A Response to Jim on Tradesports:
Given that Jim hasn't opened comments for his post, I hope VC readers won't mind an up-top response to Jim's post and update below about the usefulness of Tradesports in predicting who Bush would nominate to replace Justice O'Connor.

  Jim describes my earlier post as "incorrect or misleading." But as best I can tell, the only apparent ground for his characterization is that I said Roberts was trading at 1% "about 2 hours" before my post, when the exact time Roberts was trading at 1% was 2 hours and 45 minutes before my post. But even assuming we construe "about" to exclude a 45-minute error window, what difference does that make? It doesn't seem relevant to the usefulness of Tradesports in this context.

  The question I asked in my initial post was whether we expect a site like Tradesports to provide something "particularly useful" on the issue of O'Connor's replacement, or to "just mirror the collective common wisdom of newspapers and blogs." I gather the answer is that Tradesports simply mirrored the common wisdom: its predictions simply reflected what newspapers and blogs were saying, with a built-in time delay of anywhere from a few minutes to an hour. So, for example, K.J. Lopez at The Corner put up a post predicting Roberts at 5:24pm, and about a half hour later, Roberts went from 1% to 10% on Tradesports. I suppose this means that you could try to use Tradesports as a way of monitoring what a few newspapers and blogs are saying, but on the whole this seems like a quite modest function. It seems easier to just scan the headlines at How Appealing.
Jim Lindgren (mail):

I have five times tried to open comments on my last post over the last hour or so (long before you posted the above post). It seems that they won't open if they weren't opened originally.

7.20.2005 1:43am
The problem is that this is a decision made capriciously by a single human being. The president chooses one nominee from a large number of qualified individuals, and does so based upon his own personal feelings. A market is never going to be able to predict if Clement made an inappropriate joke about Laura and Desperate Housewives, or if Bush didn't like the color of Luttig's tie, or if he read an article convincing him to lean away from Gonzales… etc.

You might has well argue that Tradesports (or other predictive markets) is flawed because it can't figure out what number between 1-10 that I'm thinking about right now.
7.20.2005 3:50am
Matt (mail) (www):
I'm not convinced a predictive market couldn't necessarily guess what number 1-10 you're thinking about, because as a human being, you're not random.

If you've played this game or a similar one before, people might start to realize that you tend to pick the number 3, or odd or even or prime numbers. Maybe you don't even realize the pattern to your thoughts. Unless you're truly picking a random number, I don't see why an informed market could not at least narrow down the field of numbers you're likely to choose.

I see Pres. Bush's own decision in the same light.
7.20.2005 4:45am
Fern R (mail):
Cass Sunstein on the Condorcet Jury Theorem:

If group members are less than 50% likely to be right, the likelihood that the average will be right approaches ZERO as the size of the group increases....Condorcet was well aware of this point, and hence he emphasized that we can't rely on the wisdom of group averages when most group members are likely to be biased or wrong.

Seems to sum everything up for me.
7.20.2005 4:46am
Carl (mail):
Yeah, but with all due respect to Sunstein as a scholarly lawyer, his statement (perhaps taken out of context?) is profoundly ignorant about how one ought to think about the statistics of strongly-interacting degrees of freedom (i.e. people).

See, human beings discuss stuff, even in a jury room, and they strongly influence each other by such means. The true answer to a problem, if it is not really obscure, will almost always be more plausible after reflection than almost all possible wrong answers. (There are exceptions, of course, which accounts for urban legends and various too good to be true scams from Nigerian finance deals to socialism.)

So although it is likely that in any substantial group of people the number who initially have the true answer to a nontrivial problem is quite small, it is equally true that after the group discusses and argues with each other, and all the various solutions have a chance to prove their persuasiveness (or lack thereof), then it is likely the group will end up with the correct answer.

I mean, unless you are in one of those sad situations where one particular wrong answer just happens to be much more plausible even after considerable thought than the right answer.
7.20.2005 6:29am
Brent Mitchell:
This may be my professional bias, but doesn't it matter that Tradesports "predicted" an event that had occured five hours before.

The Roberts chart looks like the evidence that we use to open insider trading investigations here at the SEC.

A security historically trades steadily at a price. An event happens that is supposed to be secret. (Bush made the offer to Roberts at 12:45 p.m., according to the NYTimes.) The security price spikes. Then, the event is disclosed.

Obviously, spikes aren't caused only by insider trading. And equally obviously, predictive markets are meant to incorporate all knowledge, especially the knowledge of people who have extra information.

But isn't the value of predictive markets especially modest when the spike occurs five hours *after* Bush made his decision?

I'd love Carl's implied suggestin that Roberts futures rose because people spent yesterday afternoon debating the value of his appointment. But why doesn't the chart suggest instead merely that the news leaked and people started to e-mail and call each other?
7.20.2005 11:18am