Live Prediction Markets Simulation   Futures & Forecasting - Quantitative Methods Melanie Swan  Principal  MS Futures Grou...
Workshop timeline <ul><li>Quantitative methods introduction  10 min </li></ul><ul><li>GPS for the Mind exercise   5 min </...
About Melanie Swan <ul><li>Hedge fund manager, futurist, entrepreneur, founder DIYgenomics  </li></ul><ul><li>Work experie...
Forecasting and future studies toolkit  <ul><li>Short term (0-5 yrs): insight and  certainty </li></ul><ul><ul><li>Forecas...
GPS for the Mind exercise Prediction Markets July 19, 2011 <ul><li>Plot time orientation : certainty, possibility, probabi...
Prediction markets definition Prediction Markets July 19, 2011 Images: http://www.intrade.com Prediction markets are a too...
Nexus of markets and collective intelligence Prediction Markets July 19, 2011 Collective intelligence Markets Prediction M...
History of prediction markets Prediction Markets July 19, 2011 <ul><li>Decision markets, idea futures, information markets...
Prediction markets - definition Prediction Markets July 19, 2011 <ul><ul><li>Price: probability of event occurring </li></...
Prediction market view: Obama in 2012 Prediction Markets July 19, 2011 Source: http://www.intrade.com Blip: May 1, 2011, O...
U.S. congress to lift debt ceiling? Prediction Markets July 19, 2011 Source: http://www.intrade.com
When to use prediction markets Prediction Markets July 19, 2011 <ul><li>Complexity (ecosystem) </li></ul><ul><ul><li>Multi...
Types of prediction markets <ul><li>Internal to organizations (enterprise prediction markets) </li></ul><ul><ul><li>Revenu...
Internal prediction markets:  Social business intelligence in organizations Prediction Markets July 19, 2011 <ul><li>PMs i...
Public prediction markets  Prediction Markets July 19, 2011 <ul><li>Iowa Electronic Markets (politics, health; RM) </li></...
HSX – Harry Potter 8 (July 15, 2011 release) Prediction Markets July 19, 2011 Source: http://www.hsx.com Jul 15, 2011 Jul ...
Gaming prediction market - simExchange Prediction Markets July 19, 2011 Source: http://www.simexchange.com Released: Jun 7...
IEhM – Iowa Electronic Health Markets Prediction Markets July 19, 2011 Source: http://iehm.uiowa.edu <ul><li>the “flu mark...
IEhM: anatomy of disease eradication Prediction Markets July 19, 2011 Source: http://iehm.uiowa.edu
Example: RNA folding <ul><li>A game for RNA folding (like foldit)  </li></ul><ul><li>Synthesize RNA sequences designed by ...
Futurist prediction markets – LongBets Prediction Markets July 19, 2011 Source: http://www.longbets.org/bets
Prediction market design Prediction Markets July 19, 2011 <ul><li>Structure </li></ul><ul><ul><li>Event outcome (win/loss)...
Future of prediction markets <ul><li>Public prediction markets </li></ul><ul><ul><li>Opinion capture as a standard website...
Broader context: markets are the platform Prediction Markets July 19, 2011 Roles of markets Source: Swan, M. New Banks, Ne...
Resources <ul><li>Prediction Markets blogs </li></ul><ul><ul><li>http://www.midasoracle.org </li></ul></ul><ul><ul><li>htt...
Questions? Melanie Swan Principal MS Futures Group +1-650-681-9482 [email_address] www.melanieswan.com Slides: http://slid...
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Prediction markets

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Prediction markets are a tool for collecting and aggregating opinion using market principles. Enterprise prediction markets are in use in 100-200 large organizations for project management and revenue forecasting. Public prediction markets are used for event prediction (election results, product sales, box office receipts).

