UPDATE:

WARNING: Even though the Intel director uses 15 times the term “prediction markets” in this paper, the forecasting tool they have been using is another form of information aggregation mechanism.

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Via the absolutely indispensable but nevertheless extremely modest George Tziralis, this article in the Intel Technology Journal of May 2007:

The Spectrum of Risk Management in a Technology Company – Using Forecasting Markets to Manage Demand Risk – (PDF) – by Intel Corporation&#8217-s Jay W. Hopman – 2007-05-16

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– Abstract

Intel completed a study of several generations of products to learn how product forecasts and plans are managed, how demand risks manifest themselves, and how business processes contend with, and sometimes contribute to, demand risk. The study identified one critical area prone to breakdown: the aggregation of market insight from customers. Information collected from customers and then rolled up through sales, marketing, and business planning teams is often biased, and it can lead to inaccurate forecasts, as evidenced by historical results. A research effort launched in 2005 sought to introduce new methodologies that might help crack the bias in demand signals. We worked with our academic partners to develop a new application, a form [???] of prediction market, integrated with Intel&#8217-s regular short-term forecasting processes. The process enables product and market experts to dynamically negotiate product forecasts in an environment offering anonymity and performance-based incentives. To the extent these conditions curb bias and motivate improved performance, the system should alleviate demand miscalls that have resulted in inventory surpluses or shortages in the past. Results of early experiments suggest that market-developed forecasts are meeting or beating traditional forecasts in terms of increased accuracy and decreased volatility, while responding well to demand shifts. In addition, the new process is training Intel&#8217-s experts to improve their use and interpretation of information.

– Introduction

[…] Tackling demand risk and other challenges requires moving information around decentralized organizations in new ways. If employees across Intel&#8217-s many functional groups have information and insights that can help inform our planning and forecasting decisions, we need a way to aggregate that information and turn it into intelligence. Prediction markets are a potential solution to this problem and have been written about extensively for the past five to ten years. Our research discovered that, despite the buzz around prediction markets, the integration of prediction markets and similar Information Aggregation Mechanisms (IAMs) into organizational forecasting processes is still in its infancy. Popular stories on prediction markets still frame the potential as being greater than the demonstrated value, and reports of usage at companies such as Hewlett Packard, Microsoft, Google, Eli Lilly, and others suggest that application is often viewed as experimental and that markets are largely separate from other organizational forecasting processes.

– Challenges to Anticipating Market Demand

[…] Decentralized organizations must find a means of transmitting business context- in other words, instead of transmitting mere data sets, they must transmit information and intelligence from employees who have it to employees who need it to make decisions and plans. We learned that Intel has many informal networks that attempt to move that knowledge across the organization, but these networks have many failure modes: turnover of employees in key positions, limited bandwidth of each individual and team, and difficulty systematically discovering the important information to be learned (stated differently, whom to include in the network). […]

– Market Mechanisms as Forecasting Tools

[…] In our research at Intel we are extending the idea of prediction markets to create &#8220-forecasting markets,&#8221- which are essentially prediction markets or similar IAMs integrated into the company&#8217-s standard, ongoing forecasting processes. Participants reveal not just an expected outcome but a series of expected outcomes [???] for the same variable over time. So, the forecasting market captures individual and collective assessments about trends such as increasing or decreasing demand just as weather forecasts anticipate warming and cooling trends. […] Anonymity helps prevent biases created by the presence of formal or informal power, the social norms of group interaction, and expectations of management. […]

– Design Considerations and Elections

[…] Our overall design structures each investment as a decision based on both the individual&#8217-s expectations for the outcome and the aggregate group prediction. Participants weigh owning lower percentages of more likely outcomes against higher percentages of less likely outcomes. […]

– Results

We are using three primary measures to assess the performance of our markets: accuracy, stability, and timely response to genuine demand shifts. Having run pilot markets for approximately 18 months, we are starting to get a sense for how the markets are performing. Although the market forecasts and official company forecasts are not independent, it is nonetheless interesting to compare the signals and then assess how effectively they are working together. In terms of accuracy, the markets are producing forecasts at least the equal of the official figures and as much as 20% better (20% less error), an impressive result given that the official forecasts have set a rather high standard during this time period with errors of only a few percent. In the longest sample to date, six of eight market forecasts fell within 2.7% of actual sales. The accuracy of the official and market forecasts has been remarkably good, well within the stated goal of +/- 5% error for all but a few individual monthly forecasts. […] We are also amused that although we never publish the list of participants and winners, everyone knows who participated and who won. […]

