1) (22.5 pts.) Let’s assume you have $1,000 to invest in prediction markets. Naturally, you want to make more money, meaning that when you sell your best judgments you get more than the $1,000 you invested. Identify a prediction market company that you want to pretend invest in. We looked at www.intrade.com in class but there are others. Furthermore, www.intrade.com has both a set of real markets where you can invest (or some might claim gamble) real money, and a practice market site where you can invest pretend money. You can pretend invest in the real market without signing up for a login, or you can make a login account with them and use the practice market. Or you can find another prediction market other than intrade.com. The one thing you cannot do is open a real account (as part of this HW) because this course does not endorse, or suggest you to spend real money on, any particular company! For the next question let’s assume you are making pretend use of intrade’s set of real markets.

• I have successfully signed up for an account at Intrade. My account number is 11391869.

2) (22.5 pts.) Find 10 prediction markets that you are interested in or know more about than most others. For example, you might pick the prediction market for whether 2009 will be one of the 5 hottest years on record, the prediction market for whether Michael Jackson’s death will result in homicide charges, and some other eight. In fact there are dozens and dozens if not hundreds of markets they have easily accessible from their Web site. Make a list of them.

• 2016.OLYMPICS.NTH.AMERICA. A venue in North America to host the 2016 Summer Olympics.
• US.GOVT.HEALTHPLAN.DEC09. A federal government run health insurance plan to be approved before midnight ET 31 Dec 2009.
• JACKSON.MURDER.DEC09. Person(s) to be charged with manslaughter, homicide or other unlawful killing of Michael Jackson.
• SCI.NEU.HUM.250. Humans will have Neural Implants that access the Internet by 2020.
• SCI.FUT.LOC.160. Location based Services to hit mainstream by 2010.
• SCI.YOU.YOU.875 Youtube to begin putting full length ads before all videos by end of 2009.
• SCI.STE.STE.36 Steve Jobs Dies by the end of 2009.
• EMANUAL.DEPART.EOT Rahm Emanuel to depart as White House Chief of Staff before end of first term.
• UIGEA.AMENDED.DEC10 Bill amending UIGEA to be passed by 31 Dec 2010 with Rep. Barney Frank as sponsor.
• US.RECESSION.09 The US Economy will go into Recession during 2009.

3) (22.5 pts) For each of the 10 markets, decide whether the current probability shown on the graph is higher or lower than your best judgment. List the ones for which you judge the current probability to be too low.

• 2016.OLYMPICS.NTH.AMERICA.
• SCI.NEU.HUM.250.
• US.GOVT.HEALTHPLAN.DEC09.

4) Invest your $1,000 in the ones you feel are currently too low, as follows.

• a. (3.5 pts.) Pick one of the markets. Say which one. I am picking the 2016 Olympics being picked to be in North America.
• b. (3.5 pts.) Figure out the price of a single contract (a contract is a little like a share of stock). That price is: (the probability in percentage points) x ($0.10). So if the probability on the graph is 65%=0.65, then a single contract will cost you 65 x $0.10, or $6.50, to buy. Give this price in your HW. The probability of the contract is 65.9%, so a single contract costs $6.59.
• c. (3.5 pts.) Decide how many contracts to buy (remember you have $1,000 but will want to spread that over a number of different markets). Note the number in your HW. I bought 50 contracts of the 2016 Olympics in North America, and 50 contracts of Humans having neural implants accessing the internet by 2020.
• d. (3.5 pts.) Figure out the total amount you are investing in this market. State this. $329 in the 2016 Olympics and $5 for Neural Implants (this is a just-started market).
• e. (8.5 pts.) Subtract that from $1,000 to find out how much you have left to invest in the other markets. Then go through the above steps again using another market. Repeat until you have invested all of the $1,000 in the markets you have chosen to invest in. They actually gave me $5000 of play money to invest.

5) (10 pts., to be assigned toward the end of the semester. 10 if you make money, but only 5 if you lose money, sorry!) You may sell any of your contracts at any time during the semester, and buy any new contracts you like with the money you got from selling (or just hang on to the money if you prefer). You are not required to do this, if you just want to keep the same contracts. To sell, just see what the contracts you have are worth, using the graphs at the company Web site, and pretend you’ve sold them. Keep track of what you do by editing your blog entry for this HW. Toward the end of the semester I will ask everyone to sell everything and we’ll see how much money you’ve made or lost!