Prediction Markets at Yahoo! David Pennock Yiling Chen, Tej Kasturi, Havi Hoffman, Dan Reeves Chao-Hsien Chu, Sandip Debna...
Prediction markets @ Y! *not to scale microeconomics prediction markets
Prediction markets @ Y! Design Build Analyze HSX NF TS WSEX FX PS
Case Study I <ul><li>Dynamic parimutuel </li></ul><ul><ul><li>Market maker </li></ul></ul><ul><ul><li>Cross btw stock mark...
Parimutuel market 1 1 1 1 1 1 1 1 1 1 1 1
Dynamic parimutuel market .49 .4 .3 0.97 .96 .94 .91 .87 .78 .59 .82 C( 1 , 2 )=2.2 C( 2 , 2 )=2.8 C( 2 , 3 )=3.6 C( 2 , 4...
Share-ratio price function <ul><li>One can view DPM as a market maker </li></ul><ul><li>Cost Function:  </li></ul><ul><li>...
<ul><li>Yahoo!,O’Reilly launched Buzz Game 3/05 @ETech </li></ul><ul><li>Research testbed for investigating search futures...
http://buzz.research.yahoo.com
Technology forecasts <ul><li>iPod phone </li></ul><ul><li>Google Calendar </li></ul><ul><li>Another Apple unveiling 10/12;...
Forecast Accuracy <ul><li>Average forecast error across 352 stocks </li></ul>end of phase 1 contest period forecast error ...
Early Lessons Learned <ul><li>Forecasts point in right direction </li></ul><ul><li>Market closing deadline focuses traders...
Analysis
<ul><li>Design | Delivery | Operations | Analysis </li></ul><ul><li>Highly Customized Solutions </li></ul>Business-value m...
What’s next? <ul><li>What the buzz game thinks will grow </li></ul><ul><ul><li>Web app framewks: Ruby on Rails </li></ul><...
Case Study II <ul><li>Yootopia :  Y!Internal economy for favors, predictions, grp decisions </li></ul>Design Build Analyze
More <ul><li>Betting mechanisms </li></ul><ul><ul><li>Combinatorics </li></ul></ul><ul><ul><li>Infinite/continuous </li></...
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  1. 1. Prediction Markets at Yahoo! David Pennock Yiling Chen, Tej Kasturi, Havi Hoffman, Dan Reeves Chao-Hsien Chu, Sandip Debnath, Mike Dooley, Rael Dornfest, Joan Fiegenbaum, Gary Flake, Lance Fortnow, Brian Galebach, Lee Giles, Joe Kilian, Steve Lawrence, Bernard Mangold, Tracy Mullen, Rahul Sami, Emile Servan-Schreiber, Michael Wellman, Justin Wolfers
  2. 2. Prediction markets @ Y! *not to scale microeconomics prediction markets
  3. 3. Prediction markets @ Y! Design Build Analyze HSX NF TS WSEX FX PS
  4. 4. Case Study I <ul><li>Dynamic parimutuel </li></ul><ul><ul><li>Market maker </li></ul></ul><ul><ul><li>Cross btw stock market and horse race betting </li></ul></ul>Design Analyze Build
  5. 5. Parimutuel market 1 1 1 1 1 1 1 1 1 1 1 1
  6. 6. Dynamic parimutuel market .49 .4 .3 0.97 .96 .94 .91 .87 .78 .59 .82 C( 1 , 2 )=2.2 C( 2 , 2 )=2.8 C( 2 , 3 )=3.6 C( 2 , 4 )=4.5 C( 2 , 5 )=5.4 C( 2 , 6 )=6.3 C( 2 , 7 )=7.3 C( 2 , 8 )=8.2 C( 3 , 8 )=8.5 C( 4 , 8 )=8.9 C( 5 , 8 )=9.4 <ul><li>Share-ratio cost function: </li></ul><ul><li>C( q 1 , q 2 )=  q 1 2 + q 2 2 </li></ul><ul><li>Properties </li></ul><ul><ul><li>No arbitrage </li></ul></ul><ul><ul><li>price i /price j = q i /q j </li></ul></ul><ul><ul><li>price i < $1 </li></ul></ul><ul><ul><li>payoff if right = C/q o > $1 </li></ul></ul>
