The Washington Stock Exchange
November 11, 2006 1:46 PM   Subscribe

The Washington Stock Exchange. A stock exchange for political junkies.
posted by matkline (22 comments total) 2 users marked this as a favorite
When I first opened the site, they were giving Bolton a 72% probability of Senate confirmation... it's not dropped to 47.5%. Everyone just now checked the news at once.
posted by moonbird at 2:04 PM on November 11, 2006

not = now.
posted by moonbird at 2:04 PM on November 11, 2006

47.5% seems a tad high since Lincoln Chafee isn't going to let the nomination get out of committee.
posted by found missing at 2:09 PM on November 11, 2006

I signed up (ten or twenty minutes ago) and tried to short the Bolton stock, but my order hasn't gone through yet. Maybe we broke it.
posted by blacklite at 2:18 PM on November 11, 2006

Oh, there we go. I had to confirm my e-mail. I can smell the W$ rolling in already. ...
posted by blacklite at 2:22 PM on November 11, 2006

Okay, so I just made W$932,000. They shouldn't really call it a stock market. In the real world there is no way I would have been able to short-sell 20000 of the Bolton stock, because there would be no buyers - the stock was going down like the Republican party in a 2006 election. And yet, I did, at $49, and now it's at $4.
posted by blacklite at 2:27 PM on November 11, 2006

going down like the Republican party in a 2006 election.

[insert ted haggard / mark foley joke]
posted by spiderwire at 2:32 PM on November 11, 2006

Now it's at 3.9%. Still too high, probably.
posted by found missing at 2:35 PM on November 11, 2006

Okay, 64K in 3 minutes, and that on a couple of small trades. Easiest money I never made.

Here are the problems.

First, this isn't a stock market; it's an options market.

Next, it isn't obvious how the market is structured, or at least I couldn't find an explanation on the site. Who's making the market here -- is it the exchange? It looks like the quoted price for 100 shares is the same as for 10000 -- is it? And am I guaranteed execution at the quoted price? Does my entire trade execute at once? Why isn't there a bid-ask spread? Knowing this stuff affects trading strategies.

Finally, how exactly does the price reflect the probability that an event will occur? At best it would reflect the market's assessment of the probability that an event will occur but that's not the same thing, and only works if your participants are rational investors (necessary, but not sufficient, I think -- IANAE.) More likely other factors like supply/demand mismatch and non-linear utility curves enter into it, like they do in the real world.

You'd think their Ph.D.-heavy advisory board would have had the same concerns but whatever.

It's cute, but it isn't really a stock market and it's really not even reflective of trading ability unless they tell you more about how it works.
posted by Opposite George at 2:40 PM on November 11, 2006

Okay, so did anybody else read the member agreement? I didn't and now I can't find it but based on the site's affiliation with ConsensusPoint I'm wondering if this is just a prediction market whose results some consultants are going to use (at no benefit to the market's participants -- thanks, guys.) I never really believed the PM hype and given their dreadful performance in the last election it looks like I may have been right for a change. If that's the case, meh -- no, double meh -- on the site.

Still like the post, though -- the site's still interesting even if it sucks.
posted by Opposite George at 2:48 PM on November 11, 2006

Is there a betting odds page with the same kind of information?
posted by Brian B. at 2:48 PM on November 11, 2006

Opposite George: On the confirm trade screen, it does say "The Total is estimated based on the order book of this stock. The actual amount will be determined by the price at the time the order is executed."

So, yeah, you have no idea. The estimated price does change based on your volume, but it seems like the trade does execute all at once -- I don't see any provision for partial order fulfillment on the portfolio screen. Considering that I was able to short sell 20000 of Bolton, though, I'm guessing they just act as the market maker and will buy and sell anything even when it's ridiculous. I would be highly suspicious of the idea that any user was looking to buy at $46.

I wonder what the advisory board actually does. Perhaps the WSX guys wrote them some e-mail and asked if they could list them.
posted by blacklite at 2:54 PM on November 11, 2006

Brian B.,

I know in the U.K. people make book on all kinds of stuff like this, though I suspect it might be tough to get odds on American political minutiae. And the other problem is that betting odds don't really reflect probabilities either -- it basically comes down to the odds the bookie has to quote to stay in business but that isn't the same thing.
posted by Opposite George at 2:56 PM on November 11, 2006

Perhaps the WSX guys wrote them some e-mail and asked if they could list them.

Yeah, I was thinking the same thing. They probably got a coffee mug or a few hundred bucks out of it too.
posted by Opposite George at 2:57 PM on November 11, 2006

And the other problem is that betting odds don't really reflect probabilities either

That was worded craptastically. I should have said "Do note that betting odds..." Obviously if betting odds did reflect probabilities there wouldn't be much use to placing bets apart from hedging.
posted by Opposite George at 3:02 PM on November 11, 2006

Good post. I can already tell this will be very addictive.
posted by Afroblanco at 3:10 PM on November 11, 2006

Okay, so I just made W$932,000.

Sure, Spike, but a million woolong will only buy you green peppers and beef. With no beef.
posted by ROU_Xenophobe at 3:21 PM on November 11, 2006

It's kind of annoying that you can't buy on margin or anything. All of my assets are tied up in the Bolton thing and now I am rich! But. Yeah. Green peppers.
posted by blacklite at 3:34 PM on November 11, 2006

For added fun, use real money.
posted by rkent at 3:45 PM on November 11, 2006

Greetings - since there are some questions about how the WSX works I figured I would shed some light on a few things.

