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last updated
4.apr.2001

LeisureEXCHANGING THE FUTURE

where's my armour, love?I'll take 6 Crowe at 15 and as many Julia Roberts as you've got! I've gone long on Castaway and am trying to recover my losses from the Survivor warrants. No, don't touch Hannibal for Best Actor, I've heard some inside gossip and it won't get more than a Supporting. Sell it while you can."

Sound like the New York Stock Exchange meets a celebrity gossip column? Well you'd be right. No IBM's or Ford's on this trading floor. It's Oscar season, and traders at the Hollywood Stock Exchange (HSX) Web site are furiously betting on which nominees will win. Prescient traders stand to earn millions of "Hollywood dollars", HSX's funny-money currency.

"Yawn," I hear you say. Where's the scientific angle in a bunch of geeks betting on who gets to make the kiss-and-cry speech at the end of the night?

Well, real-money markets, from gambling on the horses to trading frozen orange juice futures, are known to provide good forecasts of future events. Apparently that could also apply to less dollar-motivated exchanges as well. A new study, conducted by scientists at the NEC Research Institute, Pennsylvania State University and the Technical University of Denmark, finds that play-money markets like HSX can also yield surprisingly good predictions. An Oscar nominee's price on HSX today really does reflect his or her chances of taking home a gold statuette on March 25.

alan greenspanGame for a laugh

"One of the benefits of markets is their ability to combine information from various sources and make that information available to the public via prices," says said Dr. David Pennock the NEC Research Institute, the study's lead author.

"While for most purposes game markets cannot replace real markets, in terms of combining information and making predictions, game markets can be similarly valuable. Another advantage is that they're relatively easy to set up, especially on the Web, without worrying about all the regulatory and legal hurdles of establishing a real market."

If you're cruising on the Beyond 2000 site though, Hollywood gossip probably isn't the centre of your universe. But flying rocket cars just might be.

why are we clapping?What price teleportation?

Pennock and his colleagues, Dr. Steve Lawrence, Dr. Lee Giles, and Finn Nielsen, also analysed the Foresight Exchange (FX), a web-based market where players bet (in phony FX dollars) on unresolved questions of scientific and societal interest. For example, when human cloning will be achieved or whether Linux will one day become the world's dominant operating system.

"Prices of securities can be thought of as the market's assessment of the probabilities of the corresponding events," Pennock says. (Current prices on FX imply that there is a 77% chance for confirmed discovery of the mysterious Higgs Boson particle by 2005, a 14% chance for an HIV cure by the same date and a 50% chance that there will be a manned lunar base by 2025.)

Most intriguingly, the scientists found that past prices on the Foresight Exchange did accurately forecast true outcome frequencies; for example, of all securities priced around 20 cents of the "FX Buck", roughly one in five actually did come true. Predictions that traders had priced more highly came true more often.

I'll take 50 LinuxTitanic record

The scientists found similar accuracy in last year's Oscar, Emmy, and Grammy awards markets on HSX. For example, of all the nominees priced at around H$10 prior to award announcement, roughly twice as many eventually won than amongst the nominees worth a measly $5, and similarly for other price ranges. The study also shows that prices of HSX "movie stocks" serve as good predictors for actual box office results.

The scientists see several potential applications of their findings. "People can look with some confidence to existing market games like HSX and FX for evidence of future trends. Others may set up new game markets on the Web, with relatively few impediments, as a way to gather information in areas of personal concern or interest. Economists may also find that game markets offer an interesting platform for experiments that would otherwise be too costly or impossible," Pennock says.

The study points out other striking similarities between game markets and real markets. For example, arbitrage opportunities on HSX (loopholes that allow traders to earn a sure profit without risk) tend to disappear over time, just as they do in real markets.

Hands off her, wimp boy!"Although no real money is changing hands, it seem as if players care enough about their portfolios to make reasonably informed decisions," said Pennock. "As a result, the game markets behave in some ways like real markets, showing signs of efficiency and predictive accuracy."

So what price will you give me that next year Elvis is returned to Earth aboard an alien spacecraft named The Kate Winslet?










Related links:

Hollywood Stock Exchange
The Foresight Exchange



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