– Challenges

[…] As we propose market mechanisms to aid with forecasting, potential participants and managers have most often expressed three concerns: incentives, anonymity, and groupthink. […]

– Summary and Conclusions

[…] The key drivers that we believe have led to strong performance are 1) anonymity and incentives, which encourage honest, unbiased information, 2) the averaging of multiple opinions, which produces smooth, accurate signals, and 3) feedback, which enables participants to evaluate past performance and learn how to weigh information and produce better forecasts. […] [Prediction markets] are a new approach toward business management, promising, and at the same time frightening to potential adopters. As with many such innovations, starting small and running in parallel to existing processes are keys to success. As our trials are demonstrating excellent results at remarkably low cost, expanding their use at Intel is a natural and expected outcome.

– Sidebar: Five Categories of Considerations for Designing Information Aggregation Mechanisms

Information – Integration – Inclusion – Interface – Incentives

UPDATE: Robin Hanson has a comment&#8230-

It is great to see another comparison, but it would be more persuasive if we could see a bit more detail. How many markets have been run, do they use the last price or an average for their comparisons, was the comparison mechanism able to see the market prices or vice versa, and so on.

UPDATE #2: Deep Throat&#8230-

There are not enough details in the paper.

UPDATE #3: Deep Throat #2&#8230-

It seems quite light on data and the references are pretty unimpressive.

UPDATE #4: Chris Masse thinks that this paper is significant for two reasons. Number one, it says that internal prediction markets do work at Intel and that they intend to go on. Number two, Intel has integrated its internal prediction markets into their overall business forecasting system. It&#8217-s the first that a Fortune-500 firm states that publicly, if I&#8217-m correct.

UPDATE #5: Some people in the field of prediction markets think that the Intel mechanism has nothing to do with trading and is closer to a survey mechanism.

UPDATE #6: INTEL BUSINESS CASE: Does Intel really use internal prediction markets?

UPDATE #7: Emile Servan-Schreiber:

[…] It is fairly obvious from reading the INTEL case study that they are not using a trading market at all but rather something closer to HP’s BRAIN. […]

Pop Sci defends InTrade&#8217-s November 2006 record:

The betting site [*] intrade.com offered a security that would pay out $100 if the Republicans held their majority in the U.S. Senate and nothing if they lost. For weeks, it had been trading at around 70, reflecting the consensus view that there was a 70 percent chance that the Republicans would hold power. But as the results came in, the market—not the media—was first to smell the upset.

[*] InTrade-TradeSports is a real-money prediction exchange (betting exchange), not a &#8220-betting site&#8221-.

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by Paul Wootton

Part of a long article explaining &#8220-the science behind&#8221- the Pop Sci prediction exchange.

A prediction market [**] is like a stock exchange [***], except people trade not stocks but predictions.

[**] a prediction exchange

[***] like a futures exchange

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Pop Sci:

Offshore gaming sites [****] like intrade.com started offering nonsports gambling along with NFL and baseball futures.

[****] InTrade-TradeSports is a real-money prediction exchange (betting exchange), not a &#8220-gaming site&#8221-. And one of the best.

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Pop Sci:

The best way to understand these types of &#8220-if/then&#8221- questions is to create a conditional market, also known as a decision market. [*****]

[*****] a decision-aid market &#8212- I would keep the &#8220-decision market&#8221- definition for the Robin Hanson concept, where the decision is executed as the market chose.

And, between me and you, I don&#8217-t get why a popular magazine would get into this arcane topic. There are many other sub-topics on prediction markets that are more urgent and important than decision markets or decision-aid markets.

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Pop Sci:

[&#8230-] The trouble with these markets is in getting enough people to participate. [******] It&#8217-s legally precarious to set up a decision market in the U.S. (trading these propositions looks suspiciously like Internet gambling to some—although by those standards, so does investing in pork-belly futures). [*******] Most American ventures use play money, which surprisingly enough, generates predictions as accurate as those of real-money markets. [********] These fake-money markets need to attract traders by being entertaining, not by offering the possibility of riches. It&#8217-s no wonder the U.S. market with the most trades is the Hollywood Stock Exchange. Without the lure of real money to be made off other, perhaps less-savvy market participants, it&#8217-s hard to recruit enough traders into a decision market that creates insight into serious yet perhaps more mundane issues. But it can be done. We have the crystal ball at our fingertips. All that&#8217-s left is to look into it together.

