Practical dos and don'ts of enterprise prediction markets

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Practical dos and don'ts of enterprise prediction markets

  1. 1. Effec%ve
Enterprise
Markets:
 What
makes
them
work
and
Why
 Dr.
Robin
Hanson,
Chief
Scien%st
 Rebecca
W
Munn,
Senior
Vice
President
 KM
Chicago
 September
14,
2010

  2. 2. Agenda
 •  Introduc;ons
 •  What
makes
Enterprise
Markets
work
 •  Why
markets
as
a
medium
for
predic;ng
the
future
 •  Enterprise
Do’s
and
Don’ts

 •  Discussion

  3. 3. What
Makes
Markets
Work
 Buy
Low,
Sell
High
 Will price rise or fall? “Pays $1 if Obama wins” sell E[ price change | ?? ] buy price sell Lots of ?? get tried, buy price includes all!
  4. 4. What
Makes
Markets
Work
 Example:
Current
Event
Prices
 70‐71%
Republicans
win
US
House
in
11/2010
 42‐47%
California
legalizes
marijuana
in
11/2010
 
6‐16%

California
credit
default
by
2011

 10‐20%
US
overt
strike
on
N.
Korea
by
4/2011
 

24%




US
or
Israel
overt
strike
on
Iran
by
2012
 10‐19%
US
Sup.
Court
bans
med.
mandate
by
2012
 16‐18%
Palin
is
Republican
nominee
in
2012
 11‐30%
Japan
says
it
has
nuke
by
2013
 45‐48%
US
Cap
&
Trade
system
by
2013
 12‐14%
China
war
act
on
Taiwan
by
2013
 15‐38%
Higgs
Boson
seen
by
2014
 www.InTrade.com
  5. 5. What
Makes
Markets
Work
 Beats
Alterna%ves
 •  Vs.
Public
Opinion

 –  I.E.M.
beat
presiden;al
elec;on
polls
709/964
(Berg
et
al
‘08)
 –  Re
NFL,
beat
ave.,
rank
7
vs.
39
of
1947
(Pennock
et
al
’04)
 •  Vs.
Public
Experts
 –  Racetrack
odds
beat
weighed
track
experts
(Figlewski
‘79)

 •  If
anything,
track
odds
weigh
experts
too
much!

 –  OJ
futures
improve
weather
forecast
(Roll
‘84)

 –  Stocks
beat
Challenger
panel

(Maloney
&
Mulherin
‘03)
 –  Gas
demand
markets
beat
experts
(Spencer
‘04)
 –  Econ
stat
markets
beat
experts
2/3
(Wolfers
&
Zitzewitz
‘04)
 •  Vs.
Private
Experts
 –  HP
market
beat
official
forecast
6/8
(Ploh
‘00)
 –  Eli
Lily
markets
beat
official
6/9
(Servan‐Schreiber
’05)
 –  Microsoi
project
markets
beat
managers
(Proebs;ng
’05)

  6. 6. What
Makes
Markets
Work
 Example:
Iowa
Electronic
Market
 Item 1988 1992 1996 2000 2004 All # big 59 151 157 229 368 964 polls Poll 25 43 21 56 110 255 “wins” Market 34 108 136 173 258 709 “wins” % 58% 72% 87% 76% 70% 74% Market P-value 0.148 0.000 0.000 0.000 0.000 0.000 “Prediction Market Accuracy in the Long Run” Joyce Berg, Forrest Nelson and Thomas Rietz, Jan. 2008.
  7. 7. Why
Markets
as
a
Medium
for
Forecas%ng
 Advantages
 Incen(ves
 •  Numerically
precise
 Self‐Selec(on
 •  Consistent
across
many
issues
 Correct
Biases
 •  Frequently
updated
 •  Hard
to
manipulate
 •  Need
not
say
who
how
expert
when
 –  Issue
is
not

experts
vs.
amateurs
 •  At
least
as
accurate
as
alterna;ves

  8. 8. Why
Markets
as
a
Medium
for
Forecas%ng
 Collec%ve
Forecas%ng
 Forecasts
 On
Requested
 User

 Topics
 Contribu;ons
 User
Scores
 Engagement

  9. 9. Why
Markets
as
a
Medium
for
Forecas%ng
 Collec%ve
Forecas%ng
Ques%ons
 What
exactly
is

 Consensus
 What
exactly
are
my
 my
influence?
 incen7ves?
 My
Forecast
 My
Score
 How
exactly
do

 I
express
my
 Truth
 opinion?

  10. 10. Why
Markets
as
Medium
for
Forecas%ng
 Edi%ng
Interface
Is
Transparent
 If
my
edit
increases
 
I
directly

 Consensus
 the
consensus
chance

 change
the
 of
true
state,
I
win.

 consensus
 Else,
I
lose.
 My
Edits
 My
Score
 Truth

  11. 11. Why
Markets
as
Medium
for
Forecas%ng
 Factors
Might
Influence
Sales
 E[Sales|Factor]
 P[Factor]
 •  Economy
recovers
fast?
 •  Compe;tors
introduce
new
version?
 •  We
do
big
promo;on?
 •  We
lower
prices?

They
lower
prices?
 •  We
add
distribu;on
channel?
 •  We
add
feature
F?

They
add
feature
F?
 •  Our
defect
rate
very
low?

