Tee Time with Admiral Poindexter?(Markets at Microsoft)

Todd ProebstingMicrosoft

Three Four Types of Researchers

• Once upon a time I thought there were 3 types of people involved in research:– Priests– Prostitutes– Pragmatists

• Now, I believe there is a fourth:– Promoters (Proselytizers?)

Markets Inside Microsoft• 6/03: E-Commerce conference introduction• 7/03: PAM debacle

• “Tee time with Admiral Poindexter, Sir?”• 9/03: Start market software creation• 2/04: Beta Test #1(Wisconsin Democratic Primary)

• ~50 traders, prize lottery• 3/04: Beta Test #2 (DARPA Grand Challenge)

• ~300 traders, prize lottery• 8/04: Two real markets (schedule and bug count for small, internal

project)• ~25 traders, $50 each

• 9/04: Two real markets (schedule for small project)• ~25 traders, $30 each

• 2/05: A half-dozen people “really close” to sponsoring markets

Pitch

• 10+ Formal presentations,countless informal pitches

• Better predictions from proper incentives– Incentive to reveal true beliefs– Incentive to reveal confidence– Incentive to gather information

• Bash competing prediction methods

• Reality check on prevailing predictions“What does the market know that I don’t know, or what

do I know that the market doesn’t know?”

Negative Reactions to Idea• Insider trading• Real money bothers some• Real money is needed• Boom/bust cycles (irrationality)• Gambling• Markets don’t work• Distraction from real work• Redundant mechanism• Unstable market (predictions affect decisions)

– E.g., predicting failure promotes corrections• Self-fulfilling market (predictions affect outcome)

– E.g., predicting success increases budget• Conflicting incentives

– E.g., make money off of project failure• Positive incentives

– E.g., predicting success increases budget, which increases sales, which increase personal gains (bonuses, promotions, …)

• Needing markets is a sign of a dysfunctional organization• Disclosing that the emperor has no clothes damages morale

Positive Reactions to Idea

• Market believers– “It was a blast for me as well, finally finding

someone as (well, really more) passionate as I about these things. I’ve begun pinging people about whether they want to sponsor one.”

• Mischief makers– “You should run a market on XXX---I’ll short

ON TIME.”

First “Real” Market• August 2004: Predict internal product ship date

– Official, accepted schedule: mid-November 2004– 25 traders @ $50, made up of testers, developers, etc.

• Securities: Pre-NOV, NOV, DEC, JAN, FEB, Post-FEB• Within a few minutes of opening, NOV dropped to $0.012…• Currently expected to ship in February…

• Software functioned well• Only 60% of traders traded• Automated market maker

– Great liquidity– Complicated to explain – Satisfying experience to move market

What Next?

• Never-ending internal promotion– Repeat customers– Revenue markets– Review-ratings markets

• Software improvements– Democratize/simplify market creation– Conditional markets– Book orders– Web services (simplify remote trading/analysis)