[******] Hummm&#8230- No. The problematic is how to motivate enough the speculators (the sophisticated bettors) so that they perform the information aggregation work. Prediction markets should not have as ultimate goal to transform the whole Planet Earth&#8217-s population into traders, but to milk out the traders&#8217- passion and impulse so as to create profits and accurate market-generated predictions. You do that by offering a very sophisticated prediction exchange platform, which is not yet what Pop Sci has achieved.

[*******] I&#8217-d rather say, &#8220-speculating&#8221- on futures, than &#8220-investing&#8221-.

[********] Why not citing the best academic paper demonstrating this? Ah, it is authored by Emile Servan-Schreiber of NewsFutures, a competitor of the Hollywood Stock Exchange, which powers the Pop Sci prediction exchange. Pitiful.

Prediction Markets: Does Money Matter? – (PDF) – by Emile Servan-Schreiber, David Pennock, Justin Wolfers and Brian Galebach – 2004-09-00

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The final line of the Pop Sci article:

Michael Moyer is the executive editor of Popular Science.

Flawed and biased explainer on prediction markets, in my judgment. Pitiful.

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Previous blog posts by Chris F. Masse:

• Is that HubDub’s Nigel Eccles on the bottom left of that UK WebMission pic?
• Collective Error = Average Individual Error – Prediction Diversity
• When gambling meets Wall Street — Proposal for a brand-new kind of finance-based lottery
• The definitive proof that it’s presently impossible to practice prediction market journalism with BetFair.
• The Absence of Teams In Production of Blog Journalism
• Publish a comment on the BetFair forum, get arrested.
• If I had to guess, I would say about 50 percent of the “name pros” you see on television on a regular basis have a negative net worth. Frightening, I know.

BetFair

Niall O&#8217-Connor&#8217-s comment:

All seats in the 30th Dail have now been filled, with the allocation of seats as follows: Fianna Fail 78, Fine Gael 51, Labour 20, Progressive Democrats 2, Green Party 6, Sinn Fein 4, Others 5. Fianna Fail are five short of an overall majority in the Dail parliament, which meets on June 14.

The most likely outcome for the next Government is a coalition between the ruling party Fianna Fail, the two Progressive Democrats, and some of the others (independents).

In relation to the Betfair market one would therefore assume that this would be the &#8220-Any Other Party or Coalition&#8221- option. However, on reading the rules, one sees that: &#8220-Who will form the next government? Independents do not count for the purposes of this market.&#8221-

So, we have the ridiculous situation, that those that backed a FF/PD coalition, expecting the PDs to do much better, will actually still be on a winner, because Independents are excluded from the market, even though the PDs will only form part of the next Government because of the presence of the Independents. And those that backed &#8220-Any other party or coalition&#8221- and did not read the rules will find themselves on a loser. Bizarre.

Previous blog posts by Chris F. Masse:

• The FaceBook profiles of the 2 most important men of the field of prediction markets
• THE HUMAN GADFLY WHOSE OBJECTIONS ROBIN HANSON IS DUCKING…???…
• Google now considers Midas Oracle as a major blog.
• Horizon 2015: A long-term strategic perspective for the real-money prediction markets
• Join our group at LinkedIn to have your “Prediction Markets” badge on your profile. It’s ‘chic’. (“Groups” info should be set as “visible”, in your profile options.) We are 63 this early Saturday morning —keeps growing.
• If you have been using PayPal to fund your InTrade, TradeSports or BetFair account, please, check that horror story.
• 48 hours after the launch of the “Prediction Markets” group at LinkedIn, we have already 52 members —both prediction market luminaries and simple people (trading the event derivatives or collecting the market-generated probabilities).

Iowa Electronic Markets data. Very difficult to grasp &#8212-InTrade-TradeSports and BetFair are more usable. This IEM monopoly is a scandal.

WikiNews: Michael Nutter wins Philadelphia mayoral primary.

