InTrade, the powerful prediction market, ran into serious legal troubles. Despite operating in Ireland, the Commodities Future Trading Commission (CFTC) asserted jurisdiction over InTrade, and alleged that they operated as a commodities broker. The company ultimately flirted on the brink of insolvency in the face of a federal prosecution.
But now, the WSJ reports that the Founders of InTrade have taken another stab at prediction markets–but this time, there is no money involved.
Founders of political wagering site Intrade are back with a new forum for electoral prognosticating, minus one big thing: the wagering.
Pivit, a web and mobile application, is launching prediction markets this week for the midterm U.S. elections. …
Intrade involved buying and selling investment contracts tied to events like elections. But the once-popular site closed its market in 2013 after regulatory pressure on online gambling and when it found what it called “financial irregularities.”
Pivit’s contracts are based in percentages, not dollars. Participating doesn’t require any money or pay out any rewards. Instead, the new market aims to attract people with rankings of the best predictors.
How will the market operate in the absence of financial incentives? (This is a problem we have faced with FantasySCOTUS, which until this year didn’t offer cash prizes. Now, we offer cash prizes, but there is no buy-in, so there is little skin in the game).
Researchers say that nonmonetary incentives can bring people into a market, but doing so could still prove more difficult.
“It’s an obstacle. A lot of markets have offered play money and people haven’t shown up,” said Robin Hanson, associate professor of economics at George Mason University, who has studied prediction markets.
David Rothschild, an economist at Microsoft Corp.’s Microsoft Research, who has studied Intrade, pointed to the success of social media such as Twitter Inc. and Facebook Inc., which offered no monetary incentive to participate and drew millions of users. “There are ways to work with incentives to make people treat it almost as real as money and to be honest in their opinions,” he said.
Here’s how it will work:
Pivit will set initial percentages for individual events—a measure of how likely they are—by using a mix of polls and other factors, determined by a complex algorithm. Like a stock market, the percentages will move rapidly— up to 10 times a second—based on people’s opinions and Pivit’s own algorithms, which will adjust prices to encourage trading, much like a market maker does in financial markets.
Pivit’s app works by creating markets in which people say whether they think an outcome is more or less likely than the current prediction level. People are rewarded when they predict an outcome, and the percentage likelihood moves in their direction.
The are partnering with CNN to display predictions:
The initial midterm markets will be available via CNN’s website, in a partnership with the news organization. The best predictors will be publicly ranked by CNN.
I’m excited to see how they do with the midterms.