|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
Game 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.
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.)
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.
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
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.
"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?