competing opinions, leaving the viewer to split the difference."

Intrade said...

Mr. Know It All said :

    Just plain stupid.

Intrade said...

Matt said :

    Great article! Hard to see how Intrade will help with the false dichotomies, though. Could there be a market on whether evolution is true or not?

Intrade said...

macaffluent said :

    Systemic change toward one-sided reporting would not be a good thing. (MSNBC, anyone?)

Intrade said...

Charlie said :

    Michael Seringhaus is dead wrong in saying that the "scientific community" has settled the issue that human activity has appreciably or materially contributed to global warming. There are many scientists, climatologists, etc. who believe that the earth has gone through warming and cooling cycles for eons, and that it is pure folly to believe that the earth should remain at some pre-determined temperature level. Scientists have overwhelmingly supported single hypotheses before which have proven to be completely incorrect - in the late 1960s, scientists overwhelmingly supported the hypothesis that we were headed for an overpopultation Armagedon. Same for the hypotheses that the earth was about to run out of oil (late 70s./Early 80s), the earth is running out of fresh water, etc. Mr. Seringhaus's thesis that "if we are willing to weigh seriously the scientific whims of the masses, why bother training scientists at all?)" is directly contrary to his earlier point that Intrade's prediction of the presidential election outcome was much more accurate than professional, highly trained pollsters and other experts who base their livelihoods on predicting electoral outcomes. I've also noticed that average temperatures have declined worldwide over the past two years, contrary to predictions. Now global warming advocates are using the new moniker Climate Change.

Intrade said...

Phoetus said :

    This guy writes with all the self-assurance and impeccable logic of a man who wears a snap-brim hat. I'll bet he loves to regale his buddies with his endlessly fascinating tales of the adventures he's had thinking critically and coming to the conclusions he always knew were right. If only he had a more important role in our society, he could make all our lives better by making them just like his. M'kay?

Intrade said...

barry said :

    climate change is caused by global warming. as more energy [heat] is in the atmosphere, the climate get more extreme. it is real. deniers like to use semantics to befuddle. sadly action now or later after a katrina per year.