prediction markets
DESCRIPTION
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).TRANSCRIPT
Melanie Swan Principal
MS Futures Group+1-650-681-9482
www.melanieswan.com
July 19, 2011Slides: http://slideshare.net/LaBlogga
Live Prediction Markets Simulation
Futures & Forecasting - Quantitative Methods
Image: http://wall.alphacoders.com/
SU GPS for the Mind: www.mindtimemaps.com/start/sugp SU Prediction Market: gsp11.inklingmarkets.com
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Prediction MarketsJuly 19, 2011
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
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Prediction MarketsJuly 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.
Source: http://melanieswan.com/publications.htm
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Prediction MarketsJuly 19, 2011
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
Long term (5-20+ yrs): uncertainty, discontinuity Scenario planning Simulation Frameworks Wild-carding Longitudinal studies
Multiple time frames Prediction markets Image: Bill Frymire
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Prediction MarketsJuly 19, 2011
GPS for the Mind exercise
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
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Prediction MarketsJuly 19, 2011
Prediction markets definition
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 experts1
1Source: Trepte, K. et al. Forecasting consumer products using prediction markets. MIT. 2009. http://dspace.mit.edu/handle/1721.1/53546
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Prediction MarketsJuly 19, 2011
Nexus of markets and collective intelligence
Collectiveintelligence
Markets
PredictionMarkets
•Google+•Question networks (Quora, formspring,
Hunch) •Wikipedia, wikis,
Etherpad•Unconferences
•Ignite talks•Tag intros
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
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Prediction MarketsJuly 19, 2011
History of prediction markets
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 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
1Source: http://www.midasoracle.org/2007/07/17/history-prediction-markets-timeline
Image: http://www.bookshift.com
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Prediction MarketsJuly 19, 2011
Prediction markets - definition
Price: probability of event occurring
Value: leading indicator, expose hidden information
Pay-off: monetary, reputational, indirect
Accuracy: better than conventional forecasting1
1Source: 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
Clinton
Obama
Image: http://upload.wikimedia.org/wikipedia/commons/1/13/IEM_DCON2008.svg
Tool for collecting and aggregating opinion using market principles
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Prediction MarketsJuly 19, 2011
Prediction market view: Obama in 2012
Source: http://www.intrade.com
Blip: May 1, 2011, Osama bin Laden killed
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Prediction MarketsJuly 19, 2011
U.S. congress to lift debt ceiling?
Source: http://www.intrade.com
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Prediction MarketsJuly 19, 2011
When to use prediction markets
Complexity (ecosystem) Multi-party value chain
Uncertainty
Clear outcomes
Market liquidity
Diversity of opinion
Prediction markets books
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Prediction MarketsJuly 19, 2011
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)
Source: http://www.intrade.com
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Prediction MarketsJuly 19, 2011
Internal prediction markets: Social business intelligence in organizations
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
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Prediction MarketsJuly 19, 2011
Public prediction markets
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
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Prediction MarketsJuly 19, 2011
HSX – Harry Potter 8 (July 15, 2011 release)
Source: http://www.hsx.com
Jul 15, 2011Jul 11, 2011 Jul 17, 2011
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Prediction MarketsJuly 19, 2011
Gaming prediction market - simExchange
Source: http://www.simexchange.com
Released: Jun 7, 2011
Release date: expected Apr 2012
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Prediction MarketsJuly 19, 2011
IEhM – Iowa Electronic Health Markets
Source: http://iehm.uiowa.edu
the “flu markets”
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Prediction MarketsJuly 19, 2011
IEhM: anatomy of disease eradication
Source: http://iehm.uiowa.edu
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Prediction MarketsJuly 19, 2011
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
Image: http://www.jbsdonline.com
Source: http://eterna.cmu.edu/content/EteRNA
Image: http://www.nytimes.com
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Prediction MarketsJuly 19, 2011
Futurist prediction markets – LongBets
Source: http://www.longbets.org/bets
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Prediction MarketsJuly 19, 2011
Prediction market design
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
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Prediction MarketsJuly 19, 2011
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
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
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Prediction MarketsJuly 19, 2011
Broader context: markets are the platform
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)
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
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Prediction MarketsJuly 19, 2011
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
Questions?
Melanie SwanPrincipal
MS Futures Group+1-650-681-9482
Slides: http://slideshare.net/LaBlogga
Creative Commons 3.0 license
Image: http://wall.alphacoders.com/
DIAMANDIS KURZWEIL
Well, Ray, we’re still waiting for the jet pack
Futurism 2050
DIAMANDIS KURZWEIL
Well, Ray, we’re still waiting for the jet pack
Futurism 2050
SU GPS for the Mind: www.mindtimemaps.com/start/sugp SU Prediction Market: gsp11.inklingmarkets.com