Category Archives: Prediction Markets

Prediction Market System Architecture

Posted on March 18, 2016 by jamesdmccaffrey

Recently I was working with a prediction market system. In a prediction market, the goal is to predict something such as the winner of a political election with three candidates. You get a group of experts who buy and sell … Continue reading →

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Prediction Market Cost of Transaction

Posted on March 17, 2016 by jamesdmccaffrey

Suppose you want to predict which of three candidates will win a political election. One approach is to get a group of experts and allow them to buy and sell shares of each candidate, in a way similar to how … Continue reading →

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Prediction Market Liquidity Constant

Posted on March 16, 2016 by jamesdmccaffrey

Suppose you want to predict the outcome of a political election that has four candidates. One approach is to get a group of experts and allow them to buy and sell shares of the candidates in a way that’s similar … Continue reading →

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Safe Calculation of ln(exp(a) + exp(b))

Posted on March 15, 2016 by jamesdmccaffrey

I’ve been working with an interesting system called a prediction market. The goal of a prediction market is to predict an outcome such as the winner of a basketball tournament with 64 teams. You get a group of experts and … Continue reading →

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Graphing a Prediction Market Cost Function

Posted on March 12, 2016 by jamesdmccaffrey

The goal of a prediction market is to predict an outcome such as the winner of a political election. In a prediction market, a group of experts buys and sells shares in the options in a way similar to the … Continue reading →

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Prediction Market Probabilities

Posted on March 11, 2016 by jamesdmccaffrey

Suppose you want to predict which of three soccer teams will win a tournament. In a prediction market, you get a bunch of experts and let them buy and sell shares of each team. The price of a team will … Continue reading →

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Initializing a Prediction Market

Posted on March 8, 2016 by jamesdmccaffrey

Suppose you want to predict which of three basketball teams will win a tournament. In a prediction market, you get a bunch of experts and let them buy and sell shares of each team. The price of a team will … Continue reading →

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Cross Entropy Error and Logarithmic Scoring Rule

Posted on March 6, 2016 by jamesdmccaffrey

I was working on a “computational economics” project recently. That project used something called the logarithmic scoring rule. I noticed that the logarithmic scoring rule is essentially the negative of something called cross entropy error, which is often used with … Continue reading →

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The Max Trick when Computing Softmax

Posted on March 4, 2016 by jamesdmccaffrey

The softmax function appears in many machine learning algorithms, in particular neural networks and prediction markets. The idea is, if you have a set of values, to scale them so they sum to 1.0 and therefore can be interpreted as … Continue reading →

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