Intrade-Very Interesting website

[unleashed]

Hey guys, I couldn't find a topic on this website. ABC 20/20 did a news story about it and their were talking about a couple making 200k by betting on a particular politician. It's like commodities trading, except it includes a wide array of things such as predicting American Idol winners, etc. Anyone use this website yet?, it seems like an interesting idea.

The the link is:

http://www.intrade.com/

[DanielCarrera]

Betting on a politician is not trading, it's gambling. You can gamble on anything, nothing new here.

[joe1487]

Well, not quite gambling, as one can make informed decisions. But it is a bet, not the trading of commodities.

[DanielCarrera]

Well, not quite gambling, as one can make informed decisions. But it is a bet, not the trading of commodities.

Playing blackjack in a casino is based on informed decisions. That doesn't mean it is not gambling. Betting on which horse will win a race can be absolutely be an informed decision, but horse betting is gambling.

In any event, we agree that it's obvious this is not trading commodities or anything at all.

[brunes]

Playing blackjack in a casino is based on informed decisions. That doesn't mean it is not gambling. Betting on which horse will win a race can be absolutely be an informed decision, but horse betting is gambling.

In any event, we agree that it's obvious this is not trading commodities or anything at all.

It is not gambling, at least no more than normal trading is. It is no different that the "normal" stock market.

With the stock and commodity markets, you take all available information about a commodity or company, decide on a value, purchase either at or below that value, with the idea that if your information and reasoning is as accurate as you think it is, the end value will go up. The prediction markets behave the exact same way.

The only difference between the prediction market and the stock/commodity markets is, the prediction market is explicitly zero-sum, while in the other markets it appears as if it is not; that is, in theory, it appears that as the economy grows, everyone in the stock market can see a net gain, with no losers. However this is really yet to be proven, and actually can be proved impossible if you consider a longer time frame. You can't grow an economy forever without increasing inputs; at some point the rate of technological progress and population grown will come to a stop and the global economy will also become zero sum.

[DanielCarrera]

It is not gambling, at least no more than normal trading is. It is no different that the "normal" stock market.

That's bull excrement. While it is possible to gamble in the stock market, not all stock market activity is gambling. You can invest too. Investing is not gambling.

The only difference between the prediction market and the stock/commodity markets is, the prediction market is explicitly zero-sum, while in the other markets it appears as if it is not;

The "prediction market" is an Orwelian Newspeak with no meaning. There is no "market". A market is a place (virtual or physical) where you exchange goods and services of a determined value.

that is, in theory, it appears that as the economy grows, everyone in the stock market can see a net gain, with no losers. However this is really yet to be proven, and actually can be proved impossible if you consider a longer time frame. You can't grow an economy forever without increasing inputs; at some point the rate of technological progress and population grown will come to a stop and the global economy will also become zero sum.

Unless you are planning to invoke the heat death of the universe, what you wrote is bull. "Return" and "wealth" is nothing more than a measure of the amount of goods and services available to a person (money is just a convenient measure). There is no fundamental reason (other than the heat death of the universe) why positive returns (ie. increasing wealth) can continue. It does not require increased population (though it helps). There's no fundamental reason why technological progress has to stop (I doubt we'll ever know everything there is to know about the universe) and technological progress is not the only way to achieve higher output efficiency.

Finally, this is a complete tangent and has nothing to do with whether betting that Obama will win is or is not gambling.

[brunes]

That's bull excrement. While it is possible to gamble in the stock market, not all stock market activity is gambling. You can invest too. Investing is not gambling.

Yes it is. Unless your investment is "sure fire", which no investment is, it is no different than gambling. The only difference is the implied odds, which are usualyl better in investing.

The "prediction market" is an Orwelian Newspeak with no meaning. There is no "market". A market is a place (virtual or physical) where you exchange goods and services of a determined value.

Yep - and in this case, the good is a contract on the outcome of a prediction. It is absolutely no different at all from trading on oil future contracts - both are just pieces of paper.

There is no fundamental reason (other than the heat death of the universe) why positive returns (ie. increasing wealth) can continue No reason... other than the laws of physics and thermodynamics.

There are only two ways to increase economic output from any fixed system - either you increase the inputs (manpower, resources), or you increase the efficiency (technological progress). There are many areas of the economy where increasing efficiency is not going to get us much farther; many areas of technology where humanity is actually pushing up on the barriers of the laws of physics. Things are not going to continue progressing at an exponential rate forever.

