Sunday, December 16, 2007

Just doing my part...

In reviewing last year's numbers, I cannot help but roughly calculate how staggeringly profitable it would have been had I not had contracts for $2.60 corn and $5.65 beans. I work hard not to let myself get into the futile thought-loop that these ideas can trigger and end up with the conviction that these dang high prices are the problem!

Still - $5.65???

But with the growing success of prediction markets, researchers are discovering one key to their ability to make accurate forecasts is chumps like me making bad trades.
In other words, out-of-the-loop traders are needed to set bad prices, in order to create profit opportunities for knowledgeable investors. Given this, and given the interest economists must have in functioning prediction markets, why don't more economically-minded individuals play the prediction markets? Their bets would act as a subsidy to smarter players, paying them, in effect, for the information economists would like to have. I suspect the principle deterrent is the free rider problem; some economists would be willing to engage in subsidising trades, but without coordination between all interested parties, the logic of collective action rules the day and liquidity goes wanting. [More]
I think this is telling us that we, the clueless of America, may be the real heroes, while guys like Gulke simply pick the fruit.

That's my interpretation, anyway.

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