Prediction markets
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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 ...

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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Prediction markets Prediction markets Presentation Transcript

  • 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
  • Workshop timeline
    • Quantitative methods introduction 10 min
    • GPS for the Mind exercise 5 min
    • Prediction markets lecture 25 min
    • Estimation exercise 10 min
    • Live prediction markets workshop 90 min
    Prediction Markets July 19, 2011
  • About Melanie Swan
    • Hedge fund manager, futurist, entrepreneur, founder DIYgenomics
    • Work experience: Fidelity, JP Morgan, Arthur Andersen, iPass, RHK/Ovum
    • Education: MBA Finance, Wharton; BA French/Economics, Georgetown Univ
    • Current projects: melanieswan.com
    • Sample publications
      • Swan, M. Multigenic Condition Risk Assessment in Direct-to-Consumer Genomic Services. Genet. Med. 2010 , May;12(5):279-88.
      • Swan, M. Translational antiaging research. Rejuvenation Res. 2010 , Feb;13(1):115-7.
      • Swan, M. Engineering Life into Technology: the Application of Complexity Theory to a Potential Phase Transition of Intelligence. Symmetry 2010 , 2, 150:183.
      • 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.
    Prediction Markets July 19, 2011 Source: http://melanieswan.com/publications.htm
  • Forecasting and future studies toolkit
    • Short term (0-5 yrs): insight and certainty
      • Forecasting
      • Scanning
      • Business intelligence
      • Trend analysis
      • Market research
      • Time orientation
      • Outlier identification
      • Technology checklist
    Prediction Markets July 19, 2011
    • Long term (5-20+ yrs): uncertainty , discontinuity
      • Scenario planning
      • Simulation
      • Frameworks
      • Wild-carding
      • Longitudinal studies
    • Multiple time frames
      • Prediction markets
    Image: Bill Frymire
  • GPS for the Mind exercise Prediction Markets July 19, 2011
    • Plot time orientation : certainty, possibility, probability www.mindtimemaps.com/start/sugp
    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
  • 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
  • Nexus of markets and collective intelligence Prediction Markets July 19, 2011 Collective intelligence Markets Prediction Markets
    • Google+
    • Question networks (Quora, formspring, Hunch)
    • Wikipedia, wikis, Etherpad
    • Unconferences
    • Ignite talks
    • Tag intros
    • Twitter
    http://www.cs.cornell.edu/home/kleinber/networks-book
    • Group purchasing (Groupon)
    • Reverse group purchasing (Loopt u-deals, Ringleadr)
    • Real-time economy feed (Blippy)
    • Affinity capital
    • P2P lending
    • Gift economy
  • History of prediction markets Prediction Markets July 19, 2011
    • Decision markets, idea futures, information markets, event derivatives, virtual markets
    • Long history of event betting
      • Election betting, sports betting, stock markets
    • Modern incarnation – last ~15 years
      • 1988 Iowa Electronic Markets ran first market 1
      • 2002 US DARPA terrorism futures debacle
      • Proliferation of enterprise and public prediction markets
      • Testbed for financial contracts
        • Housing and weather futures, carbon trading, movie futures
    • Futarchy
      • Notion of using prediction markets in government policy
        • Really re-inventing government
    1 Source: http://www.midasoracle.org/2007/07/17/history-prediction-markets-timeline Image: http://www.bookshift.com
  • Prediction markets - definition Prediction Markets July 19, 2011
      • Price: probability of event occurring
      • Value: leading indicator, expose hidden information
      • Pay-off: monetary, reputational, indirect
      • Accuracy: better than conventional forecasting 1
    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
    • Tool for collecting and aggregating opinion using market principles
    Clinton Obama Image: http://upload.wikimedia.org/wikipedia/commons/1/13/IEM_DCON2008.svg
  • Prediction market view: Obama in 2012 Prediction Markets July 19, 2011 Source: http://www.intrade.com Blip: May 1, 2011, Osama bin Laden killed
  • 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
    • Complexity (ecosystem)
      • Multi-party value chain
    • Uncertainty
    • Clear outcomes
    • Market liquidity
    • Diversity of opinion