The prices are set by an automated market maker, which places a range of buy and sell orders on the book. When you submit an order, it analyzes the supply and demand and matches you to one of the orders. In the very near future, we're going to expose the order book so that you can see all the booked orders and place limit orders. The word "stock" is somewhat of a misnomer - the WSX is more of a futures exchange. We were going to call it Washington Futures Exchange but then realized that "futuresexchange" spelled out in a URL could be interpreted as "future sex change" :) Also, we felt like the stock exchange metaphor is close enough - it's just about buying low and selling high (or selling high and buying low).

When you make a trade, the automated market maker always takes the other side. That's why he is willing to take your trade for $46 on the Bolton confirmation - isn't that nice of him. :)

In actuality, the Bolton contract isn't such a good one for the WSX because it does appear to be so clear cut. We put it up just prior to the Chafee announcement when there was more uncertainly around it. We generally try to pick questions that are a lot tougher to answer because the market is generally going to work better with a lot of volume.

In terms of interpreting the prices as a probability, I would recommend taking a look at this paper (PDF) by Eric Zitzewitz and Justin Wolfers (Justin is one of our advisers). It provides an explanation a lot better than I could. I'm down with the coffee mug idea for our advisory board members though - I need to do that. Actually, they are very gracious to be involved and help to keep us pointed in the right direction.

Regarding the WSX data, we haven't completely figured out what to do with it yet, and probably won't for a while. The market is relatively new and we're still experimenting and calibrating. We built the WSX to minimize some of the hierarchy between elected officials and voters and facilitate more direct conversations between the two. We've seen that work in the corporate environment with good results and figured it would with politics as well. At some point, we'd like the WSX to be used by elected officials as a decision support tool for making better policy. We've got to figure a few things out before we can get there though.

The terms of service is located here and the privacy policy is here. (In short, we won't share any personal data with any third-party.)

We're in the process of adding loads of new stocks about a range of different issues (policy decisions, appointments, SCOTUS decisions, military/foreign policy events, etc.) If you have any ideas for new stocks, feel free to send them to and we would be happy to list them.
posted by davidhperry at 10:12 PM on November 11, 2006


Thanks for joining the discussion.

Just so you know, IANAE but worked enough in the financial markets to see the dangers of trying to expect too much from models' predictive values (my last job had a heavy risk management component.) So I'm looking at your site with interest but also looking for the holes. I'm not sure if what I'm offering here is good advice or completely full of crap so do what you will with it.

I called this an options market before but that's wrong. You called it a futures market and that's better. I think really the best thing to call it would be a derivatives market and maybe playing around with that terminology would solve your "sex" problem.

Opening the order book is a good thing if you want to maximize market efficiency (I think you want this to increase the potential predictive value.) You might also consider supporting limit and stop-loss orders. Ability to show exchange trade/volume history by individual orders (leaving trading party names off the screen, of course) would be another step in the right direction.

One question on the market-making process -- I noticed no arbitrage between, i.e., DEMPRES and GOPPRES. Is this enforced by the market, by the market maker, or is one or both a synthetic. Just curious.

In terms of interpreting the prices as a probability, I would recommend taking a look at this paper

Interesting paper. Thanks.

I don't know if your market meets the draft paper's sufficient conditions, but let's say it does. Even if the derivative values accurately reflect mean market prediction values, that isn't the same as saying they're the probability of the event actually occuring, which is one way to read the first sentence in your FAQ. Adding to the confusion, the FAQ later refers to the value as an "estimated probability," which is again something different (technically, "estimated" could mean a bunch of different things.) Not all your participants know enough to distinguish between modeled predictions and reality and the way the value is explained could lead some to believe they're operating in a world of natural law rather than theory. If you're looking to maximize predictive power, this seems like a not-good thing.

Really, it just seems like a problem with language. And I understand that there are tradeoffs between using precise terms vs. staying comprehensible to a non-specialist audience. Unfortunately, especially in FAQs and especially for new products you often need to use very precise terms if you want sophisticated participants to feel you know what you're talking about.

Changing the FAQ to say that the derivative values are intended to reflect a market estimate of payoff probability (if that's what they are) or something like that -- I know my wording is clumsy -- will keep party-poopers like me off your back, even if we don't agree whether they actually do reflect reality (even the paper's authors warn of prediction market prices' potential for bias.)

Not that having biased estimates is a bad thing for everybody. In fact, if there isn't enough well-informed arb activity to kill the bias you'll have a few very happy speculators. This happiness, of course, comes at the expense of the winners' counterparties and those who look to the market as the single best predictor of the future.

I disagree about how good the Bolton contract is for your exchange. It would seem to me that since we basically now know how it's going to pay off it's an excellent contract to keep listed. It should be a good test for the hypothesis that trade values are a good model for actual, as opposed to biased, expectation values. One of your guys could probably get a paper out of it.

Good luck with the site.

P.S.: Totally send your doods some mugs.
posted by Opposite George at 11:56 PM on November 11, 2006

Sorry for the delayed reply - we're been busy lately. :)

I definitely appreciate the feedback, especially the criticism and advice.  We're in the early stages yet are we're still trying to poke holes in it ourselves.  

Regarding DEMPRES and GOPPRES, they share the same market maker so they are the inverse of each other.  We made most of the election stuff auto-arbitrage to make them more quotable and easier to understand.  

I agree completely with you about the site verbiage - it's not clear  or comprehensive enough.  We're in the process of adding a lot more textual content and will be standardising a lot of the language as part of that.  

Thanks again for the input - talk to you later.
posted by davidhperry at 11:32 PM on November 13, 2006

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