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).

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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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