tag:blogger.com,1999:blog-3829599.post113985534254321306..comments2024-01-28T00:20:40.933-08:00Comments on Agoraphilia: Picturing Financial InstrumentsUnknownnoreply@blogger.comBlogger3125tag:blogger.com,1999:blog-3829599.post-1140465985067033762006-02-20T12:06:00.000-08:002006-02-20T12:06:00.000-08:00It's hard to place Prediction Markets on the hedgi...It's hard to place Prediction Markets on the hedging scale. It's true that all current markets are low enough volume that you can't actually hedge any relevant exposure, but Robin Hanson included the goal of supporting hedging in all his early writings on the subject.<BR/><BR/>I like the zero sum distinction, but as you noted, the implication that the institution itself is zero sum is wrong. Maybe we should look for a different term for this. The point we're making is the one you stated: holding (and trading) equity vs. holding (and trading) exposure. I think using those terms would be better, and you can separately explain the implications: in one case the underlying asset grows with the economy, and traders decide which to own, while in the other, they trade exposure (risk) and whenever someone gains positive exposure, someone else is gaining negative exposure. (Hmmm, that's interesting: if all the commodities futures are settled before close, some parties still have exposure, it's just not commoditized.)<BR/><BR/>There's another important distinction: equities represent ownership, and are open-ended. commodities and prediction markets have a limited term, and their value is definitely decided at the closing date.<BR/><BR/>Another distinction between commodities futures and equities is that far more futures are traded than there exist underlying assets. With Prediction markets, there aren't any underlying assets to be represented. Perhaps that's the real, interesting distinction: PMs don't have an underlying asset that's traded separately.Chris Hibberthttps://www.blogger.com/profile/12235621011708498622noreply@blogger.comtag:blogger.com,1999:blog-3829599.post-1140093351693746182006-02-16T04:35:00.000-08:002006-02-16T04:35:00.000-08:00Jason: Reading my old papers *can* make a fellow ...Jason: Reading my old papers *can* make a fellow feel strange, I hear. I hope you were sitting down during your subway ride.<BR/><BR/>But, seriously, I like the way you divvy up markets. I'm not sure you describe axes so much as categories, though--something that would best fit on a table.<BR/><BR/>Emile: The most careful of my sources would, I think, concede that we lack conclusive proof that prediction markets consistently outperform experts. But I don't think they would concede we have the sort of "direct comparisons" you allude to. The problem, from an experimental viewpoint, is that we lack a control group. Still, though, we surely have enough information to support further use of prediction markets. They don't seem to do any harm and they probably do much good.Tom W. Bellhttps://www.blogger.com/profile/02790351458154066358noreply@blogger.comtag:blogger.com,1999:blog-3829599.post-1139892937131195462006-02-13T20:55:00.000-08:002006-02-13T20:55:00.000-08:00Very interesting! -- while thinking about the lega...Very interesting! -- while thinking about the legality of different markets yesterday, i considered a similar taxonomy. One axis was the "official" purpose: 1) capitalization (stocks & bonds), 2) risk-sharing (futures and insurance), 3) information-seeking (a new, but exciting type - information is not a by-product). Another was specific trader motivation: a) money, b) reputation, c) intrinsic value, i.e. entertainment, the thrill of trading. <BR/><BR/>I've also thought about the positive/zero/negative(?) sum axis before, specifically comparing it to Mancur Olson's exclusive & inclusive groups.. and <I>that</I> is the direction of my passion.. it's not that i'm <I>for</I> hedging, it just tends to make markets more "fit", especially when there are hedgers with opposite needs, as is the case with taxes and subsidies -- and we have only recently gained the powers of communication to aggregate the more-or-less infinitesimal fiscal risks.<BR/><BR/>Somewhat eerily - before reading your post - i printed out one of your old papers and read it on the subway on the way home tonight. Like gambling, legislation-linked markets may face heavy resistance, but then they'll just be pushed overseas.Jason Ruspinihttps://www.blogger.com/profile/03037007850857235550noreply@blogger.com