Previous blog posts by Chris F. Masse:

• REBUTTAL: SalesForce, StarBucks and Dell demonstrate that enterprise prediction markets as intra-corporation communication tools (as opposed to forecasting tools) are overhyped by the prediction market software vendors and a little clique of uncritical courtisans.
• Comments are often more interesting than the post that ignited them.
• Harvard fella says prediction markets are doomed.
• How should prediction market firms (e.g., InTrade-TradeSports, BetFair-TradeFair) deal with Blogosphere’s criticism?
• BetFair’s future bet-matching logic
• If Midas Oracle were to meet, would we use Huddle, and why?
• WORLD’S SUCH A SMALL PLACE: Smarkets meet HubDub.

CNET News:

[…] It turned out that Shiau&#8217-s predictions weren&#8217-t perfect&#8211-on average he was about 15 percent off on the sales of Nintendo&#8217-s DS and Wii, Sony&#8217-s PlayStation 3 and PlayStation Portable and Microsoft&#8217-s Xbox 360. But he also wasn&#8217-t that far off predictions from Wedbush Morgan&#8217-s Michael Pachter, one of the most quoted industry analysts, who himself had been about 10.6 percent off sales on the same consoles. And a month earlier, Shiau&#8217-s predictions had actually been better than Pachter&#8217-s. Shiau had been off by about 15.8 percent, while Pachter had missed by 34.9 percent. […] &#8220-Brian Shiau seems to have created a nascent and vibrant community,&#8221- said Chris Masse, the author of Midas Oracle, a blog [*] about prediction markets. &#8220-(There&#8217-s) a strong emphasis on using the SimExchange as an educational tool to teach youngsters about the stock and futures mechanisms. I like this a lot.&#8221- […] &#8220-The biggest obstacle is that most people don&#8217-t know what a prediction market is,&#8221- said Shiau. &#8220-So it&#8217-s very difficult to pitch it to someone without them understanding how a stock market (provides useful information).&#8221-

Previous: NPD releases April sales data, prediction market and analyst compared – by Brian Shiau

[*] a group blog on prediction markets &#8211-&gt- 49 posters &#8211-&gt- 192 posts from the guest authors

Previous blog posts by Chris F. Masse:

• VIDEO: Why Hillary Clinton will never be the Vice President of the United States of America.
• Any idea what Brad Stewart means with that logo that features a south-to-north rotation? — Does he want to put our Planet Earth upside down? — The real rotation occurs around an axis that connects the north and the south poles.
• Dick Morris (ex-strategist for Bill Clinton) devoted, not one, but two, strong columns against the Hillary-Clinton-as-VP scenario.
• What InTrade, TradeSports, BetFair, TradeFair, Betdaq, NewsFutures, Inkling Markets, Reality Markets, and HubDub, should implement real quick.
• Will we be able, one day, to trade our InTrade, TradeSports, BetFair and TradeFair event derivatives via our BlackBerry?
• FACEBOOK AND LINKEDIN: How to deal with unwanted friend requests, the ethics of de-friending, and other social networking etiquette predicaments.
• Don’t trade on the VP predictions markets. — Don’t bet on Hillary Clinton as VP. — Don’t listen to betting bloggers who tell you that Hillary Clinton has a chance to be on the Democratic ticket. — Don’t believe in “vice presidential selection committees”. — Select well your primary, advanced indicators. — Choose your bets carefully.

Guilty on four counts of obstructing justice, lying to a grand jury and the FBI &#8212-not convicted of a fifth count of lying to the FBI.

Pardon Libby

InTrade-TradeSports:

HSX Amy Lamare:

Hollywood Stock Exchange (HSX.com) Traders correctly picked 7 out of 8 Top Category Oscar Winners to continue its stellar record.
Los Angeles, California, February 26, 2007 –

Hollywood Stock Exchange (HSX), announced a spectacular 88% success rate for picking this year&#8217-s Oscar winners. The world&#8217-s longest continuously operating commercial prediction market and popular online game once again proved the accuracy of virtual stock markets.

This year Traders hit 7 of 8 in predicting the winners in the top categories. Traders scored a perfect 100% in the Lead Acting, Directing, Writing and Best Picture fields continuing their outstanding trend in picking nominees and Award winners. Last year HSX Traders also hit the 7 out of 8 mark, and the year prior a perfect 8 out of 8 victory. This brings HSX&#8217-s three year cumulative average to 92%.