The other huge factor that people forget about when they talk abotu the ever-growing global economy is unrealized costs (eg, environmental pollution and non-renewable resource depletion). These are actual costs in an economic sense, but a company or individual does not normally have to realize these costs in any way so a global economy appears to grow despite the fact that these assets are being depleted. As time progresses and the world is forced to start placing a value on these assets, economic grown necessarily slows.

In short - you can't make something out of nothing. If you think you can you need to re-take your intro to economics courses.

[DanielCarrera]

Yes it is. Unless your investment is "sure fire", which no investment is, it is no different than gambling.

This is insane. Investing is not gambling. Nothing in life is sure-fire. Everything has probabilities involved. If you define gambling to mean anything with probability the word becomes utterly meaningless. It is stupid to equate blackjack, roulette, buy-and-hold investing, and crossing the street as if they were all the same thing. Yes, investing is very much different than gambling. Going to the movies is also different than gambling (even though it is affected by probabilities too). It is ridiculous to equate speculation, roulette, index-investing, blackjack and the lottery as equivalent activities.

There are only two ways to increase economic output from any fixed system

Define "fixed system" and explain why the universe is one.

Things are not going to continue progressing at an exponential rate forever.

Nobody said anything about exponential functions. Second, if you are talking about the heat death of the universe, I think that is hardly something we should be worried about right now. The sun die in another 7 billion years or so. The heat death won't be for a few quadrillion years. I note that the question of whether the universe will ever reach a state of maximum entropy is not settled. Yes, I have a degree in physics. The gravitational constant puts a bit of a question mark on that issue. Of course, all of this is academic. I think it's fair to limit the discussion to the next million years (which is much longer than humanity has been on this planet).

In short - you can't make something out of nothing. If you think you can you need to re-take your intro to economics courses.

There is a lot of somethings in the universe (resources). The sun will be around for several billion years. Finally, there's the possibility that the universe is infinite. So the fundamental limiting factor is not the amount of energy or resources in the system, but entropy. Earth is 4.5 billion years old. Humanity has been around a few hundred thousand years. The sun will be a red giant in 6 billion years. The heat death will take a few quadrillion years. It seems kind of silly of you to base your argument about how to invest in the stock market on the heat death of the universe.

[realist123]

I agree that this intrade thing is no different than any marketplace.

Buyers and sellers place bids/offers on their perceived value of an asset (real or virtual), trades take place and profits/losses arise.

It is, in a way, gambling. Similar to poker. Bids are placed on perceived value of an asset (your cards), winner takes all and profit/losses arise.

The argument that playing the stock market is different because it is investing is kind of silly. You are not the CFO of the company you're investing in. You have no idea how the books are cooked and what is coming down the pipe. You are blind.

Unless you're able to visit the company, speak to the executives, have your own accountants audit the books, etc, you are (at least in part) making a gamble.

[DanielCarrera]

I'd like to further point out that even in a dream world where humanity faces the real possibility of exhausting all of the universe's resources, it does not follow that the economy must become a zero-sum game. In a zero-sum game, average returns are 0. As humanity gets closer to exhausting the universe's resources, returns can (and probably would) get smaller, asymptotically, so that while they are diminishing, they are never zero, and economy is never a zero-sum game. Is it possible? Sure it is. Is this an entirely pointless argument? Absolutely. But if brunes is willing to base an argument on the heat death of the universe, I am allowed to point out that the argument is flawed.

[DanielCarrera]

The argument that playing the stock market is different because it is investing is kind of silly.

If you view it as "playing" the market, I would say that you are not investing at all, you are speculating/gambling.

Unless you're able to visit the company, speak to the executives, have your own accountants audit the books, etc, you are (at least in part) making a gamble.

It is stupid say "gamble" to refer to anything where the laws of chance are involved. The laws of chance are involved on everything. If you say gamble to mean "the probabilities are not 100%", then everything is gambling and the word becomes meaningless.

[brunes]

It is stupid say "gamble" to refer to anything where the laws of chance are involved. The laws of chance are involved on everything. If you say gamble to mean "the probabilities are not 100%", then everything is gambling and the word becomes meaningless.

Gamble: intransitive verb
1 a: to play a game for money or property
b: to bet on an uncertain outcome

2: to stake something on a contingency : take a chance

How is investing not gambling again?

Investing is gambling; it is the same thing. Putting money down expecting gains from an uncertain outcome *is gambling*. Again, the only difference are the odds.

