Information Futures Markets for Human Resource Planning and Management Rose M. Baker David L. Passmore Penn State

Useful information is required for sound decisions… Will customers buy or adopt a product or service? Will a product or service arrive on schedule? Will external political, social, or economic events and trends affect the markets for products or services? For example:

Will customers buy or adopt a product or service?

Will a product or service arrive on schedule?

Will external political, social, or economic events and trends affect the markets for products or services?

What techniques do you use to obtain information?

But, good information is difficult to obtain… Costly Difficult to use Conducted just once, not continuously Often not inclusive

Costly

Difficult to use

Conducted just once, not continuously

Often not inclusive

FUTURES MARKETS…

A futures contract is… An agreement for the delivery of an asset at a future date for a specified price Is motivated by profit , hedging , and arbitrage goals Implemented in modern, often electronic, exchanges

An agreement for the delivery of an asset at a future date for a specified price

Is motivated by profit , hedging , and arbitrage goals

Implemented in modern, often electronic, exchanges

A typical commodity futures contract… 5,000 bushels of No. 2 Yellow Corn for delivery in Minneapolis, Minnesota on 1 March 2006.

Prices have useful features… Act like a vacuum sweeper, collecting and aggregating information that is otherwise highly decentralized and privately held.

IDEA FUTURES MARKETS…

A NewsFutures market: Outcome of Super Bowl…

Super Bowl market: Price/volume plot for 24 hours

NewsFutures Super Bowl market: Closing details

Information markets also are called idea futures markets… Trade on propositions (“ideas” about whether an event will occur and when) Use “price” to disseminate the aggregated belief that a proposition will be realized

Trade on propositions (“ideas” about whether an event will occur and when)

Use “price” to disseminate the aggregated belief that a proposition will be realized

An information futures market: Foresight Exchange … http://www.ideosphere.com

BUSH04 contract from Foresight Exchange … “ G.W. Bush, the president of the United States at the time that this claim started trading, will still be president on 2005-02-01 (after the inauguration after the election is usually scheduled).”

Criterion for judging BUSH04 … “ This claim will be TRUE even if elections are postponed or G.W. Bush remains in power by staging a coup. If there are events which make it confusing who the US president is, as of 2005-02-01, this claim is true if G.W. Bush is leading a sovereign government in at least part of the United States of America that has recognition of at least one of the UN Security Council permanent members (Britain, China, and Russia) other than the United States.”

Price plot for BUSH04

Volume plot for BUSH04

Some prominent information markets… Iowa Electronic Markets Hollywood Stock Exchange TradeSports Intrade Policy Analysis Market (terminated)

Iowa Electronic Markets

Hollywood Stock Exchange

TradeSports

Intrade

Policy Analysis Market (terminated)

Iowa Electronic Markets…

Hollywood Stock Exchange…

TradeSports…

Intrade…

Policy Analysis Market… DARPA project as a “market in the future of the Middle East” Allow trading on coup d’etat, assassinations, and terror attacks Denounced as “grotesque” and “morally repugnant” (terminated)

DARPA project as a “market in the future of the Middle East”

Allow trading on coup d’etat, assassinations, and terror attacks

Denounced as “grotesque” and “morally repugnant”

THE POTENTIAL…

Collective intelligence & markets in public eye

Markets have business uses… Forecasting Events — e.g., sales Dates — e.g., project finish times Trends — e.g., what product will succeed Coordinating Resource allocation — e.g., allocating space Resource optimization — e.g., selecting best manufacturing strategies

Forecasting

Events — e.g., sales

Dates — e.g., project finish times

Trends — e.g., what product will succeed

Coordinating

Resource allocation — e.g., allocating space

Resource optimization — e.g., selecting best manufacturing strategies

Means of aggregating information used… Single estimate Probability distribution Single estimate or distribution 10% 10% 80%