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Transcript of "Prediction markets"

  1. 1. Live Prediction Markets Simulation Futures & Forecasting - Quantitative Methods Melanie Swan Principal MS Futures Group +1-650-681-9482 @LaBlogga [email_address] www.melanieswan.com July 19, 2011 Slides: http://slideshare.net/LaBlogga Image: http://wall.alphacoders.com/ SU GPS for the Mind: www.mindtimemaps.com/start/sugp SU Prediction Market: gsp11.inklingmarkets.com
  2. 2. Workshop timeline <ul><li>Quantitative methods introduction 10 min </li></ul><ul><li>GPS for the Mind exercise 5 min </li></ul><ul><li>Prediction markets lecture 25 min </li></ul><ul><li>Estimation exercise 10 min </li></ul><ul><li>Live prediction markets workshop 90 min </li></ul>Prediction Markets July 19, 2011
  3. 3. About Melanie Swan <ul><li>Hedge fund manager, futurist, entrepreneur, founder DIYgenomics </li></ul><ul><li>Work experience: Fidelity, JP Morgan, Arthur Andersen, iPass, RHK/Ovum </li></ul><ul><li>Education: MBA Finance, Wharton; BA French/Economics, Georgetown Univ </li></ul><ul><li>Current projects: melanieswan.com </li></ul><ul><li>Sample publications </li></ul><ul><ul><li>Swan, M. Multigenic Condition Risk Assessment in Direct-to-Consumer Genomic Services. Genet. Med. 2010 , May;12(5):279-88. </li></ul></ul><ul><ul><li>Swan, M. Translational antiaging research. Rejuvenation Res. 2010 , Feb;13(1):115-7. </li></ul></ul><ul><ul><li>Swan, M. Engineering Life into Technology: the Application of Complexity Theory to a Potential Phase Transition of Intelligence. Symmetry 2010 , 2, 150:183. </li></ul></ul><ul><ul><li>Swan, M. Emerging patient-driven health care models: an examination of health social networks, consumer personalized medicine and quantified self-tracking. Int. J. Environ. Res. Public Health 2009 , 2, 492-525. </li></ul></ul>Prediction Markets July 19, 2011 Source: http://melanieswan.com/publications.htm
  4. 4. Forecasting and future studies toolkit <ul><li>Short term (0-5 yrs): insight and certainty </li></ul><ul><ul><li>Forecasting </li></ul></ul><ul><ul><li>Scanning </li></ul></ul><ul><ul><li>Business intelligence </li></ul></ul><ul><ul><li>Trend analysis </li></ul></ul><ul><ul><li>Market research </li></ul></ul><ul><ul><li>Time orientation </li></ul></ul><ul><ul><li>Outlier identification </li></ul></ul><ul><ul><li>Technology checklist </li></ul></ul>Prediction Markets July 19, 2011 <ul><li>Long term (5-20+ yrs): uncertainty , discontinuity </li></ul><ul><ul><li>Scenario planning </li></ul></ul><ul><ul><li>Simulation </li></ul></ul><ul><ul><li>Frameworks </li></ul></ul><ul><ul><li>Wild-carding </li></ul></ul><ul><ul><li>Longitudinal studies </li></ul></ul><ul><li>Multiple time frames </li></ul><ul><ul><li>Prediction markets </li></ul></ul>Image: Bill Frymire
  5. 5. GPS for the Mind exercise Prediction Markets July 19, 2011 <ul><li>Plot time orientation : certainty, possibility, probability www.mindtimemaps.com/start/sugp </li></ul>Image: http://www.mindtime.com Source: Fortunato, VJ and Furey, JT. The theory of MindTime: The relationships between Future, Past, and Present thinking and psychological well-being and distress. Personality and Individual Differences. January 2011, 50(1), pp. 20-4. http://www.miindtime.com certainty possibility probability
  6. 6. Prediction markets definition Prediction Markets July 19, 2011 Images: http://www.intrade.com Prediction markets are a tool for collecting group opinion using market principles Research has shown that prediction markets can develop more accurate forecasts than polls or experts 1 1 Source: Trepte, K. et al. Forecasting consumer products using prediction markets. MIT. 2009. http://dspace.mit.edu/handle/1721.1/53546
  7. 7. Nexus of markets and collective intelligence Prediction Markets July 19, 2011 Collective intelligence Markets Prediction Markets <ul><li>Google+ </li></ul><ul><li>Question networks (Quora, formspring, Hunch) </li></ul><ul><li>Wikipedia, wikis, Etherpad </li></ul><ul><li>Unconferences </li></ul><ul><li>Ignite talks </li></ul><ul><li>Tag intros </li></ul><ul><li>Twitter </li></ul>http://www.cs.cornell.edu/home/kleinber/networks-book <ul><li>Group purchasing (Groupon) </li></ul><ul><li>Reverse group purchasing (Loopt u-deals, Ringleadr) </li></ul><ul><li>Real-time economy feed (Blippy) </li></ul><ul><li>Affinity capital </li></ul><ul><li>P2P lending </li></ul><ul><li>Gift economy </li></ul>
