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First Political Prediction Market in Japan

The first attempt of political prediction market in Japan is now conducted by an IT venture company. The theme of prediction is the Lower House General Election scheduled on September 11, 2005.

The market is run by Hatena, an IT venture company operating a "human-powered search portal site." The firm provides a unique web-based platform in which users can ask other users for information needed. Many users, including many professionals in many fields, commit themselves to the mutual aid and form a rich online community. The company itself exploits this rich customer base by asking for business ideas to the customers. Such "open-source" type of management is also a reason for the company's success.

Prediction market is one of Hatena's newest attempts to pursue the potential of such management style. In April 2005, it started "Hatena Idea," the prediction markets in which users trade ideas on new service be introduced by Hatena.

The first political prediction market in Japan, "General Election 2005," adapts market engine from the Hatena Idea. The securities traded there reflect the seat share of political parties, enabling us to predict the seat share of the Lower House after September 11. About 3,000 traders participates in the market now. The market somewhat resembles to the vote share market in the Iowa Electronic Markets, but has several major differences:

1) The market uses virtual money.
In Japan, any real-money financial market that is authorized by law is viewed as an illegal gamble. General Election Hatena uses virtual money (called "idea point") to avoid this problem.

2) Hatena provides additional money for incentive.
Unlike IEM. General Election Hatena provides traders with additional virtual money for incentive. The amount of incentive is fixed at 100,000 points in total to avoid "inflation" in the economy of idea points. The total market capitalization (sum of invested money and the incentive) is slightly less than 500,000 points. Thus as new money is invested, the expected value of the incentive points is gradually decreased (there should be a room for improvement for this point).

Hatena sells "security bundle," a portforio consisting of one unit each of all securities, and the invested virtual money is distributed according to the seat share of the Lower House. Since Hatena provides additional money for incentive, the expected payoff of each security is approximately the double of what they invested.

Currently the virtual money cannot be converted to real money or any form of real value. Hatena Idea is now in the stage of beta service (so is General Election Hatena), and the firm is now thinking how to do with this issue.

As for the election, the Liberal Democratic Party (LDP), headed by the Prime Minister Koizumi, is the lead from the start over the main opposition, the Democratic Party of Japan (DPJ). Most polls and many election experts predict the majority of the coalition of LDP and Komeito. Many even predicts the LDP's outright majority, occupying majority seats without coalition. But some election experts insist that there is a significant chance of DPJ's reversal. In fact, about 30-40% of poll respondents are "undecided."

The Lower House has 480 seats in total. They are held by the following parties now.

Number of Seats Occupied by Each Party

Name of PartyNo. of Seats Held
Liberal Democratic Party (LDP)249
New Komeito34
(Coalition Total)(283)
Democratic Party of Japan (DPJ)176
Japanese Communist Party (JCP)9
Social Democratic Party (SDP)6
Independent3
Vacant3
Total480


The situation of General Election 2005 as of 14:00 (JST), September 9 is as follows.

General Election 2005 as of 14:00 (JST), September 9

LDPKomeiCoalitionDPJJCPSDPOther
252,12133,529285,650159,3269,9874,75627,107
51.8%6.9%58.7%32.7%2.1%1.0%5.6%
Above: market capitalization in idea points. Below: Share of market capitalization of particular security to the total market capitalization.

The "prediction" extracted from the current market situation is somewhat similar to that of the polls. Of course the prediction performance of the market is determined after we know the election result.

The below are some examples of predictions by newspapers and experts.

Prediction by Asahi Shimbun as of September 4

LDPKomeiCoalitionDPJJCPSDPOtherIndependent
2552828316388315
53.1%5.8%59.0%34.0%1.7%1.7%0.2%3.1%
Above: number of seats occupied. Below: Seat share.

Prediction by the professor Masayuki Fukuoka, an election expert as of September 3

LDPKomeiCoalitionDPJJCPSDPOtherIndependent
2482827617183517
51.7%5.8%57.5%35.6%1.7%0.6%1.0%3.5%
Above: number of seats occupied. Below: Seat share.

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Comments

Hi there,

Thanks for tipping the English-speaking world about this!

http://www.chrisfmasse.com/3/3/news/

Best regards,

Chris. F. Masse

Posted by: Chris. F. Masse | September 10, 2005 at 05:35 AM

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