For those of you who don't know, a futures market, or "prediction market", is an economic marketplace where investors buy "shares" in the likelihood of an outcome, and are compensated based on their accuracy. Most futures markets trade in commodities like gold, grain and oil. A seller tries to find a buyer of X amount of gold at a certain price after a certain period of time. If the seller is convinced the value of his gold will drop in the next six months, he will try to sell, today, a future contract delivering X amount of gold at its current price in six months. Ok. Still with me?
Now, because futures markets are open, speculators can trade in contracts ("speculators" used to mean people who don't have gold to sell and don't want to buy it, they just want cash). Say a speculator buys a contract, today, for Y amount of gold in six months at $50/lb. At the end of the six months, the price of gold has risen to $70/lb. Now, our speculator can sell his contract for $60/lb to a happy buyer, and make a handsome $10/lb profit. Right, so you're going, "what does this have to do with Barry Bonds?". Well.....
Because anyone with good information can make money in the futures market by correctly predicting a given outcome (i.e., the price will rise or the price will drop), the market isn't really about commodities at all; it's about data. So, smart people realized that if you give an incentive to predictive accuracy, people who believe they have good information (or even just good intuition) will buy into the futures market. Thus, markets like the Iowa Electronic Markets
and DARPA's TerrorXchange have been created to predict outcomes in political elections and probabilites of terror attacks. And get this: they are really accurate. As in, more accurate, over the long-term, than any one person could be, no matter how well-informed. The underlying idea is that the informed and economically driven investing public will provide a better predictive model than pure statistical analysis when highly volatile variables (i.e., humans, or in our case, humans who play baseball) are introduced. The question is whether we can we apply this model to our boys of summer.
In a sense, we already do this in every preseason auction. When you buy Pujols for $45, you are investing in the future outcome that he will provide at least that much in value. But the auction suffers from three vaguaries we'd have to rectify (note: i like these vaguaries! just want to do a good analysis): first, the exchange rate between roto stats and $1 of expected value must be standardized to universalize statistical predictions; second, players must be evaluated in terms of production solely (i.e., consider positional scarity an artifact of roto; we're trying to standardize statistical prediction); finally, the idea of player ownership is contrary to our goal: we are seeking to develop a market structure based on future outcomes, not rights to those outcomes (i.e., the fact that Pujols' hits 40 dingers, not those HRs themselves).
So, if you made it this far, the idea is to create a Fantasy Futures Market here at the Cafe. If anyone is interested, I'd love to talk to you and start working something out. In any case, one model I've envisioned, without approaching the line between futures investment and sports gambling is: a weekly or bi-weekly marketpost at which each investor would have an annual $100 (imaginary) to invest in three outcomes for a player sometime in the future. A quick example:
Austin Kearns will play how many games in 2005?
The dollars could be distributed in any way any week by each investor (with a max of say $10/week). At the end of the year (or whenever the future contract is up), the astute investor gains $1 on top of each invested dollar. The losing investor loses their shirt on that investment. Guy with the most cash money at the end gets compliments and (pleeeeease?) an avatar icon. And if we get enough investors, we'll have a chance to see what everyone is thinking and how right they think they are. So, ya, it's a clunky experiment, but if it works, maybe we can get even more crazy with it.
note: As a disclaimer, I just want to say I have no expertise in this field, and my knowledge of economics is limited to 100-level courses (i'm only a frosh). Also, this idea is too good to not have been thought of before -- so please don't get mad at me if you thought of it first, I'm not trying to take credit for anything! I just thought this board (it's the most active one I've found) would be a great place to start some small-scale futures experiments because of the high-volume traffic of rotoheads. Oh, and sorry about the looooong post.