The Internet Gambling Act (HR4411) that passed the House earlier this month is a curious compromise. There's been a lot of discussion elsewhere about the fact that this bill won't stop gambling on the Internet, and doesn't even seem intended to try; I'll leave that issue alone.  The only point I wanted to make is that the bill only covers sports betting (and pure lotteries).

The definitions say

(1)The term `bet or wager'--
(A) means the staking [...]  of value upon the outcome of a contest of others, a sporting
event, or a game subject to chance [...];
(B) includes the purchase of a chance [...] to win a lottery (which [...] is predominantly
subject to chance);
(C) includes any scheme described in [Unlawful sports gambling law];
(D) includes any [..] information pertaining to the [...] movement of funds [for] the
business of betting or wagering; and
(E) does not include [commodities, securities, derivatives, insurance, and fantasy sports]

Of course, the lack of coverage of prediction markets in this bill doesn't make them legal, it just leaves them out of the effects of this bill. Most of the effect of the bill is to make it harder to move funds into and out of gambling accounts, rather than to prohibit anything in particular.  It's not clear whether credit card handlers or banks would notice the distinction, but this may leave an opportunity for someone to run a market long enough to challenge the law. I think it's odd that they drew the line so narrowly. But there's time for the Senate to change that if they pass something, and if there are any differences between the House and Senate versions, anything can happen in reconciliation.

Previous articles have described a few simple formats of prediction market: simple double auctions, markets with open-ended prices, the symmetry of complementary purchases, and how to integrate an order book with an automated market maker. In this article, I describe the mechanics of multi-outcome markets, both as most markets currently implement them, and as I expect to implement them in the Zocalo Prediction Market. I've presented this idea before, so you can get another look at the idea by reviewing my slides. ( PowerPoint 3MB, PDF 2.6MB).

The basic idea is that instead of two exclusive outcomes, you want the market to give a prediction about an event that might turn out in one of three or more ways. Canonical examples include an election with multiple candidates running, or a tournament among some number of teams. The straightforward approach is to create a pair of assets for each candidate, representing respectively, that competitor's chances of winning and losing. This way you end up with N separate markets, and each one has a price for buying and selling the particular candidate that gives their chance of winning. The same general idea can be used to turn a continuous variable (how many widgets will we sell? What will the temperature in San Jose be on August 27th?) into a series of discrete choices. I'll talk about those kinds of markets later.

MIT's Center for Coordination Science has recast itself as the Center for Collective Intelligence. Tom Malone (who spoke at the New York Prediction Market Summit), and Tomaso Poggio (who co-authored Securities Trading of Concepts) are two of the principals. The new center's framing question is How can people and computers be connected so that?collectively?they act more intelligently than any individuals, groups, or computers have ever done?. Prediction Markets are explicitly on the agenda. Their proposed (and ongoing) research includes:

• How can large groups of people produce high quality written documents?
• How can groups of people make accurate predictions of future events? For instance, in prediction markets, people buy and sell predictions about uncertain future events, and the prices that emerge in these markets are often better predictors than opinion polls or individual experts. When and how do these prediction markets work best? How can they be combined with simulations, neural nets, and other techniques? (emphasis added)
• How can we harness the intelligence of thousands of people around the world to help solve the problems of global climate change?
• How can we create an on-line, searchable library of books from many languages and historical eras?
• How can we help create commercially sustainable products and services for low-income communities around the world?

This focus is strongly related to Marty Tenebaum's proposals in his AAAI invited talk and PARC Forum on collaboration between people and intelligent agents on the modern web. (In addition to being at the heart of what's most valuable about Web 2.0.)

Other distinguished faculty include Deborah Anacona, Rodney Brooks, and Alex Pentland. Marty's son Josh Tenenbaum is also on the faculty.

The center is new enough that their websites don't appear to be in their final locations. cci.mit.edu still has the old center's pages, while the new center is at learning.mit.edu. If the links move around, that's probably why.

Congratulations on the creation of the new center, and good luck!

 ADDENDUM: Apparently I jumped the gun with this annoucement.  The center is now up at cci.mit.edu, and learning.mit.edu has been discontinued.  I changed the link under the first mention of the center's new name.

In response to a couple of requests for installation help, I spent most of the week figuring out how to install under Windows, and how to generate appropriate zip files. I have uploaded a new release of the Zocalo Prediction Market Software to SourceForge. There are now 5 different files you can choose from in order to run Experiments or Prediction Markets, on Windows (zip) or unix-based platforms (tar.gz), or to get a copy of the entire source tree.

I'm embarassed to admit that I broke the Experiments in the last release, but they should be fixed.

On another note, while I was poking around SourceForge the other day, I noticed that they keep statistics on downloads and visits. The statistics on downloads didn't have any interesting consistency, and I think the "project web traffic" means my use to check-in changes and maintain the code, but this graph of traffic sure looks interesting. A steadily growing number of visits is good. Thanks for your interest. I plan to keep improving Zocalo; I hope to justify your continued interest.