Slideshow Transcript

1. Slide 1: An Introduction to Prediction Markets (a.k.a. Idea Futures, Decision Markets, Information Markets, and Event Markets) alex kirtland / UsableMarkets 25 Mar 2007
2. Slide 2: Simple Definition of Prediction Markets • A place where information is aggregated via market (or other) mechanisms for the primary purpose of forecasting events, or the probability that an event will occur www.usableMarkets.com
3. Slide 3: The “who will win the 2008 presidential election” market outcome outcome outcome outcome outcome All Others / contract / contract / contract / contract / contract the market (the event) www.usableMarkets.com
4. Slide 4: Contract Hillary: Hillary Clinton WILL BE our next president $1.00 $0.00 Price $0.26 100% 0% Prediction 26% Hillary Clinton has a 26% chance, at this point in time, of being our next president. www.usableMarkets.com
5. Slide 5: The “who will win the 2008 presidential election” market All Others $0.26 $0.20 $0.18 $0.12 $0.24 26% 20% 18% 12% 24% = 100% the market www.usableMarkets.com
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7. Slide 7: Basic Elements of a Prediction Market 1. The Market - Markets are generally created around a specific topic or event, and contain the contracts which are traded. Examples: The “Who will win the 2008 Presidential Election” Market 3. The Contract – A specific prediction that the trader can buy or sell Examples: Hillary Clinton Binary contract pays out all (e.g. $1.00) or nothing (e.g. $0.00) Linear contract pays out based on final value 5. Trading Platform – The way that someone interacts with the market Double Auction / Book Order System Automated Market Maker www.usableMarkets.com
8. Slide 8: Basic Elements of a Prediction Market, cont. 2. Traders – the people who come to a market and participate by buying and selling Marginal traders – knowledgeable traders Noise traders – traders who are not knowledgeable, or have some motivation for trading other than what they think the true price should be. 3. Liquidity – the number of trades 5. Currency –real money or fake money. www.usableMarkets.com
9. Slide 9: Simple Definition of Prediction Markets • A place where information is aggregated via market (or other) mechanisms for the primary purpose of forecasting events, or the probability that an event will occur • Why? – Wisdom of the Crowds – “Under the right conditions groups can be remarkably intelligent and possibly smarter than the smartest person.” James Surowiecki – Markets provide incentives for information discovery and truthful revelation of beliefs – Efficient Market Hypothesis – all available information incorporated into the price www.usableMarkets.com
10. Slide 10: How are prediction markets different than polls? www.usableMarkets.com
11. Slide 11: Who uses these things? ? www.usableMarkets.com
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17. Slide 17: and others .... www.usableMarkets.com
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20. Slide 20: Sophisticates Gamers Gamblers Employees Your “Average Joe” www.usableMarkets.com
21. Slide 21: Knows how to trade Doesn’t www.usableMarkets.com
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23. Slide 23: Knows how to trade Most of us Doesn’t www.usableMarkets.com
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29. Slide 29: Where are we now? • No perfect site, but lots of experimentation • Industry • Corporate • A growth industry ...? www.usableMarkets.com
30. Slide 30: Q&A Questions I haven’t answered yet ... www.usableMarkets.com
31. Slide 31: Special Thanks To ... • Emile Servan-Schreiber (newsFutures) • Ed Lenox (TradeSports) • Robert Wilburn (RimDex) • Adam Siegel (InklingMarkets) • Jed Christiansen (Mercury Research & Consulting) • Bo Cowgill (Google) • David Pennock (Yahoo) • Dave Perry (Consensus Point) • Midas Oracle / Chris Masse (Blog) www.usableMarkets.com
32. Slide 32: Thank You!