EDIT: And Daniel - what you are saying about constantly growing economies forever flies in the face of all economic theory. It really does not work that way in practice. Unrealized costs and steadily increasing labour inputs play the vast majority role in today's growing economy. This will not continue forever, hell it will probably not even continue for 50 years.

[DanielCarrera]

Gamble: intransitive verb
1 a: to play a game for money or property
b: to bet on an uncertain outcome
2: to stake something on a contingency : take a chance


Do you realize that such a general definition is effectively meaningless? If you wish to define gambling as betting on an uncertain outcome, or taking a chance, then every activity you partake on in life is gambling and therefore saying that something is gambling doesn't say anything a all.

Suppose you buy government bonds. You are betting on a certain outcome. Having a positive return at the end is not guaranteed. But I don't believe that most people would consider this activity gambling.

I'm not sure I would use a dictionary for this kind of argument, just as I wouldn't use a dictionary to guide my financial planning or my physics research.


EDIT: And Daniel - what you are saying about constantly growing economies forever flies in the face of all economic theory.

You will need to justify this statement, and you will also need to clarify what it is you think I'm saying. I doubt that you can disprove the timeline of the heat death of the universe with economic theory, so clearly you are thinking of something else. Your argument was based on the laws of physics and thermodynamics, not economic theory. My reply was based on the laws of physics and thermodynamics.

I additionally hope that you do not paraphrase my posts into something I didn't say. For example, you implied that I had said exponential growth, and I didn't.

Finally, let's suppose that you are right, and that the laws of physics dictate that eventually the economy will become a zero-sum game. I would be happy to agree that when that happens, participating in the economy will be a form of gambling. Perhaps you will find that to be an acceptable compromise.

[notanexpert]

Just to add my 2 cents:
When I compare the size of the economy and the wealth it is generating today versus a decade ago, we are ahead.
If I compare that to 50 years ago, we are ahead.
If I compare to 250 years ago, we are way ahead.
If I compare to 10,000 years ago, we are ahead by quite a lot.
I therefore see no reason why the economy would not be generating more wealth in a decade to five decades which is the time horizon I'm interested in.

[actyper]

IMO almost all forms of investment are gambling, its just a play on words. It is the risk of ruin that you need to be concerned about.

[brunes]

Do you realize that such a general definition is effectively meaningless? If you wish to define gambling as betting on an uncertain outcome, or taking a chance, then every activity you partake on in life is gambling and therefore saying that something is gambling doesn't say anything a all.

Argh. No, it is not. The difference is in the expectation of a gain.

Suppose I take $100 and buy a shovel, to use for shoveling. There is no gamble or investment there - since I am using that shovel for shoveling right now, I have a use for it, end of story. The shovel is real, I traded money for it, now I own it, now I use it, done.

Now suppose I buy that shovel, but I have no use for it. Instead I plan to just keep it to sell to someone else for a profit. Now I am gambling, because a) I don't know if anyone will buy my shovel, b) I don't know if they do if they will pay more than I paid.

Replace shovel with any other commodity or stock, and you have a market.

Suppose you buy government bonds. You are betting on a certain outcome. Having a positive return at the end is not guaranteed. But I don't believe that most people would consider this activity gambling.

The only difference is the odds. True with bonds the odds are very much in your favour.

But it is no different than say, playing in a 4 hour limit poker game where you are a seasoned professional and playing against 9 known amertures. Is this gambling, even though you have very high odds of coming out a huge winner?


You will need to justify this statement, and you will also need to clarify what it is you think I'm saying.

Just forget about the input/output portion of the argument for now and consider the unrealized gains portion as it is simple to understand. Take for example a paper mill. In economics, inputs are costs. This mills costs are labour, materials, energy. Its revenues come from the sale of paper. As long as the revenues outnumber the costs, it makes a profit.

HOWEVER - there are another cost/input that mill has, that is unrealized. That cost is the water it takes to cool it's mill, the air it pollutes to sequester its emissions. Both the air available for pollution and the water available for cooling are fixed resources; therefore, using them has a cost.

The problem is that these costs are *unrealized* under most current metrics of an economies performance. Part of this is starting to go away (carbon credit markets, for example, try to alleviate this shortcoming of the current economic system), but for any industry, there will always be costs that remain unrealized. As the scarcity of these finite resources becomes more apparent and we must start realizing these costs, the output of the economy, in general, suffers, because now it is making less than before on the same input.

