Some market descriptions are phrased with details that seem helpful but unintentionally narrow an outcome’s criteria with various assumptions. Two recent examples:

1. In the October Surprise market, Attack Iran is described as “Will the U.S. attack Iran resulting in an unexpected boost in President Bush’s popularity rating (and the GOP’s salvation) prior to the November elections?”

What happens if the US attacks Iran but Bush’s popularity goes down? What if Bush’s popularity goes up but it doesn’t lead to the GOP’s “salvation”, however that’s defined? (For example, at the moment it’s conceivable, however likely or unlikely, that the US will attack Iran before the elections and Bush’s ratings will rise—but the GOP will lose Congress over the Foley issue.) If the stock is strictly about attacking Iran, it should be phrased that way!

2. In US, North Korea Conflict (it’s just coincidence that both these examples are about wars), the stock is described paying out if there’s “conflict between US Armed Forces and North Korea within six months over the nuclear issue”.

What if the nuclear issue is quickly resolved but some other provocation leads to war? I guess the stock would close at 100, but why not phrase it so that there’s no question in traders’ minds?

So please remember to expect the unexpected. Most markets should be defined in terms of something happening, not precisely why or how it happens. Avoid confusing details. Thanks!

Excellent point. While it is okay, and maybe even useful to provide some context for a market, the market maker should try to be clear about exactly how and when a market will end and stocks will be paid.

For example, in the October Surprise example, the stock could be clarified as: will pay 100 if the U.S. attacks Iran and President Bush’s popularity increases prior to the end of October. In this case the market manager should provide a specific reference measure for Bush’s popularity, i.e. a popularly published poll. Or, maybe simply, will pay 100 if the U.S. attacks Iran prior to the end of October. Either way is okay, but potential investors should know what they are getting into.