While forecasting is a skill that can be learned and improved, research suggests that those who excel in prediction markets and other similar activities tend to share certain traits:
Track Record of Strong Returns from Gambling and Investing: A University of Iowa study found that experienced investors with a high degree of financial knowledge are more likely to act as rational traders. This is consistent with my anecdotal observation that good PredictIt traders tend to have a record of making money in other skill-based gambling activities like poker or the stock market.
High IQ: A recent study of superforecasters found that facets of good judgment are correlated with intelligence. Recent studies also show a strong correlation between IQ and investment performance in the stock market. A high IQ is even more predictive of successful investing than income level. Although there are important differences between political prediction markets and the stock market, these studies are worth considering.
High Education Level: A University of Iowa study of the Iowa Electronic Markets found that investors with a high education level are less likely to make irrational trading decisions. In presidential elections, college graduates are significantly less likely to exhibit preference-expectation bias than those without a college degree.[1]
Rational Personality Type: I strongly recommend taking a Myers Briggs personality test. There are a bunch of free ones online. Keep taking them until you get a clear answer. I’m not prepared to say that certain personality types cannot succeed at PredictIt. I’ve found, though, that the vast majority of good traders I know are “rationals,” i.e. Intuitive Thinkers, which are more likely than other types to analyze long-term trends and reach logical conclusions based on probabilities, pattern recognition, and analogical reasoning. My observation is consistent with the research of trading coach Doug Hirschhorn, who administered the Myers Britggs test to a large group of portfolio managers and found that 80 percent are intuitives compared to just 25 percent of the general population.
Some Myers Briggs experts think that the INTJ personality type has unique predictive abilities. This seems plausible for several reasons, particularly in the context of PredictIt:
- In addition to the advantages that come from their rational side, INTJ’s introversion may also be an asset. Introversion lends itself to better meta-cognition – “thinking about thinking.”
- INTJs have unique sensitivities and insecurities. They are particularly inclined to feel the “bite” or “sting” of mediocrity and, to quote INTJ expert Anna Moss, “quickly learn to adapt to the experience.” At the same time, they are less resistant than their INTP counterparts to being proven wrong. This may allow them to recognize, more objectively, their own strengths and weaknesses as an investor.
- INTJs are unique in their future orientation and tendency to plan on a long time horizon.[2] This likely makes INTJs more capable of delaying gratification and pursuing prudent long-term investment strategies.[3]
Emotional Detachment: In every presidential election between 1952 and 1980,researchers have found that people are significantly more likely to believe that their preferred candidate will win—even in landslide elections like the presidential races in 1964 and 1972. Good PredictIt investors avoid preference-expectation bias.There isn’t much correlation between the level of one’s interest in politics and their ability to be a good investor on PredictIt. Research shows a minimal relationship between political involvement and tendency toward preference-expectation bias. What good investors have in common is an ability to separate their hopes and values from their predictions. They instinctively recognize that what should happen is not what will happen.
Self Control: Self-control is related to, but distinct from, emotional detachment. Sometimes, emotions can interfere with sound judgment in the process of investing. These temptations are not unlike the ones that lead to online gambling addictions. Successful PredictIt investors do not pretend like they are immune to these temptations. Rather, they create habits, routines, and systems that lend themselves to emotional self-regulation.
Expertise in Trends: Successful PredictIt traders are not necessarily political junkies. Rather, they have a good read on mid to long-term trends.Often, they develop this intuition through expertise, not only in politics, but also in many semi-related fields. A focus on trends rather than news is what allows investors to maintain perspective when the markets are panicking at breaking news reports.
Humility, Curiosity, and Open-Mindedness: SuccessfulPredictIt investors are not wedded to any one particular way of thinking or conclusion about the world. They aren’t“hedgehogs” who proclaim one big idea or theory that explains everything. They’re “foxes” who gravitate toward nuanceand complexity in drawing conclusions about the world.[4]
Successful investors balance self-confidence with humility. They accept that they will never gain full awareness, much less mastery, over their cognitive biases and blind spots. They are intensely curious. They are willing to take seriously the insights and opinions of those they dislike, and accept coaching and advice from those who are better and more experienced than they are. They see criticism, counterarguments, and debate—not as personal affronts –but rather as opportunities to learn.
Willingness to Concede Error: A willingness to concede error and readjust positions based on new information provides a significant edge in prediction markets. Researchers have found that the vast majority of traders never even once change the direction of their exposure and hold their positions to expiration. Armstrong believes that a tendency to avoid disconfirming evidence may be among the primary reasons why experts err in forecasting.
Welcoming of Accountability: Good Judgment Chief Scientist Kathryn Cochran typed the superforecasters in the company as “people that crave feedback and accountability and…thrive on being able to do better the next time and to improve.”
[1] An important point here is that education is not an indication of good prediction due to the “analytical skills undergirding academic acclaim”, which, as Tetlock found, confer “no advantage in forecasting and belief-updating exercises.”
[2] Harrison, D. & Lawrence G. (1985). Psychological type and time orientation: Do middle school students differ in projecting their personal futures? Journal of Psychological Type, 9, 10-15.
[3] For connection between future orientation and delayed gratification, see House, R., Hanges, P., Ruiz-Quintanilla, S., Dorfman, P., Javidan, M., Dickson, M., & Gupta, V. (1999). Cultural influences on leadership and organizations: Project GLOBE. Advances in Global Leadership, 1, 171-233.
[4] For an extended discussion of foxes versus hedgehogs in political prediction, see Philip Tetlock, Expert Political Judgment: How Good Is It? How Can We Know, Princeton University Press, 2005.