  8. 8. History of prediction markets Prediction Markets July 19, 2011 <ul><li>Decision markets, idea futures, information markets, event derivatives, virtual markets </li></ul><ul><li>Long history of event betting </li></ul><ul><ul><li>Election betting, sports betting, stock markets </li></ul></ul><ul><li>Modern incarnation – last ~15 years </li></ul><ul><ul><li>1988 Iowa Electronic Markets ran first market 1 </li></ul></ul><ul><ul><li>2002 US DARPA terrorism futures debacle </li></ul></ul><ul><ul><li>Proliferation of enterprise and public prediction markets </li></ul></ul><ul><ul><li>Testbed for financial contracts </li></ul></ul><ul><ul><ul><li>Housing and weather futures, carbon trading, movie futures </li></ul></ul></ul><ul><li>Futarchy </li></ul><ul><ul><li>Notion of using prediction markets in government policy </li></ul></ul><ul><ul><ul><li>Really re-inventing government </li></ul></ul></ul>1 Source: http://www.midasoracle.org/2007/07/17/history-prediction-markets-timeline Image: http://www.bookshift.com
  9. 9. Prediction markets - definition Prediction Markets July 19, 2011 <ul><ul><li>Price: probability of event occurring </li></ul></ul><ul><ul><li>Value: leading indicator, expose hidden information </li></ul></ul><ul><ul><li>Pay-off: monetary, reputational, indirect </li></ul></ul><ul><ul><li>Accuracy: better than conventional forecasting 1 </li></ul></ul>1 Source: Arrow, K.J. et al “The Promise of Prediction Markets” Science, 2008, 320, 5878, 877-878 http://www.sciencemag.org/cgi/content/summary/320/5878/877 Iowa Electronic Markets: 2008 US Democratic Convention Market <ul><li>Tool for collecting and aggregating opinion using market principles </li></ul>Clinton Obama Image: http://upload.wikimedia.org/wikipedia/commons/1/13/IEM_DCON2008.svg
  10. 10. Prediction market view: Obama in 2012 Prediction Markets July 19, 2011 Source: http://www.intrade.com Blip: May 1, 2011, Osama bin Laden killed
  11. 11. U.S. congress to lift debt ceiling? Prediction Markets July 19, 2011 Source: http://www.intrade.com
  12. 12. When to use prediction markets Prediction Markets July 19, 2011 <ul><li>Complexity (ecosystem) </li></ul><ul><ul><li>Multi-party value chain </li></ul></ul><ul><li>Uncertainty </li></ul><ul><li>Clear outcomes </li></ul><ul><li>Market liquidity </li></ul><ul><li>Diversity of opinion </li></ul>Prediction markets books
  13. 13. Types of prediction markets <ul><li>Internal to organizations (enterprise prediction markets) </li></ul><ul><ul><li>Revenue forecasting, demand planning, capital budgeting </li></ul></ul><ul><ul><li>Idea management (rate, filter, prioritize ideas) </li></ul></ul><ul><ul><li>Project management, risk management </li></ul></ul><ul><li>External (public prediction markets) </li></ul><ul><ul><li>Event prediction (politics: election results; economics: box office receipts, product sales; health: pandemic prediction) </li></ul></ul><ul><ul><li>Surfacing relevant content (information valuation) </li></ul></ul>Prediction Markets July 19, 2011 Source: http://www.intrade.com
  14. 14. Internal prediction markets: Social business intelligence in organizations Prediction Markets July 19, 2011 <ul><li>PMs in use at 100-200 US organizations (July 2011) </li></ul><ul><ul><li>Ex: HP, BestBuy, Electronic Arts, Boeing, Amazon, Harvard, GM, Hallmark, P&G, Ford, Microsoft, Chevron, Lockheed Martin, CNN, Adobe, American Express, Bosch </li></ul></ul><ul><li>Prediction market vendors </li></ul><ul><ul><li>Consensus Point, Crowdcast, Bright Idea, Qmarkets, Inkling </li></ul></ul><ul><li>Crowdsourcing and creative concepts market vendors </li></ul><ul><ul><li>Chaordix </li></ul></ul><ul><ul><li>Jovoto </li></ul></ul>Image: http://torontopm.files.wordpress.com/2009/06/quarterly-sales-graph.jpg?w=300&h=234
  15. 15. Public prediction markets Prediction Markets July 19, 2011 <ul><li>Iowa Electronic Markets (politics, health; RM) </li></ul><ul><li>Intrade Prediction Markets (general; RM) </li></ul><ul><li>Hollywood Stock Exchange (movies) </li></ul><ul><li>simExchange (gaming) </li></ul><ul><li>CROWDPARK (general) </li></ul><ul><li>LongBets (futurist; RM) </li></ul>Source: http://www.hsx.com RM = real money
  16. 16. HSX – Harry Potter 8 (July 15, 2011 release) Prediction Markets July 19, 2011 Source: http://www.hsx.com Jul 15, 2011 Jul 11, 2011 Jul 17, 2011
  17. 17. Gaming prediction market - simExchange Prediction Markets July 19, 2011 Source: http://www.simexchange.com Released: Jun 7, 2011 Release date: expected Apr 2012
