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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 forecasting. Public prediction markets are used for event prediction (election results, product sales, box office receipts).

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

  1. 1. Live Prediction Markets Simulation Image: http://wall.alphacoders.com/ Futures & Forecasting - Quantitative Methods Melanie Swan SU GPS for the Mind: www.mindtimemaps.com/start/sugp1 SU Prediction Market: gsp12.inklingmarkets.com Founder MS Futures Group +1-650-681-9482 @LaBlogga July 20, 2012 m@melanieswan.com Slides: http://slideshare.net/LaBlogga www.melanieswan.com
  2. 2. 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 2 July 20, 2012
  3. 3. 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. Crowdsourced Health Research Studies: An Important Emerging Complement to Clinical Trials in the Public Health Research Ecosystem. J Med Internet Res 2012, Mar;14(2):e46.  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 Source: http://melanieswan.com/publications.htm 3 July 20, 2012
  4. 4. Forecasting and future studies toolkit  Short term (0-5 yrs):  Long term (5-20+ yrs): insight and certainty uncertainty, discontinuity  Forecasting  Scenario planning  Scanning  Simulation  Business intelligence  Frameworks  Trend analysis  Wild-carding  Market research  Longitudinal studies  Time orientation  Outlier identification  Technology checklist  Multiple time frames  Prediction markets Image: Bill Frymire Prediction Markets 4 July 20, 2012
  5. 5. GPS for the Mind exercise Image: http://www.mindtime.com  Plot time orientation: certainty, possibility, probability www.mindtimemaps.com/start/sugp1 probability certainty possibility Prediction Markets 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 5 July 20, 2012
  6. 6. Prediction markets definition  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 experts1 July 2011 July 2012 Images: http://www.intrade.com Prediction Markets 1 Source: Trepte, K. et al. Forecasting consumer products using prediction markets. MIT. 2009. http://dspace.mit.edu/handle/1721.1/53546 6 July 20, 2012
  7. 7. Nexus of markets and collective intelligence Collective Markets intelligence •Group purchasing •Google+ (Groupon) •Question networks •Reverse group (Quora, formspring, purchasing (Loopt u- Prediction Hunch) deals, Ringleadr) Markets •Wikipedia, wikis, •Real-time economy Etherpad feed (Blippy) •Unconferences •Affinity capital •Ignite talks •P2P lending •Tag intros •Gift economy •Twitter http://www.cs.cornell.edu/home/kleinber/networks-book Prediction Markets 7 July 20, 2012
  8. 8. History of prediction markets Image: http://www.bookshift.com  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 market1  2002 US DARPA terrorism futures debacle  Proliferation of enterprise and consumer 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 Prediction Markets 1 Source: http://www.midasoracle.org/2007/07/17/history-prediction-markets-timeline 8 July 20, 2012
  9. 9. Prediction markets - definition  Tool for collecting and aggregating opinion using market principles Iowa Electronic Markets:  Price: probability of event 2008 US Democratic Convention Market occurring  Value: leading indicator, expose hidden information Clinton  Pay-off: monetary, Obama reputational, indirect  Accuracy: better than Image: http://upload.wikimedia.org/wikipedia/commons/1/13/IEM_DCON2008.svg conventional forecasting1 Prediction Markets 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 9 July 20, 2012
  10. 10. Prediction market view: Obama in 2012 Blip: May 1, 2011, Osama bin Laden killed Prediction Markets Source: http://www.intrade.com 10 July 20, 2012
  11. 11. Intrade active markets Prediction Markets Source: http://www.intrade.com 11 July 20, 2012
  12. 12. U.S. republican nominee: Iowa caucus 2012 Prediction Markets Source: http://www.yahoo.com 12 July 20, 2012
  13. 13. When to use prediction markets  Complexity (ecosystem)  Multi-party value chain  Uncertainty  Clear outcomes  Market liquidity  Diversity of opinion Prediction markets books Prediction Markets 13 July 20, 2012
  14. 14. Types of prediction markets  Enterprise collective intelligence (organizational)  Revenue forecasting, demand planning, capital budgeting  Idea management (rate, filter, prioritize ideas)  Project management, risk management  Consumer prediction markets (public)  Event prediction (politics: election results; economics: box office receipts, product sales; health: pandemic prediction)  Surfacing relevant content (information valuation) Prediction Markets Source: http://www.intrade.com 14 July 20, 2012
  15. 15. Enterprise prediction markets gather hidden social business intelligence in organizations  PMs in use at 100-200 US organizations (July 2012)  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 Prediction Markets 15 July 20, 2012
  16. 16. Consumer prediction markets  Iowa Electronic Markets  Intrade Prediction Markets  Hollywood Stock Exchange (film)  simExchange (gaming)  CROWDPARK (general)  LongBets (futurist) Prediction Markets Source: http://www.hsx.com 16 July 20, 2012
  17. 17. HSX – shorting Tom Cruise Prediction Markets Source: http://www.hsx.com 17 July 20, 2012
  18. 18. Gaming prediction market - simExchange Prediction Markets Source: http://www.simexchange.com 18 July 20, 2012
  19. 19. Iowa Electronic Health Markets  Flu markets  Disease markets Prediction Markets Source: http://iehm.uiowa.edu/iehm/trnmt/trnmt.html?symbol=dengue 19 July 20, 2012
  20. 20. Health markets and disease eradication Prediction Markets Source: http://iehm.uiowa.edu 20 July 20, 2012
  21. 21. Crowdsourcing as early prediction market HealthMap Google Flu Trends Prediction Markets Source: http://iehm.uiowa.edu 21 July 20, 2012
  22. 22. Futurist prediction markets – LongBets Prediction Markets Source: http://www.longbets.org/bets 22 July 20, 2012
  23. 23. Prediction market design  Structure  Event outcome (win/loss)  Market scoring (continuum)  Time frame  Episodic or continuous  Participants  Anonymous users  Participation incentive Image: http://www.consensuspoint.com  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(s) Prediction Markets 23 July 20, 2012
  24. 24. Future of prediction markets  Public prediction markets  Opinion capture as a standard feature  Activity icon cloud: like, +1, tweet, share, comment, bookmark, register opinion  Two-way XML element  Ubiquitous real-time polling – automatic alerts for opinion entry per interest profile Image:http://www.tvrage.com/shows/id-23464  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 Prediction Markets 24 July 20, 2012
  25. 25. Broader context: markets are the platform Roles of markets Types of markets Resource Exchange: Information Value Utility allocation supply & (price) discovery identification & creation demand meet attribution Traditional markets      Prediction markets    Affinity capital    Multicurrency society   Automatic markets   Ideas marketplaces  Scarcity management / abundance injection (PSE)    Prediction 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. 25 July 20, 2012 http://melanieswan.com/documents/economy_20.pdf
  26. 26. 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 26 July 20, 2012
  27. 27. Well, Ray, we’re still waiting for the jet pack DIAMANDIS KURZWEIL Futurism 2050 Image: http://wall.alphacoders.com/ Questions? SU GPS for the Mind: www.mindtimemaps.com/start/sugp1 SU Prediction Market: gsp12.inklingmarkets.com Melanie Swan Slides: http://slideshare.net/LaBlogga Principal MS Futures Group +1-650-681-9482 m@melanieswan.com Creative Commons 3.0 license www.melanieswan.com

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