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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 (social business intelligence) are in use in 100-200 large organizations for project management and revenue forecasting. Consumer prediction markets are becoming widely used for event prediction (election results, product sales, box office receipts).

Prediction Markets

  1. 1. Collective Intelligence Live Prediction Markets Simulation Melanie Swan Principal MS Futures Group +1-650-681-9482 [email_address] www.melanieswan.com July 28, 2010 Slides: http://slideshare.net/LaBlogga Image: http://wall.alphacoders.com/ “ The future is something which every one reaches at the rate of sixty miles an hour, whatever he does, whoever he is.” - C. S. Lewis SU Prediction Market: https://gsp10.inklingmarkets.com SU Online Polling: http://www.rwpoll.com/
  2. 2. 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>MBA, Wharton; BA, Georgetown University </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. [Summary of Singularity University technology and implication synthesis] </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 28, 2010 Source: http://melanieswan.com/publications.htm
  3. 3. Summary <ul><li>Prediction markets are a tool for collecting group opinion using market principles </li></ul>Prediction Markets July 28, 2010 <ul><li>Enterprise prediction markets (social business intelligence) are in use in 100-200 large organizations for project management and revenue forecasting </li></ul><ul><li>Consumer prediction markets are becoming widely used for event prediction (election results, product sales, box office receipts) </li></ul>Image: http://www.inklingmarkets.com
  4. 4. Futurist toolkit for collaborative intelligence <ul><li>Short term (0-5 yrs): some degree of 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>Outlier identification </li></ul></ul><ul><ul><li>Technology evaluation checklist </li></ul></ul>Prediction Markets July 28, 2010 <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. Crowd-sourced toolkit for collaborative intelligence <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><ul><li>Question networks </li></ul><ul><ul><li>Quora, formspring, Hunch </li></ul></ul>Prediction Markets July 28, 2010 http://www.cs.cornell.edu/home/kleinber/networks-book/ Image: http://nmk.co.uk
  6. 6. History of prediction markets Prediction Markets July 28, 2010 <ul><li>Decision markets, idea futures, predictive markets, 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 ~10 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 consumer and enterprise 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>1 Source: http://www.midasoracle.org/2007/07/17/history-prediction-markets-timeline Image: http://www.bookshift.com
  7. 7. Prediction markets - definition Prediction Markets July 28, 2010 <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
  8. 8. Social business intelligence in organizations Prediction Markets July 28, 2010 <ul><li>PMs in use at 100-200 US organizations (July 2010) </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>Applications </li></ul><ul><ul><li>Project management, risk management </li></ul></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><li>Vendors </li></ul><ul><ul><li>Consensus Point, Crowdcast, Bright Idea, Qmarkets, Inkling </li></ul></ul>Image: http://torontopm.files.wordpress.com/2009/06/quarterly-sales-graph.jpg?w=300&h=234 Crowdsourcing vendors: chaordix.com, jovoto.com – marketplace for creative concepts
  9. 9. When to use prediction markets Prediction Markets July 28, 2010 <ul><li>Complexity (ecosystem) </li></ul><ul><li>Uncertainty </li></ul><ul><li>Many decision points </li></ul><ul><li>Clear outcomes </li></ul><ul><li>Market liquidity </li></ul><ul><li>Diversity of opinion </li></ul>
  10. 10. Consumer prediction markets Prediction Markets July 28, 2010 <ul><li>Iowa Electronic Markets </li></ul><ul><li>Intrade Prediction Markets </li></ul><ul><li>simExchange </li></ul><ul><li>Hollywood Stock Exchange </li></ul><ul><ul><li>Oscar predictions </li></ul></ul><ul><li>LongBets </li></ul>Source: http://www.hsx.com/security/view/INCPT
  11. 11. Consumer prediction markets – LongBets Prediction Markets July 28, 2010 Source: http://www.longbets.org/bets
  12. 12. Consumer prediction markets - simExchange Prediction Markets July 28, 2010 Source: http://www.simexchange.com/stock.php?id=238
  13. 13. Consumer prediction markets - Inkling Prediction Markets July 28, 2010 Source: http://home.inklingmarkets.com/expiring/markets
  14. 14. Consumer prediction markets - Inkling Prediction Markets July 28, 2010 Source: http://home.inklingmarkets.com/markets/28753
  15. 15. Prediction market apps Prediction Markets July 28, 2010 1 Source: Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves Intrade Viral Loop 1