  18. 18. IEhM – Iowa Electronic Health Markets Prediction Markets July 19, 2011 Source: http://iehm.uiowa.edu <ul><li>the “flu markets” </li></ul>
  19. 19. IEhM: anatomy of disease eradication Prediction Markets July 19, 2011 Source: http://iehm.uiowa.edu
  20. 20. Example: RNA folding <ul><li>A game for RNA folding (like foldit) </li></ul><ul><li>Synthesize RNA sequences designed by the top players and chemically probe for structure  </li></ul><ul><li>RNA sequences designed by algorithms (e.g.; NUPACK): 70% correctness </li></ul><ul><li>RNA sequences designed by top players: 95% correctness </li></ul>Prediction Markets July 19, 2011 Image: http://www.jbsdonline.com Source: http://eterna.cmu.edu/content/EteRNA Image: http://www.nytimes.com
  21. 21. Futurist prediction markets – LongBets Prediction Markets July 19, 2011 Source: http://www.longbets.org/bets
  22. 22. Prediction market design Prediction Markets July 19, 2011 <ul><li>Structure </li></ul><ul><ul><li>Event outcome (win/loss) </li></ul></ul><ul><ul><li>Market scoring (continuum) </li></ul></ul><ul><li>Time frame </li></ul><ul><ul><li>Episodic or continuous </li></ul></ul><ul><li>Participants </li></ul><ul><ul><li>Anonymous users </li></ul></ul><ul><ul><li>Participation incentive </li></ul></ul><ul><li>Question design: </li></ul><ul><ul><li>(the question) What is your opinion? </li></ul></ul><ul><ul><li>(the feedback loop) What do you think others will say? How accurately do you think others will answer? </li></ul></ul><ul><li>Calibration round (mi qualia no es su qualia) </li></ul>Image: http://www.intrade.com
  23. 23. Future of prediction markets <ul><li>Public prediction markets </li></ul><ul><ul><li>Opinion capture as a standard website feature </li></ul></ul><ul><ul><ul><li>Activity icon cloud: like, +1, tweet, share, comment, bookmark </li></ul></ul></ul><ul><ul><ul><li>Two-way XML element </li></ul></ul></ul><ul><ul><li>Real-time polling – automatic alerts for opinion entry per interest profile </li></ul></ul>Prediction Markets July 19, 2011 <ul><li>Enterprise prediction markets </li></ul><ul><ul><li>BOL / ERP / supply chain integration </li></ul></ul><ul><ul><li>Sales and CRM integration </li></ul></ul><ul><li>Reputation: knowledge acuity ratings of individuals become a valuable and personally-tradable currency </li></ul><ul><ul><li>Accurate predictor, information steward </li></ul></ul>Image:http://www.tvrage.com/shows/id-23464
  24. 24. Broader context: markets are the platform Prediction Markets July 19, 2011 Roles of markets Source: Swan, M. New Banks, New Currencies and New Markets in a Multicurrency World: Roadmap for a Post-Scarcity Economy by 2050, presented at Create Futures IberoAmérica, Enthusiasmo Cultural, São Paolo Brazil, October 14, 2009. http://melanieswan.com/documents/economy_20.pdf Types of markets Resource allocation Exchange: supply & demand meet Information (price) discovery Value identification & attribution Utility creation Traditional markets      Prediction markets    Affinity capital    Multicurrency society   Automatic markets   Ideas marketplaces  Scarcity management / abundance injection (PSE)   
  25. 25. Resources <ul><li>Prediction Markets blogs </li></ul><ul><ul><li>http://www.midasoracle.org </li></ul></ul><ul><ul><li>http://www.ingenesist.com </li></ul></ul><ul><ul><li>http://torontopm.wordpress.com </li></ul></ul><ul><li>Prediction Market Industry Association </li></ul><ul><ul><li>http://www.pmindustry.org </li></ul></ul><ul><li>Important papers </li></ul><ul><ul><li>Prelec D. A Bayesian truth serum for subjective data. Science. 2004 Oct 15;306(5695):462-6. </li></ul></ul><ul><ul><li>Trepte, K. et al. Forecasting consumer products using prediction markets. MIT. 2009. http://dspace.mit.edu/handle/1721.1/53546 </li></ul></ul><ul><ul><li>Chang, W. et al. Simulating prediction markets that include human and automated agents. MIT. 2009. http://dspace.mit.edu/handle/1721.1/53097 </li></ul></ul>Prediction Markets July 19, 2011
  26. 26. Questions? Melanie Swan Principal MS Futures Group +1-650-681-9482 [email_address] www.melanieswan.com Slides: http://slideshare.net/LaBlogga Creative Commons 3.0 license SU GPS for the Mind: www.mindtimemaps.com/start/sugp SU Prediction Market: gsp11.inklingmarkets.com Image: http://wall.alphacoders.com/
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