Prediction Markets: Research and Limits

Fact: A story in Science Daily this week, “Election Forecasters Preparing For Historic Election,” relates the publication this month of the “assembled insights of prominent election forecasters in a special issue of the International Journal of Forecasting.” 

Analysis:  The journal articles are available here for download.  One of them, “Prediction Market Accuracy in the Long Run” (by Joyce E. Berg, Forrest D. Nelson, and Thomas A. Reitz from the University of Iowa’s Tippie College of Business), compares the presidential election forecasts produced from the granddaddy of them all, the Iowa Electronic Market (IEM), to “forecasts from an exhaustive body of opinion polls.”  Science Daily says they find that the IEM is “usually more accurate than the polls.”

If we extrapolate out, these election markets are special cases of prediction markets, and I’m always interested in those.

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“The Largest Social Network Ever Analyzed”

FACT: According to ComScore data cited in a story in Monday’s FInancial Times, “Facebook, the fast-growing social network, has taken a significant lead over MySpace in visitor numbers for the first time… Facebook attracted more than 123 million unique visitors in May, an increase of 162 per cent over the same period last year… That compared with 114.6 million unique visitors at MySpace, Facebook’s leading rival, whose traffic grew just 5 per cent during the same period… The findings mark the first time that Facebook, launched in 2004, has taken a significant lead in unique visitors, [and] come at a time of change inside Facebook, as the one-time upstart attempts to transform itself into a leading media company.

ANALYSIS:  This week several members of the Microsoft Institute met in Redmond with a visiting friend from government, and among other talks we had a very interesting discussion with Eric Horvitz, a Microsoft Research principal researcher and manager.  Eric’s well known for his work in artificial intelligence and currently serves as president of the Association for the Advancement of Artificial Intelligence (AAAI).

We talked about one of Eric’s recent projects for quite a while: “Planetary-Scale Views on a Large Instant-Messaging Network,” a project which has been described by his co-author as “the largest social network ever analyzed.” 

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Pentagon’s New Program for Innovation, in Context

FACT: According to an article in today’s Washington Post, the Pentagon has announced “the selection of six university professors who will form the first class of the National Security Science and Engineering Faculty Fellows Program. The professors will receive grants of up to $600,000 per year for up to five years to engage in basic research — essentially a bet by the Pentagon that they will make a discovery that proves vital to maintaining the superiority of the U.S. military.”

ANALYSIS: This new program is an innovation from DoD’s Director of Defense Research and Engineering (DDR&E), and since tomorrow I’ll be at Ft. McNair for a two-day conference sponsored by DDR&E on Strategic Communications, I’ll congratulate John Young and his staff for the good idea.

But the Post article falls short in two ways: one immediate (it leaves out key information about next year’s program and the upcoming deadline!) and one longer-term (it ignores the overall context of federal support for R&D).  I’ll fill in the blanks below.

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Is It Even Possible to Connect the Dots?

FACT: Among the inspired ideas of polymath Danny Hillis (pioneer of parallel computing) was establishing the Long Now Foundation, whose projects include the millennial Long-Now Clock (“the world’s slowest computer”) and the notion of “Long Bets.”  A Long Bet is an “accountable prediction,” meaning one that has a specified end-date and a testable, wagerable, proposition.  One of the early Long Bets posted wagers $2,000 that “By 2020, no one will have won a Nobel Prize for work on superstring theory, membrane theory, or some other unified theory describing all the forces of nature.”  That particular bet is one of many signs of scientific skepticism about string theory.

ANALYSIS: Even without the ease of hyperlinks, old-fashioned newspapers foster serendipitous connections between articles, particularly if you’re reading a Sunday morning paper with lots of sections. Sunday the Washington Post did me a service by placing in different sections a couple of articles which I connected, about intelligence “failures” and about stock-market prediction, leading me to some web-surfing about the questionable validity of string theory and some related observations about the difficulty of predicting human behavior.

In the Outlook section, the Post has an opinionated and thought-provoking op-ed piece by Mark Lowenthal, one of the most “intelligent” individuals in the recent history of the U.S. intelligence community (after all, he was the 1988 Jeopardy grand champion, as well as a former assistant director of CIA).

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