Last week I placed my first bets on the prediction market InTrade – the largest and most notable prediction market in the world. They were on behalf of a friend but I will soon start trading with my own money.
There was no fee for loading up my account or for trading – but there is a $5 account fee levied every month. You also lose the interest on your US dollars, but at the moment US dollars earn no interest so that’s not a problem. There is also a $20 fee for taking money out of the account. To minimise on these costs some friends and I are sharing an account. Unfortunately you can only add a maximum of $250 to your account within the first month.
The existence of these fees discourages people from signing up and taking advantage of incorrect standing odds. For a few weeks in 2008 a single cashed up trader managed to keep McCain the favourite to win the presidential election just by throwing more money at that market than new recruits could bring in to bet against. On the upside at least these fees do not distort people’s trading once they have signed up.
The website is quite easy to use, though it might confuse someone who was just used to gambling with ‘odds’ rather than trading shares in markets.
Given the fees involved I expect to lose money by trading, but see three other worthwhile benefits of participating. Firstly betting on events is fun as it gives you a stake in events you otherwise wouldn’t care about. Secondly, it is a humbling experience to realise how overconfident you are about most of your beliefs and be held accountable for your errors. Finally by providing liquidity to the market I am helping improve the accuracy of these markets and inform those who rely on the estimates they produce.
Anyone in New Zealand should sign up to iPredict which has lower fees and is subsidised as an academic experiment.
Tagged: economics, finance, rationality
