April 12, 2005


The Smart Money (JOHN TIERNEY, 4/12/05, NY Times)

Do not be fooled by the talking heads in Rome. The journalists handicapping the papal election may sound as confident as ever, authoritatively quoting anonymous cardinals and exclusive sources deep in Opus Dei. But our profession is in trouble. A specter is haunting the punditocracy - the specter of Intrade.

That's an online futures market, based in Dublin and used by more than 50,000 speculators worldwide who put their money where our mouths are. They're expected to spend at least $1 million on futures contracts tied to the election of the pope. And if recent history is any guide, their collective wisdom could be a lot more valuable than ours.

If you listened to journalists during last year's presidential campaign, you heard about a tight race with oscillating polls and shifting momentum. The weekend before the election, we painstakingly analyzed the battleground states and bravely proclaimed them too close to call.

But if you watched the Intrade market throughout the campaign, you saw the traders serenely betting on a Bush victory. Most remarkably, the weekend before the election, the traders correctly called the winner in every one of the 50 states.

It is a crime that we aren't using such markets in place of, or at least to supplement, the CIA.

Posted by Orrin Judd at April 12, 2005 8:58 AM

This is simple chicken & Egg stuff. The success of "Intrade" is based upon the news stories, blog items, and 10-20% inside info that slips outside.

I've noticed that very well-informed people are remarkably good at "predicting the future."

Short term - Read blogs
Long term - read quality science fiction

It's all just "psychohistory" applied to an engaged and informed mind.

Posted by: BB at April 12, 2005 9:05 AM

Wasn't there a proposal for a terrorist futures market? Though it may sound repugnant, the predictive capabilities of such a market would be valuable.

Posted by: daniel duffy at April 12, 2005 9:47 AM

Daniel Duffy -

To some extent, there already is. See some of the predictions :


Posted by: Bruce Cleaver at April 12, 2005 10:58 AM

Tierney's is an excellent article. Good line:
"The journalist in me hopes [cardinals maintain secrecy], thereby keeping everyone in the dark and allowing us to pontificate unencumbered by actual information."

It's quite true that journalists benefit from an ignorant reading public.

Posted by: pj at April 12, 2005 11:06 AM

They need to supplement the CIA.

We also need competing agencies to supplement the CIA.

The problem in risk analysis is not coming up with the most likely scenario. The problem is coming up with discontinuities (as one client of my company's likes to call them). Bureaucracies are very bad at coming up with discontinuities.

Some clients take our political risk service just as a check on their internal work. Government intelligence analysis ought to employ the same sorts of checks, but doesn't.

Posted by: kevin whited at April 12, 2005 11:40 AM

The CIA's problem is that, like all bureaucracies, all they ever produce is conventional wisdom. Intrade is the crowd at the track. They pick the favorites.

What neither a bureaucracy nor a prediction market can do is be smarter than the average bear.

Gimmicks like prediction markets, cannot solve the CIA problem. They can broaden the consensus, but it will still be a consensus.

Cassandra was always right and no one ever believed her. If Cassandra had access to the NYSE, she could have retired rich, but she will never alter the consensus, which she will always oppose. Furthermore, the CIA or any similar bureaucracy will always spit her out because she opposes the consensus ("She is just not a team player").

Its a genuine first rate paradox.

Posted by: Robert Schwartz at April 12, 2005 11:52 AM

The question is not who will be the next Pope, but what name he will choose.

Posted by: David Reeves at April 12, 2005 1:12 PM

Geroge I.

Posted by: ratbert at April 12, 2005 2:15 PM

George I.

Posted by: ratbert at April 12, 2005 2:15 PM

It seems to me that much of the hope for an "intelligence market" is misplaced. Forget that it's hard to get beyond concensus--so what if it could? Let's say such a market had existed in July 2001 and predicted, say, that a big attack, using novel methods, on a major US city was extremely likely to happen in next 3 months. What then? You need something a lot more specific than that to inderdict such an event.

Posted by: Kirk Parker at April 12, 2005 2:30 PM

Don't forget there were also a couple of apparent attempts during the election to rig the gaming on the election, with sudden spikes upwards for Kerry. Were those markets to gain enough stature to become as ubiquetous in the daily news reports as the myriad of polls are today, the idea of throwing large sums of cash into the betting pools to shift the results and get favorable media coverage would be a lot more enticing.

Fixing the betting pools for the papal election is less likely, but it is a market where someone with large financial assets like George Soros can cause at least some short-term trouble with their disposable income.

Posted by: John at April 12, 2005 2:42 PM

short term

Posted by: oj at April 12, 2005 2:45 PM

I predict 3 ballots to elect a new pope.

Posted by: Dave W. at April 12, 2005 3:38 PM

I predict that the choice will be a complete surprise. In 1978, Karol Wotyla was not on anyone's list of potential popes.

Posted by: daniel duffy at April 12, 2005 3:54 PM

ratbert - Henry VIII

Posted by: pj at April 12, 2005 6:12 PM

Most Cardinals have an "if I'm chosen Pope" name in mind; I would.

JP I was the concensus choice (not the 1st or 2nd) of the Cardinals in Aug. '78 and JP II an unexpected one, 2 months later, when none of them expected to be "back so soon" The next pope will probably be one of those mentioned often recently as "possible popes", but then again, only God knows for sure right now.

Posted by: Phil at April 12, 2005 10:02 PM