When markets help most… Information/expertise is distributed among many, hard to gather, or difficult to verbalize ( implicit knowledge) New information comes in continuously, requiring frequent updates of forecasts There is little relevant or reliable historical data about an issue to be forecast

Information/expertise is distributed among many, hard to gather, or difficult to verbalize ( implicit knowledge)

New information comes in continuously, requiring frequent updates of forecasts

There is little relevant or reliable historical data about an issue to be forecast

Organizations still are experimenting with forecasting… Markets empower employees Organizations low on politics and high on innovation seem to do best Hard for management to use outcomes Markets are complementary tool Markets work best to aggregate current information, not to make predictions

Markets empower employees

Organizations low on politics and high on innovation seem to do best

Hard for management to use outcomes

Markets are complementary tool

Markets work best to aggregate current information, not to make predictions

Coordination is complex and is less explored than forecasting… Precisely defined problems work well Few examples of any sort Many coordination problems are not amenable to market mechanisms

Precisely defined problems work well

Few examples of any sort

Many coordination problems are not amenable to market mechanisms

Market uses are limited and fragile… Fully implemented — 5% In trial stage — 55% Abandoned — 40%

Fully implemented — 5%

In trial stage — 55%

Abandoned — 40%

BUSINESS CASES…

O’Reilly publishing… O’Reilly joined Yahoo in “Tech Buzz Game” Participants bought stock in tech with potential Selected book topics based on hot stocks

O’Reilly joined Yahoo in “Tech Buzz Game”

Participants bought stock in tech with potential

Selected book topics based on hot stocks

Yahoo… Yahoo Hack Day provides 24 hours for “mashups” Yahoo ran an internal information market to see which products might play best with customers

Yahoo Hack Day provides 24 hours for “mashups”

Yahoo ran an internal information market to see which products might play best with customers

Microsoft… Use Xboxes as incentives Runs 15 to 20 markets per year Topics range from when projects reach milestone to how many bugs in software

Use Xboxes as incentives

Runs 15 to 20 markets per year

Topics range from when projects reach milestone to how many bugs in software

Google More than 1,000 employees participate Markets on product popularity, project completion, or when an overseas office might open Use sports markets to draw participation

More than 1,000 employees participate

Markets on product popularity, project completion, or when an overseas office might open

Use sports markets to draw participation

Arcelor… Forecast volume and sales for hot rolled steel 30 to 40 employees with knowledge of the commodity

Forecast volume and sales for hot rolled steel

30 to 40 employees with knowledge of the commodity

Corning LCD TV…

Hewlett Packard sales forecasts… Future revenues from laser printer sales 30 people in marketing & finance in 3 HP divisions Traded in 8 markets, each lasting 1 week Trading open during lunch and evening

Future revenues from laser printer sales

30 people in marketing & finance in 3 HP divisions

Traded in 8 markets, each lasting 1 week

Trading open during lunch and evening

Hewlett Packard sales forecasts… Future revenues from laser printer sales 30 people in marketing & finance in 3 HP divisions Traded in 8 markets, each lasting 1 week Trading open during lunch and evening 6 of the 8 sales forecasts from idea futures markets were closer to the actual sales outcome than were official HP forecasts.

Future revenues from laser printer sales

30 people in marketing & finance in 3 HP divisions

Traded in 8 markets, each lasting 1 week

Trading open during lunch and evening

Some uses.. Project management Sales forecasting Efficacy forecasting Strategic issues tracking Expert identification

Project management

Sales forecasting

Efficacy forecasting

Strategic issues tracking

Expert identification

Penn State Idea Futures Market…

Web site with a similar presentation to Human Resource Planning Society… http://www.personal.psu.edu/dlp/hrps Brief description Narrated presentation Background articles Reading & web sites

Brief description

Narrated presentation

Background articles

Reading & web sites

Rose M. Baker [email_address] David L. Passmore [email_address]

Information Futures Markets for Human Resource Planning and Management Rose M. Baker David L. Passmore Penn State