  12. 12. Why
Markets
as
Medium
for
Forecas%ng
 Issues
 Input:
Contribu%ons
 Output:
Forecasts,
Scores
 •  What
info
can
express?
 •  What
ques(ons
can
ask?
 •  How
account
for
costs?
 •  How
account
for
value?
 •  Who
let
in
where?
 •  Use
or
validate
system?
 •  Enough
Incen;ves
 •  Should
adjust
outputs?
 –  T‐shirts
enough?
 –  Zero‐sum
scoring?
 •  Who
let
see
outputs?
 •  Limit
Costs
 •  Sabotage
&
manipula;on
 –  Awkward
Interface
 •  Legal,
P.R.
risks?
 –  Wait
for
offer
accept
 –  Retribu;on

  13. 13. Why
Markets
as
Medium
for
Forecas%ng
 Requirements
 Use: •  Ques%ons
really
want
answered
now
 –  Will
eventually
know
answer
(or
parts)
 –  Suspect
not
geong
frank
info
via
usual
channels
 –  Don’t
mind
par;cipants
knowing
best
es;mates
 •  People
who
have
or
can
get
key
info
 –  Their
;me
is
the
main
cost
 –  Lihle
penalty
for
invite
many
don’t
know
 •  Incen%ves
to
en;ce
careful
par;cipa;on
 –  Money,
ahen;on,
influence
can
legally
offer
 –  Valued
when
ques;ons
answered
 Validate: •  Many
fast
ques;ons,
status
quo
es;mates

  14. 14. Enterprise
Do’s
and
Don’ts
of
Enterprise
 Markets
 Customer
 •  Do
 –  Integrate
into
Enterprise
processes
 –  Nurture
execu;ve
sponsorship
 –  Make
accessible
to
all
 –  Customize
to
your
business
 –  Make
it
Part
of
your
Value
Prop
 14

  15. 15. Integrate
Into
Enterprise
Processes
 Customer
 Challenge
 Ac;on
 Result
 • Facing
too
many
 • Deployed
internal
 • Increased
accuracy
 unknowns,
leaders
 market,
integrated
 from
market
has
 were
planning
for
all
 into
exis;ng
 streamlined
short
 possible
futures
 Enterprise
 and
mid‐term
 processes
and
 planning
 • Costly
and
;me‐ dashboards
 consuming
 • An;cipated
 • Appropriate
;me
 improvements
in
 horizons
matched
 metrics,
e.g.
cash
 Enterprise
 management,
 deadlines
 balance
sheet
 15

  16. 16. Nurture
Execu%ve
Sponsorship
 Customer
 Challenge
 Ac;on
 Result
 • Market
introduced
 • Sought
exec
air
 • Balanced
top‐down
 by
self‐ini;a;ng
 cover,
not
mandate
 endorsement
with
 team,
not
C‐suite
 • Targeted
key
 bohoms‐up
culture
 • Fit
entrepreneurial
 leaders
as
early
 • Grassroots
growth
 culture
 adopters
 more
sustainable
 • S;ll
needed
to
drive
 • Champion
is
one
of
 • Consulta;ve
 awareness,
 top
users
 rela;onship
with
 par;cipa;on,
and
 • Opened
market
to
 key
leaders
paves
 execu;ve
usage
 everyone

 way
for
followers
 16

  17. 17. Make
It
Accessible
To
All
 Customer
 Challenge
 Ac;on
 Result
 • Accelerate
the
 • Incorporated
 • Improved
overall
 process
of
 market
into
 ;me
to
market,
 priori;zing
ideas
 broader
innova;on
 speed
of
idea
 and
product
 plaqorm
 ac;on‐
by
100
days
 features
 • Deployed
market
 • 5‐10X
ROI
 • Engage
more
 globally
 • Tripled
 employees
in
 • Feed
ideas
to
every
 collabora;on
and
 innova;on
 business
unit
 cut
duplicate
ideas
 in
half
 17

  18. 18. Customize
It
to
Your
Business
 Customer
 Challenge
 Ac;on
 Result
 • Looking
for
new
 • Market
well‐named
 • Made
it
familiar
 ways
to
engage
 and
branded
 and
instantly
 their
customer
base
 • Seamless
 accessible
to
target
 • Seeking
 integra;on
with
 group
 differen;a;on
from
 company
website
 • Drove
par;cipa;on
 the
significant
 • Develop
custom
 and
accelerated
 compe;;on
in
their
 interface
to
match
 engagement
 market

 user
community
 • Differen;ated
from
 compe;;on
 18

  19. 19. Make
It
Part
of
Your
Value
Prop
 Client
 Challenge
 Ac;on
 Result
 • Customers
 • Recognized
market
 • Provide
clients
with

 represent
broad
 as
amplifier
of
 beher
data
via
 array
of
industry
 exis;ng
informa;on
 public
market
 stakeholders
 and
service
 • Enable
client
 • Universal
client
 offerings
 specific
experience

 need:
predic;ng
 • Integrated
market
 • Provide
superior

 behaviors
 into
all
aspects
of
 services
and
;mely
 • Tradi;onal
research
 how
they
create
 insights,
create
 &
forecas;ng
 value
and
conduct
 compe;;ve
 insufficient
given
 business
 advantage
 industry
changes
 19

  20. 20. Enterprise
Do’s
and
Don’ts
of
Enterprise
 Markets
 Customer
 •  Don’t
 –  Run
a
30
day
pilot

 –  Use
a
similar
group
of
par;cipants
 –  Run
a
market
without
promo;ng
it
 –  Assume
leaders
will
act
on
insights
 20

  21. 21. Discussion


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