    Prediction markets books
  • Types of prediction markets
    • Internal to organizations (enterprise prediction markets)
      • Revenue forecasting, demand planning, capital budgeting
      • Idea management (rate, filter, prioritize ideas)
      • Project management, risk management
    • External (public prediction markets)
      • Event prediction (politics: election results; economics: box office receipts, product sales; health: pandemic prediction)
      • Surfacing relevant content (information valuation)
    Prediction Markets July 19, 2011 Source: http://www.intrade.com
  • Internal prediction markets: Social business intelligence in organizations Prediction Markets July 19, 2011
    • PMs in use at 100-200 US organizations (July 2011)
      • Ex: HP, BestBuy, Electronic Arts, Boeing, Amazon, Harvard, GM, Hallmark, P&G, Ford, Microsoft, Chevron, Lockheed Martin, CNN, Adobe, American Express, Bosch
    • Prediction market vendors
      • Consensus Point, Crowdcast, Bright Idea, Qmarkets, Inkling
    • Crowdsourcing and creative concepts market vendors
      • Chaordix
      • Jovoto
    Image: http://torontopm.files.wordpress.com/2009/06/quarterly-sales-graph.jpg?w=300&h=234
  • Public prediction markets Prediction Markets July 19, 2011
    • Iowa Electronic Markets (politics, health; RM)
    • Intrade Prediction Markets (general; RM)
    • Hollywood Stock Exchange (movies)
    • simExchange (gaming)
    • CROWDPARK (general)
    • LongBets (futurist; RM)
    Source: http://www.hsx.com RM = real money
  • 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
  • Gaming prediction market - simExchange Prediction Markets July 19, 2011 Source: http://www.simexchange.com Released: Jun 7, 2011 Release date: expected Apr 2012
  • IEhM – Iowa Electronic Health Markets Prediction Markets July 19, 2011 Source: http://iehm.uiowa.edu
    • the “flu markets”
  • IEhM: anatomy of disease eradication Prediction Markets July 19, 2011 Source: http://iehm.uiowa.edu
  • Example: RNA folding
    • A game for RNA folding (like foldit)
    • Synthesize RNA sequences designed by the top players and chemically probe for structure 
    • RNA sequences designed by algorithms (e.g.; NUPACK): 70% correctness
    • RNA sequences designed by top players: 95% correctness
    Prediction Markets July 19, 2011 Image: http://www.jbsdonline.com Source: http://eterna.cmu.edu/content/EteRNA Image: http://www.nytimes.com
  • Futurist prediction markets – LongBets Prediction Markets July 19, 2011 Source: http://www.longbets.org/bets
  • Prediction market design Prediction Markets July 19, 2011
    • Structure
      • Event outcome (win/loss)
      • Market scoring (continuum)
    • Time frame
      • Episodic or continuous
    • Participants
      • Anonymous users
      • Participation incentive
    • Question design:
      • (the question) What is your opinion?
      • (the feedback loop) What do you think others will say? How accurately do you think others will answer?
    • Calibration round (mi qualia no es su qualia)
    Image: http://www.intrade.com
  • Future of prediction markets
    • Public prediction markets
      • Opinion capture as a standard website feature
        • Activity icon cloud: like, +1, tweet, share, comment, bookmark
        • Two-way XML element
      • Real-time polling – automatic alerts for opinion entry per interest profile
    Prediction Markets July 19, 2011
    • Enterprise prediction markets
      • BOL / ERP / supply chain integration
      • Sales and CRM integration
    • Reputation: knowledge acuity ratings of individuals become a valuable and personally-tradable currency
      • Accurate predictor, information steward
    Image:http://www.tvrage.com/shows/id-23464
  • 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)   
  • Resources
    • Prediction Markets blogs
      • http://www.midasoracle.org
      • http://www.ingenesist.com
      • http://torontopm.wordpress.com
    • Prediction Market Industry Association
      • http://www.pmindustry.org
    • Important papers
      • Prelec D. A Bayesian truth serum for subjective data. Science. 2004 Oct 15;306(5695):462-6.
      • Trepte, K. et al. Forecasting consumer products using prediction markets. MIT. 2009. http://dspace.mit.edu/handle/1721.1/53546
      • Chang, W. et al. Simulating prediction markets that include human and automated agents. MIT. 2009. http://dspace.mit.edu/handle/1721.1/53097
    Prediction Markets July 19, 2011
  • 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/