The Foresight Exchange is a great example of
betting markets. The way it works (in theory) is simple. You have some
decidable statement about the future, say
G.W. Bush gets
reelected in 2004
, or a
magnitude 8.0 earthquake hits the US west. These statements form the core
of an investment "claim". Foresight Exchange (or FX) traders can then invest
on a claim buying or selling "YES" coupons. Incidentally, anyone willing to
spend their play money can create new claims.
The mechanics is too involved to fully get into here, but it is one of the big
turnoffs of the system. Basically, you either are buying a YES coupon or
selling a YES coupon (but spending money unlike the stock market). Real
details can be found
here (a K5 comment of mine).
What is going on here? Well, as new information about the statement
(and new users) enter
the market, the price of the claim is going to fluctuate. So if you guessed
correctly (or had better information) then you can profit from your
investment. In a similar fashion, if you make a mistake, then you are
penalized by losing value in your investment. The end result is that people
who know more or invest better gain credibills and hence have a greater
weight on the market. Ie, you are rewarded for being right with greater
influence on the market.
Why do it? It gives you a verifiable reputation. For example, there are
reoccurring examples of the Media giving attention to people (and
organizations) who simply do not have any credibility, but who have an
interest (often a large financial interest) in changing public opinion.
In academia, occasionally (some would argue "frequently") new ideas are
stifled by the old guard either accidentally or deliberately, or the idea
just isn't "in fashion". How does one weed the good ideas from the chaff?
FX gives you a way to make rational decisions about the feasibility or risk
of a certain outcome. A collective group trades on the claim. If the idea is
valid and works, for example, then those that were right get rewarded, maybe
very significantly. So you have a way to make decisions and deal with
Finally, FX provides a way to keep an issue lingering in the public
consciousness. For example, the hubbub about small-yield nukes is going to
fade into the background noise for most media sources. However, on FX the
issue is still
Some tidbits for your edification (as of Mar 10, 2002):
Note that FX has some of the same problems as K5 and other sites. Namely,
that many of the people and claims are US-centric. However, the focus of the
market is global and does have a strong international presence.
In addition to the Foresight Exchange, there are similar markets operating on
the Internet. The two best examples that I know of are the
Hollywood Stock Exchange which may provide some of
the best estimates of movie grosses and the
Iowa Electronic Market which
trades in small amounts of real money (US dollar) on US national elections.
Also, there's been a lot of theoretical work done in these types of markets.
a professor at George Mason University, has compiled a huge list of
articles, web links, email discussions, personal publications, etc.
about existing markets and
their potential use in democratic societies.
Finally, here's some of the oddities and highlights of the era of the Foresight
Exchange and of its predecessor, Idea Futures.
- FX has at least two different trading programs operating. Markybot is a
collection of perl scripts written by
Jay Scott, while
Neal Gafter wrote his own which runs
- IBM ships a linux web server, but does so a month after
expires. This causes a vast shift in FX from almost YES to certainly NO.
- The claim,
BlOGlb is inspired by the statements of a man
who would circumnavigate the world by balloon: "...the thought crossed my mind that maybe a round-the-world flight really is impossible...I've come back to my conviction that circumnavigation is possible. I'd put money on someone doing it 24 months from today." As it turns out, his statement (and BlOGlb) are shown
to be false. A new claim,
BlOGl2 is created to "fill out" the rest of 1999.
It becomes true in two months.
- O. J. Simpson for some reason warranted several claims (maybe this isn't a shining moment in FX history :-), most of which dealt with the outcome of the notorious trial. The "not guilty" verdict was a big surprise (a little black mark on the predictive power of FX) for the frenetic traders, but the market survived the resulting panic. The server barely handles the resulting load with
a transaction occurring (by my watch) about once every 15 minutes rather than
one every 10 seconds. The new Foresight Exchange has both better algorithms and
faster hardware. This incident was in part one of the reasons for the new
server. Another was financial plans that the founders had for the market. The
latter which hasn't been realized. FWIW, no similar crush has yet occurred even
after such serious events as the World Trade Center terrorist attacks. Yes,
some people did trade right after the WTC attack.
- While it is questionable whether FX would have predicted properly the
possibility of an event of the magnitude of the WTC attack, it is interesting that a claim at the
USTerr (a terrorist attack on US soil kills 200 or
more people by
2010) was trading around 40. Ie, FX was saying there was a 40% of a larger
attack (before 2010) than any that had been seen in US history. This is a whole lot better than the media which was labeling the attack as "unthinkable".
- Over a couple weeks after the attack, a claim, BB2002 that the US would balance its
budget fell from above 50 to roughly 20.
- The first claim (no link) to be judged was whether David McFadzean (one of
the founders) would
get his PhD. He did. There was considerable trading the night
before the announcement that he had passed the dissertation defense.
- SClm (no link) was a self-referential claim created in early
December 1994 that would
be "YES" if 25 "significant" short term claims were in existence by the
end of January, 1995. This indeed came true. See here for a reference. Due to the
unusual problem, the judge had to take some time to study the claim. In the
mean time, trading continued based on what people thought the judge would
decide. Eventually, he decided to judge the claim as a YES unfortunately
hinting at his intentions in a mailing list. Afterward, I recall that several
of the claims became (and remained) uncapitalized. This claim remains one of the
prime examples of bizarreness that can occur in claims around judging time.
- The final anecdote I recall was that I never made money on Boris Yeltsin. Over
the years there were several claims on Boris Yeltsin leaving office early.
In each case, I bet that Yeltsin would leave (ill health, etc). However,
he had the final laugh on FX. The very last FX claim on Yeltsin leaving office
early was due to expire at the beginning of January 1, 2000. He resigned
December 31, 1999 the very day before.