  7. 7. Share-ratio price function <ul><li>One can view DPM as a market maker </li></ul><ul><li>Cost Function: </li></ul><ul><li>Price Function: </li></ul><ul><li>Properties </li></ul><ul><ul><li>No arbitrage </li></ul></ul><ul><ul><li>price i /price j = q i /q j </li></ul></ul><ul><ul><li>price i < $1 </li></ul></ul><ul><ul><li>payoff if right = C(Q final )/q o > $1 </li></ul></ul>
  8. 8. <ul><li>Yahoo!,O’Reilly launched Buzz Game 3/05 @ETech </li></ul><ul><li>Research testbed for investigating search futures </li></ul><ul><li>Buy “stock” in hundreds of technologies </li></ul><ul><li>Earn dividends based on actual search “buzz” </li></ul><ul><li>API interface </li></ul><ul><li>Exchange mechanism is new Yahoo!R invention Cross btw stock market and horse race betting </li></ul>http://buzz.research.yahoo.com
  9. 9. http://buzz.research.yahoo.com
  10. 10. Technology forecasts <ul><li>iPod phone </li></ul><ul><li>Google Calendar </li></ul><ul><li>Another Apple unveiling 10/12; iPod Video </li></ul>search buzz price 9/8-9/18: searches for iPod phone soar; early buyers profit 8/29: Apple invites press to “secret” unveiling 8/28: buzz gamers begin bidding up iPod phone 9/7: Apple announces Rokr 9am 10/5
  11. 11. Forecast Accuracy <ul><li>Average forecast error across 352 stocks </li></ul>end of phase 1 contest period forecast error rapidly declines as traders zero in on correct predictions
  12. 12. Early Lessons Learned <ul><li>Forecasts point in right direction </li></ul><ul><li>Market closing deadline focuses traders </li></ul><ul><li>Dividend levels matter </li></ul><ul><li>Intelligent strategies work </li></ul><ul><ul><li>Randomized bots lost money to real traders </li></ul></ul><ul><ul><li>Contest winner followed optimal buzz trading strategy (prices   buzz); Went from 4 th to 1 st place in final days </li></ul></ul><ul><ul><li>Forecast error does decrease over time </li></ul></ul>
  13. 13. Analysis
  14. 14. <ul><li>Design | Delivery | Operations | Analysis </li></ul><ul><li>Highly Customized Solutions </li></ul>Business-value markets since 2002 , as covered in: Sample Customers « Trading uncertainty for collective wisdom » Prediction Market Competitive Forecasting TM Idea Pageant TM One Platform – Many Solutions
  15. 15. What’s next? <ul><li>What the buzz game thinks will grow </li></ul><ul><ul><li>Web app framewks: Ruby on Rails </li></ul></ul><ul><ul><li>VOIP: Skype </li></ul></ul><ul><ul><li>Blinkx Desktop Search </li></ul></ul><ul><ul><li>Blog Services: WordPress </li></ul></ul><ul><ul><li>AJAX frameworks: scriptaculous </li></ul></ul><ul><ul><li>Linux: Ubuntu </li></ul></ul>
  16. 16. Case Study II <ul><li>Yootopia : Y!Internal economy for favors, predictions, grp decisions </li></ul>Design Build Analyze
  17. 17. More <ul><li>Betting mechanisms </li></ul><ul><ul><li>Combinatorics </li></ul></ul><ul><ul><li>Infinite/continuous </li></ul></ul><ul><ul><li>Linear programming backbone </li></ul></ul><ul><li>Market makers </li></ul><ul><li>Applications </li></ul>Design Build Analyze <ul><li>Computational complexity </li></ul><ul><li>Does money matter? </li></ul><ul><li>Wisdom of crowds: Combining experts </li></ul><ul><li>IOU social network </li></ul><ul><li>Ledger system </li></ul><ul><li>Buzz Game: Tech stock horse race </li></ul>
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