Comments on: The crowds knows better than you?

By: dave chamberlin

dave chamberlin — Sun, 25 Nov 2012 06:50:59 +0000

7) I am sorry I cannot cite a source but it is common knowledge amoung sports bettors that the line moves from an opening line to a final line that averages out to be a more accurate prediction. The final lines are sometimes influenced by either injury reports or weather and are therefore more accurate for these reasons. But for the large majority of the games there is no obvious reason for the final line to consistantly average better accuracy than the opening line which is set by very well paid Nate Silver type people. But it does confirming what the title of this post contends, crowds where one vote equals one dollar wagered are very shrewd indeed. The sharpest bettors have the consistant ability to place their bets early before the bets move in the direction of their bet giving them added advantage.

By: Steve Sailer

Steve Sailer — Sun, 25 Nov 2012 04:26:22 +0000

Prediction markets that reflect insider trading have an advantage over individuals lacking inside information. For example, the non-pecuniary Hollywood Stock Exchange encourages insider trading on movie box office numbers (e.g., by insiders who have seen studios’ marketing research).

By: jimbo

jimbo — Sat, 24 Nov 2012 03:35:40 +0000

Scientific American in a recent issue discusses quantum physics and irrationality, as related to humans in an election. Seems to me if irrationality due to quantum physics applies to humans in election scenarios then it will apply across most human endeavours.

By: Arthur

Arthur — Thu, 22 Nov 2012 13:05:38 +0000

Note that economists only think crowds can predict well when the crowds have skin in the game.

I think most economists believe even in other fields a prediction market would predict very well. Only people who knew the subject would bet. Mostly the scientist working on the field. But even the other betters would probably be following pretty closely the work on the field.

Although I have doubts about bias in all kinds prediction markets, the logic of prediction markets working on science seems consistent with the logic of prediction markets working on economic things and elections.

By: ryan

ryan — Thu, 22 Nov 2012 07:33:38 +0000

#1, the assertion that the final Vegas line is more accurate than the initial line is fraught. You didn’t point to any source, so I’m wondering if you know this or merely assert it. It certainly ought to be possible to make more accurate predictions closer to a game since you start to see which injured players will return and which will not, so I’m not even clear on the usefulness of knowing that the final line is more accurate. I also have no sense of what the money looks like. All I know is that Vegas moves the line to equalize the payout with either outcome. Is this really crowd-sourcing, or are there big players that come in late and large when the crowd has bet poorly?

By: Matt

Matt — Thu, 22 Nov 2012 04:25:37 +0000

Gwern, thanks for that post. With all this discussion on the performance of statisical models vs predictions, some actual numbers were highly welcome. I actually was just about to link your post in the comments when I saw you had.

As for InTrade/prediction markets versus Nate Silver, I think InTrade really isn’t a great example in many cases. The main presidential elections were heavily betted on, but on most other propositions, there just wasn’t nearly as much data.

By: Brian Schmidt

Brian Schmidt — Wed, 21 Nov 2012 18:53:56 +0000

On the crowds v. experts debate, my understanding is the crowd proponents concede that crowds are useless if they have no relevant knowledge or expertise, but that even a little expertise or information makes an individual into a useful participant. They also argue that crowds of experts are better than the median expert and often even better than the best expert.

Silver’s averaging of polls seems like a partly crowd-based analysis, although he then adds his own framework. I don’t see why crowd analysis can only be done through prediction markets.

By: marcel

marcel — Wed, 21 Nov 2012 17:09:24 +0000

In some circumstances the utilization of statistics is a matter of style, to firm up a flimsy supposition with the rigorous garb of quantity.

Too often in economics (perhaps social science more broadly), the role of statistics resembles that of cavalry in modern warfare: to give tone to what otherwise would be a vulgar brawl.

http://www.gutenberg.org/files/38146/38146-h/38146-h.htm

By: gwern

gwern — Wed, 21 Nov 2012 15:19:21 +0000

Silver beat Intrade this year too, by the way: http://www.gwern.net/2012%20election%20predictions / http://appliedrationality.org/2012/11/09/was-nate-silver-the-most-accurate-2012-election-pundit/

On the other hand, I didn’t bother to do the Wolfers correction…

By: Mike Dickinson

Mike Dickinson — Wed, 21 Nov 2012 14:24:36 +0000

The crowd can be very good at predicting what the crowd will do. This is the basis of successful prediction markets.

The crowd is MUCH less useful in determining things that the crowd as whole has no impact on, such as physical reality in the form of weather patterns, evaluating scientific theories, and many other such things.

It can be a tool like any other, but the key is always knowing when it is the right tool for the job.

By: dave chamberlin

dave chamberlin — Wed, 21 Nov 2012 13:53:59 +0000

Vegas bookmakers have long known this to be true. They put out an early line on an upcoming game which is what the in house experts think it should be. But then as the bets come in the line moves in whatever direction the betting pushes it. The closing line is significantly more accurate than the opening line. It works because the really sharp betters, the consistant winners lay down huge bets while the lousy betters are always broke and make small wagers.