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Applications of Stock Markets for Information in Instruction


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Presentation at 2006 Teaching and Learning with Technology Symposium at Penn State University on 2 November 2006. The audio podcast is on iTunes at <a href="" target="_blank">this link</a>. The web site for this presentation is at: <a href="" target="_blank"></a>

Published in: Economy & Finance, Business
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Applications of Stock Markets for Information in Instruction

  1. 1. Applications of Stock Markets for Information in Instruction Rose M. Baker Workforce Assessment Center David L. Passmore Workforce Education & Development 2 November 2006
  2. 2. Useful information is required for good decisions… <ul><li>Will customers buy or adopt an instructional innovation? </li></ul><ul><li>Will an instructional product deliver on time? </li></ul><ul><li>Will external political, social, or economic events and trends affect the markets for instructional products or services? </li></ul>For example:
  3. 3. What techniques do you use to obtain information?
  4. 4. But, good information is difficult to obtain… <ul><li>Costly </li></ul><ul><li>Difficult to use </li></ul><ul><li>Conducted just once, not continuously </li></ul><ul><li>Often not inclusive </li></ul>
  6. 6. A futures contract is… <ul><li>An agreement for the delivery of an asset at a future date for a specified price </li></ul><ul><li>Motivated by profit , hedging , and arbitrage goals </li></ul><ul><li>Implemented in modern, often electronic, exchanges </li></ul>
  7. 7. A typical commodity futures contract… 5,000 bushels of No. 2 Yellow Corn for delivery in Minneapolis, Minnesota on 1 March 2006.
  8. 8. Price of a futures contract is… <ul><li>Settled between buyers and sellers in a market </li></ul><ul><li>Updated dynamically with supply and demand </li></ul><ul><li>Established through price discovery </li></ul>
  9. 9. Process of price discovery… <ul><li>Determination of market prices through the interactions of buyers and sellers in a free marketplace </li></ul><ul><li>Changes in information = changes in price </li></ul>
  10. 10. Prices have useful features… Markets use prices to aggregate less-than-perfect, diverse, widely dispersed information among traders and disseminate this information to all market participants .
  11. 11. Prices have useful features… Aggregate knowledge from the informed and disseminate to the uniformed, even when the informed have only partial information (e.g., inside information, niche knowledge, intuition).
  12. 12. Prices have useful features… Act like a vacuum sweeper, collecting and aggregating information that is otherwise highly decentralized and privately held.
  13. 13. Prices have useful features… Prices on the futures market for Florida orange juice predict the long-term weather better than scientific weather forecasts.
  15. 15. How an information market works… <ul><li>The market sells contracts on ideas -- an idea future ! </li></ul><ul><li>Contracts are bought and sold through an exchange </li></ul><ul><li>Value of contracts can range from $ 0.00 to $1.00 (or some multiple) </li></ul><ul><li>Buyers and sellers seek information about the future of the idea </li></ul><ul><li>Price changes as belief in future of idea changes </li></ul>
  16. 16. An information futures market: Newsfutures …
  17. 17. A NewsFutures market: Outcome of Super Bowl…
  18. 18. NewsFutures Super Bowl market: Price/volume plot history…
  19. 19. NewsFutures Super Bowl market: Price/volume plot for month…
  20. 20. NewsFutures Super Bowl market: Price/volume plot for week…
  21. 21. NewsFutures Super Bowl market: Price/volume plot for 24 hours…
  22. 22. NewsFutures Super Bowl market: Closing details…
  23. 23. Information markets also are called idea futures markets… <ul><li>Trade on propositions (“ideas” about whether an event will occur and when) </li></ul><ul><li>Use “price” to disseminate the aggregated belief that a proposition will be realized </li></ul>
  24. 24. An information futures market: Foresight Exchange …
  25. 25. 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).”
  26. 26. 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.”
  27. 27. Price plot for BUSH04
  28. 28. Volume plot for BUSH04
  29. 29. Some prominent information markets… <ul><li>Iowa Electronic Markets </li></ul><ul><li>Hollywood Stock Exchange </li></ul><ul><li>TradeSports </li></ul><ul><li>Intrade </li></ul><ul><li>Policy Analysis Market (terminated) </li></ul>
  30. 30. Iowa Electronic Markets…
  31. 31. Hollywood Stock Exchange…
  32. 32. TradeSports…
  33. 33. Intrade…
  34. 34. Policy Analysis Market… <ul><li>DARPA project as a “market in the future of the Middle East” </li></ul><ul><li>Allow trading on coup d’etat, assassinations, and terror attacks </li></ul><ul><li>Denounced as “grotesque” and “morally repugnant” </li></ul>(terminated)
  35. 35. THE POTENTIAL…
  36. 36. Collective intelligence & markets in public eye
  37. 37. Markets have business uses… <ul><li>Forecasting </li></ul><ul><ul><li>Events — e.g., sales </li></ul></ul><ul><ul><li>Dates — e.g., project finish times </li></ul></ul><ul><ul><li>Trends — e.g., what product will succeed </li></ul></ul><ul><li>Coordinating </li></ul><ul><ul><li>Resource allocation — e.g., allocating space </li></ul></ul><ul><ul><li>Resource optimization — e.g., selecting best manufacturing strategies </li></ul></ul>
  38. 38. Hewlett Packard sales forecasts… <ul><li>Future revenues from laser printer sales </li></ul><ul><li>30 people in marketing & finance in 3 HP divisions </li></ul><ul><li>Traded in 8 markets, each lasting 1 week </li></ul><ul><li>Trading open during lunch and evening </li></ul>6 of the 8 sales forecasts from idea futures markets were closer to the actual sales outcome than were official HP forecasts.
  39. 39. Penn State Idea Futures Market … <ul><li>Penn State is testing an electronic idea futures exchange </li></ul><ul><li>The exchange aggregates strategic information for human resource planning and management </li></ul><ul><li>NewsFutures is building the test exchange for Penn State </li></ul>3 markets will be tested
  40. 41. Potential for managing instructional development?
  41. 42. Sales forecasting… Futures market among sales people about whether a product or service will yield an amount of revenue by a target date
  42. 43. Impact… <ul><li>Futures market about whether an instructional product or service will be effective </li></ul><ul><li>No substitute for field test, but good substitute for expert opinion </li></ul>
  43. 44. Project management… Futures market of whether a product or service will deliver on time, and, if not, when
  44. 45. Environmental scanning… <ul><li>Futures market on regulatory, social, economic, or political factors affecting markets for instructional products or services </li></ul><ul><li>e.g., passage of bill on tax credits affects market for products or services </li></ul>
  45. 46. Identification of expertise… <ul><li>Track profits and holdings of traders </li></ul><ul><li>Determine “experts” by performance in market, not by rank or station </li></ul>
  46. 47. Potential in instruction?
  47. 48. Rose M. Baker [email_address] David L. Passmore [email_address]
  48. 49. Web site supporting this presentation… <ul><li>Brief description </li></ul><ul><li>PDFs of presentation </li></ul><ul><li>Background articles </li></ul><ul><li>Reading & web sites </li></ul>
  49. 50. Applications of Stock Markets for Information in Instruction Rose M. Baker Workforce Assessment Center David L. Passmore Workforce Education & Development 2 November 2006