Just to add my 2 cents:
When I compare the size of the economy and the wealth it is generating today versus a decade ago, we are ahead.
If I compare that to 50 years ago, we are ahead.
If I compare to 250 years ago, we are way ahead.
If I compare to 10,000 years ago, we are ahead by quite a lot.
I therefore see no reason why the economy would not be generating more wealth in a decade to five decades which is the time horizon I'm interested in.

It all depends on when (and how rapidly) unrealized costs become realized, and how quickly technological progress slows as we approach the bounds of known physical efficiency. The economy only grows when we either input new labour or we increase efficiency. The economic growth of the past 50 years has been partially due mainly to efficiency increases ( 50-75), and partially due to mainly the douobling of the available labour force as women started working more ( 75-now). Problem is, there is no other ghost labour force to get to start working, unless you plan on making your kids work, the amount of labour for the global market is now pretty much fixed (actually shrinking).

So in order to continue to grow the economy, you have a massive gap there that you have to fill with only efficiency gains. That isn't going to be easy to do.

[AllWheelDrift]

Going to work to earn money is gambling. You could get hit by a bus on the way there. Sure it's a small probability, but the chance is still there and you're betting it won't happen. :razz:

[notanexpert]

...
The economic growth of the past 50 years has been partially due mainly to efficiency increases ( 50-75), and partially due to mainly the douobling of the available labour force as women started working more ( 75-now). Problem is, there is no other ghost labour force to get to start working, unless you plan on making your kids work, the amount of labour for the global market is now pretty much fixed (actually shrinking).

So in order to continue to grow the economy, you have a massive gap there that you have to fill with only efficiency gains. That isn't going to be easy to do.

Don't agree. Look at the huge increase in wealth and economic activity in China. All they did is have a small percentage of their population go from tending to their rice fields all day just to feed themselves to making widgets for the world. There is a lot more where that came from. We haven't even touched the whole African continent yet. So we have both: lots more efficiency gains possible, and a whole lot of untapped labour pools.

In you shovel example, you're completely ignoring the fact that when you invest you're buying the stream of profits that the company is generating. That could be paying dividends, or it could be rewarding you with increased stock price just because of the growing balance sheet for companies that retain all their earnings. No need for finding a bigger fool who will pay you more (multiple expansion), thigs can just be static and your wealth is increasing from the profits that your investment is generating.

[brunes]

Going to work to earn money is gambling. You could get hit by a bus on the way there. Sure it's a small probability, but the chance is still there and you're betting it won't happen. :razz:

Yep, you are correct.


In you shovel example, you're completely ignoring the fact that when you invest you're buying the stream of profits that the company is generating. That could be paying dividends, or it could be rewarding you with increased stock price just because of the growing balance sheet for companies that retain all their earnings. No need for finding a bigger fool who will pay you more (multiple expansion), thigs can just be static and your wealth is increasing from the profits that your investment is generating.

And what happens if the company goes bankrupt?

Again, you are just making an intelligent guess based on all available information.

EDIT: To make my position CLEAR here - I am not trying to imply investing is foolhardy or anything like that! I am just trying to point out that saying that investing in prediction markets is "gambling" just because the securities are based on predictions rather than companies is foolish and incorrect. It is no more or less legitimate than a stocks, options, futures, etc.

[DanielCarrera]

Argh. No, it is not. The difference is in the expectation of a gain.

Suppose I take $100 and buy a shovel, to use for shoveling. There is no gamble or investment there - since I am using that shovel for shoveling right now, I have a use for it, end of story.

The shovel could break and become useless. It could also be stolen. You could learn that what you needed after all was not a hole. You are also betting that you won't die before you get to use it. Quantum mechanics dictates that there is a non-zero probability that the shovel will spontaneously disintegrate. So yes, you are taking a risk of losing the $100. I agree that it is not an investment, but if you define gambling as a bet on an uncertain outcome, then buying a $100 shovel is gambling.

You might think that buying government bonds is gambling, but I don't think that most people would feel that way. Hence, I don't think you are following the popular meaning of gambling.

As the scarcity of these finite resources becomes more apparent and we must start realizing these costs, the output of the economy, in general, suffers, because now it is making less than before on the same input.

I don't notice anything objectionable in your paper mill example. I don't know whether it follows that the economy is bound to suffer, but even if it does, I don't see how that is equivalent to it becoming a zero-sum game. I would instead say that investment returns are likely to decrease to a smaller but still positive value.