  16. 16. Prediction market design Prediction Markets July 28, 2010 <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>Participation incentive </li></ul><ul><li>Users are anonymous </li></ul><ul><li>Time frame </li></ul><ul><ul><li>Episodic or continuous </li></ul></ul><ul><li>Question design: </li></ul><ul><ul><li>What is your opinion? </li></ul></ul><ul><ul><li>What do you think others will say? </li></ul></ul><ul><ul><li>How accurately do you think others will answer? </li></ul></ul>Source: http://www.intrade.com/jsp/intrade/common/c_cd.jsp?conDetailID=693480&z=1278982073468
  17. 17. Future of prediction markets <ul><li>Consumer prediction markets </li></ul><ul><ul><li>Opinion capture standard website feature </li></ul></ul><ul><ul><ul><li>Digg, bookmarking, socnet, updates, gaming </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 28, 2010 <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>Knowledge acuity ratings of individuals become a valuable and personally-tradable currency </li></ul><ul><ul><li>Accurate predictor, information steward </li></ul></ul><ul><li>Market mechanisms become more pervasive </li></ul><ul><ul><li>Automatic markets for transparent allocation of fungible resources based on pre-specified preferences </li></ul></ul>Image:http://www.tvrage.com/shows/id-23464
  18. 18. Summary <ul><li>Prediction markets are a tool for collecting and aggregating opinion using market principles </li></ul>Prediction Markets July 28, 2010 <ul><li>Enterprise prediction markets (social business intelligence) are in use in 100-200 large organizations for project management and revenue forecasting </li></ul><ul><li>Consumer prediction markets are becoming widely used for event prediction (election results, product sales, box office receipts) </li></ul>Image: http://www.intrade.com HIGGS.BOSON.DEC10
  19. 19. 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 Markets Cluster </li></ul><ul><ul><li>http://pmclusters.com </li></ul></ul><ul><li>Prediction Market Industry Association </li></ul><ul><ul><li>http://www.pmindustry.org </li></ul></ul>Prediction Markets July 28, 2010
  20. 20. 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 Image: http://wall.alphacoders.com/
  21. 21. Prediction markets simulation workshop Prediction Markets July 28, 2010 <ul><li>You are the world’s leading social venture capitalists </li></ul><ul><ul><li>Seeking ideas with social, environmental & economic impact </li></ul></ul><ul><ul><li>5 teams, $1 billion to invest </li></ul></ul><ul><ul><li>Alongside prediction market registering opinion on outcomes </li></ul></ul>NT – Nanotechnology NCS – Networks & Computing Systems EES – Energy & Environmental Systems AIR – AI & Robotics BIO – Biotech, Bioinformatics, Medicine & Neuroscience
  22. 22. Futures simulation workshop Prediction Markets July 28, 2010 <ul><li>2010 – 2020 </li></ul><ul><li>Each team creates two plausible future technology ideas to pitch to the other teams </li></ul><ul><li>Each person votes by investing in the top technologies </li></ul><ul><li>Winning teams and technologies are those that garner the most investment </li></ul>Image: Natasha Vita-More, Primo Posthuman
  23. 23. Future simulation workshop: 2010-2020 Prediction Markets July 28, 2010 <ul><li>Each team creates two plausible future technology ideas to pitch to the other teams, for example </li></ul><ul><ul><li>Technology, product </li></ul></ul><ul><ul><li>Startup, research group, non-profit organization, NGO </li></ul></ul><ul><ul><li>Policy, social shift, new governance/economic model </li></ul></ul><ul><ul><li>Strategy undertaken by existing companies/countries </li></ul></ul><ul><ul><li>Water/food/upcycling/space/energy or not </li></ul></ul><ul><li>Criteria </li></ul><ul><ul><li>Novelty </li></ul></ul><ul><ul><li>Social, environmental & economic impact </li></ul></ul><ul><ul><li>Trade-off: high-impact idea vs. practical realizability </li></ul></ul><ul><li>Present to the group </li></ul><ul><ul><li>Concept soundbite (‘eBay for Genomes’) </li></ul></ul><ul><ul><li>1-2 minute pitch summarizing the idea </li></ul></ul>Image:http://bit.ly/csxwqv
  24. 24. Team formation & Inkling intro Prediction Markets July 28, 2010
  25. 25. Futures simulation workshop - debrief Prediction Markets July 28, 2010 <ul><li>What did you realize thinking about energy in 2020? AI in 2030? </li></ul><ul><li>How did earlier technology developments influence future outcomes? </li></ul><ul><li>How is it best to think about multiple technology areas together? </li></ul><ul><li>What did you notice about the simulation and the prediction market together? Reliable? </li></ul><ul><li>In what situations could you see using prediction markets? SU? </li></ul>Image: http://van.embl.de/htfg/img/htfg_logo.png <ul><li>What did you learn about trying to predict innovation development in long time frames with high uncertainty? </li></ul>

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