By Telis Demos
Founders of political wagering site Intrade are back with a new
forum for electoral prognosticating, minus one big thing: the
wagering.
Pivit, a web and mobile application, is launching prediction
markets this week for the midterm U.S. elections.
The app is the product of Binary Event Network Inc., a company
founded by Gregory DePetris and John McNamara, who created the
first iteration of Intrade in 1999, and with Jason Finch, who also
worked at Intrade in its early days.
Intrade involved buying and selling investment contracts tied to
events like elections. But the once-popular site closed its market
in 2013 after regulatory pressure on online gambling and when it
found what it called "financial irregularities."
Pivit's contracts are based in percentages, not dollars.
Participating doesn't require any money or pay out any rewards.
Instead, the new market aims to attract people with rankings of the
best predictors.
"We're essentially taking everything we learned and applying it
to Pivit, " said Mr. DePetris, chief executive of Binary Event
Network.
Some academics argue that harnessing thousands or millions of
individual opinions can produce more accurate predictions than
experts, polls and computer models, an effect known as "the wisdom
of crowds." Companies such as Microsoft Corp., as well as U.S.
intelligence agencies, have funded research into prediction
markets, which may be useful for forecasting customer and market
behavior.
Now defunct, Intrade was at one point one of the most widely
cited political-prediction marketplaces. During the 2012 election,
related contracts represented over $200 million worth of wagers,
Intrade said at the time.
Many of the founders had left the company by 2006, as Intrade,
which was based in Dublin, faced increasing U.S. regulatory
pressure. Regulators declared political-event contracts a form of
gambling around the same time that lawmakers barred U.S. banks from
dealing with online gambling operators in other countries.
The market suffered from other problems. In 2011, its chief
executive, John Delaney, died while climbing Mount Everest. During
the 2012 election, Intrade acknowledged that some participants were
making outsize bets on presidential-election contracts that may
have distorted the market. Then in 2013, the market stopped trading
after the company said it found financial irregularities.
Pivit, the new app, avoids some problems Intrade faced by taking
money out of the equation.
Researchers say that nonmonetary incentives can bring people
into a market, but doing so could still prove more difficult.
"It's an obstacle. A lot of markets have offered play money and
people haven't shown up," said Robin Hanson, associate professor of
economics at George Mason University, who has studied prediction
markets.
David Rothschild, an economist at Microsoft Corp.'s Microsoft
Research, who has studied Intrade, pointed to the success of social
media such as Twitter Inc. and Facebook Inc., which offered no
monetary incentive to participate and drew millions of users.
"There are ways to work with incentives to make people treat it
almost as real as money and to be honest in their opinions," he
said.
Pivit will set initial percentages for individual events--a
measure of how likely they are--by using a mix of polls and other
factors, determined by a complex algorithm. Like a stock market,
the percentages will move rapidly-- up to 10 times a second--based
on people's opinions and Pivit's own algorithms, which will adjust
prices to encourage trading, much like a market maker does in
financial markets.
The best predictors will be publicly ranked.
Pivit's initial markets include one for Republicans taking
control of the Senate and five individual elections, including the
Kentucky Senate race and the Wisconsin gubernatorial race.
After creating Intrade, Mr. DePetris and his co-founders worked
for financial markets trading stocks and other securities. To
launch Pivit, they raised about $6 million in early funding. Its
backers include Swedish company Cinnober Financial Technology AB,
whose software will power the market; alternative investment firm
Guggenheim Partners LLC; and boutique advisory firm Broadhaven
Capital Partners LLC, which specializes in advising financial tech
companies.
"A simple, standard measure of what the public thinks will
happen at any point in time, on almost any subject, would be of
immense value" to traders and companies, said Greg Phillips, a
partner at Broadhaven.
Pivit, whose app is free, aims to make money from its audience
through a variety of ways, including sponsorship by companies,
selling extra features in the app, and sales of market data. It may
also seek to launch regulated markets for predictions on some
financial products.
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