The economy only grows when we either input new labour or we increase efficiency... Problem is, there is no other ghost labour force to get to start working,

I see a lot of room for efficiency improvements. Most of the world economies (e.g. third world) are remarkably inefficient. Most working-age people in the world are not producing output at anywhere near their potential based on existing known technology and management methods.

That said, today we have a lot more people doing R&D than we did before. And there is a huge untaped potential in the form of billions of people who do not have an education and could have an education. The more people with high education the greater the speed of technological development.

So in order to continue to grow the economy, you have a massive gap there that you have to fill with only efficiency gains. That isn't going to be easy to do.

It may be that one day (maybe today) achieving efficiency gains becomes much more difficult than it has been in the past. I do not equate that with the economy becoming a zero-sum game. But if the economy ever becomes a zero-sum game, I will be happy to concede that at that point the economy has become gambling.

[DanielCarrera]

Don't agree. Look at the huge increase in wealth and economic activity in China. All they did is have a small percentage of their population go from tending to their rice fields all day just to feed themselves to making widgets for the world. There is a lot more where that came from. We haven't even touched the whole African continent yet. So we have both: lots more efficiency gains possible, and a whole lot of untapped labour pools.

Absolutely. There is a huge untaped potential in the third world.

[joe1487]

Playing blackjack in a casino is based on informed decisions. That doesn't mean it is not gambling. Betting on which horse will win a race can be absolutely be an informed decision, but horse betting is gambling.

I am having trouble wading through both of your positions, as you seem to have switched sides at some point during your argument. I agree with brunes that given informed decisions, betting on Intrade is not any more "gambling" than informed stock purchases. With that said, I don't believe that informed stock investment is gambling; when a decision is left mostly to chance, it constitutes gambling. Standard blackjack is less considered gambling than professional card counting, and making informed investment decisions is less considered gambling than arbitrarily day trading stocks. Informed bets on Intrade do not constitute "gambling" in any real sense.

If anyone wishes to frame "gambling" in this one-dimensional way whereby any action constitutes a gamble if there is a 0.01% uncertainty, then go ahead. This paradigm of gambling is not only an anomaly, but is useless in practical terms as almost everything is considered gambling.

[DanielCarrera]

I am having trouble wading through both of your positions, as you seem to have switched sides at some point during your argument.

It would help a lot if you kept the entire context of my quote. You said that Intrade is not gambling because you make informed decisions. I replied that making informed decisions does not make something not gambling. I gave examples of things that are gambling where there is room for informed decisions. I say that betting on a horse is gambling but buying government bonds is not gambling. I think most people would agree with that statement.

With that said, I don't believe that informed stock investment is gambling; when a decision is left mostly to chance, it constitutes gambling.

I am glad to see that you are making an effort to distinguish gambling from other activities. We could argue about the finer points of the definition, but I won't because that would detract from the main point of my message which is that we shouldn't apply the word gambling as widely as burnes suggests.

If anyone wishes to frame "gambling" in this one-dimensional way whereby any action constitutes a gamble if there is a 0.01% uncertainty, then go ahead. This paradigm of gambling is not only an anomaly, but is useless in practical terms as almost everything is considered gambling.

Absolutely right. My point exactly.

[joe1487]

It would help a lot if you kept the entire context of my quote. You said that Intrade is not gambling because you make informed decisions. I replied that making informed decisions does not make something not gambling. I gave examples of things that are gambling where there is room for informed decisions. I say that betting on a horse is gambling but buying government bonds is not gambling. I think most people would agree with that statement.

I think you and I mostly agree. My point was that within the context of Intrade, just like the context of the stock market, informed decisions negated the "gambling effect", so to speak.

[AllWheelDrift]

Let's run with the shovel for a moment...

Intrade trade is: You buying a shovel in the hopes of selling it to someone else at a higher price.

Bond is: You give Bill some money to buy a shovel and in exchange he agrees to pay you back over time with interest.

Stock market IPO is: You giving Bill some money to buy a shovel and in exchange he gives you a share of his driveway clearing business.

Stock market trade is: You buy Bob's share of Bill's driveway clearing business because he doesn't want it anymore but Bill would rather use the money his company made to buy another shovel and hire Jim to help shovel than buy back Bob's share.

It seems the claim is all three are "investing" because you think you can generate a return, but only in the latter three is your money truly invested in that it's being used to generate value either directly (by giving the money to Bill for his business) or indirectly (by not forcing Bill to downsize his business to pay back Bob.)