This year HSX added a fun feature to our Awards Options. Best Feature Animation was not a part of our NominOption® series, but debuted during the Awards Options. Traders were given the chance to predict which of the three nominated animated films would win Oscar gold. They went with the popular Cars, which was edged out last night by Happy Feet.

&#8220-When it comes to movies, the collective wisdom of Hollywood Stock Exchange traders is unmatched&#8221-, said Alex Costakis, Managing Director. &#8220-HSX Traders are savvy, entertainment consumers, with a keen eye for not only predicting Oscar winners, but also for estimating how well a movie will do in box office throughout the year. Think of it as a virtual focus group. The Hollywood Stock Exchange is a proven prediction market technology that empowers individuals to influence Hollywood by making their opinions known by actively participating in this dynamic trading environment&#8221-.

Since its establishment in 1996, HSX has registered over 1.6 million users. HSX offers consumers the opportunity to buy and sell virtual shares of films and actors. HSX also offers unique Trading opportunities surrounding special Award events and consistently beats most polls and industry pundits.

– HSX – Oscars Nominations Prediction Markets – Accuracy

– Oscars 2007 – TradeSports-InTrade – Bingo!

– Oscars 2007 – Hollywood Stock Exchange – Bingo!

– Debunking HSX Alex Costakis’ conspiracy theory

– Hollywood Stock Exchange’s Alex Costakis makes historical mistake, TOO.

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Congrats to the two HSX co-founders (Max Keiser and Michael Burns) and congrats to the current managers (Alex Costakis and Amy Lamare), and all the other people at HSX.

One suggestion to Amy Lamare and the other people managing the HSX site: Why don&#8217-t you publish the entirety of your interesting spin output in your site feed (a.k.a. RSS feed)? Alex Costakis complained about ABC7 and their supposed flawed reporting. Well, since you have a large number of registered users, maybe you could inform them directly about the HSX performance for the 2007 Oscars. I&#8217-m a subscriber of the HSX site feed, and I haven&#8217-t seen your P.R. output there, yet. And why not a link to this P.R. output from the HSX frontpage?

If you google the sentence, &#8220-The Press release is dead&#8221- (with the quotes), you&#8217-ll find interesting ideas and suggestions pertaining to internet marketing.

Previous blog posts by Chris F. Masse:

• A second look at HedgeStreet’s comment to the CFTC about “event markets”
• Since YooPick opened their door, Midas Oracle has been getting, daily, 2 or 3 dozens referrals from FaceBook.
• US presidential hopeful John McCain hates the Midas Oracle bloggers.
• If you have tried to contact Chris Masse thru the Midas Oracle Contact Form, I’m terribly sorry to inform you that your message was not delivered to the recipient.
• THE CFTC’s SECRET AGENDA —UNVEILED.
• “Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S & P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”
• Meet professor Thomas W. Malone (on the right), from the MIT’s Center for Collective Intelligence.

– The Departed – Bingo!

– Martin Scorcese – Bingo!

– Forest Whitaker – Bingo!

– Helen Mirren – Bingo!

Hollywood Stock Exchange &amp- Oscars 2007 – I&#8217-ll republish the Costakis P.R. output, later on.

An Analysis of the Superbowl Using Price Changes on an Online Prediction Exchange – (TradeSports) – (PDF) – by Keith Jacks Gamble – 2007-02-08

ABSTRACT: I analyze Superbowl XLI by matching price changes for a futures contract on the winner to play-by-play data. The price change following a play measures the impact of that play on the market’s expectation of which team will win. Thus, these price changes identify the relative importance of each play in determining the outcome. Four of the top five impact plays of the game were turnovers, led by Kelvin Hayden’s interception return for a touchdown. These price changes also provide a new statistic for measuring and comparing players’ performances. Despite winning the Most Valuable Player Award, Payton Manning ranks 10th on the list of positive impact players for the Colts. By far the greatest contributor to the Colts’ victory was Rex Grossman, whose poor play for the Bears contributed twice as much as the top performing Colt.

CONCLUSION: This analysis of Superbowl XLI shows how price changes on an online exchange can be used to measure the impact of each play on the final outcome. […]

NOTE: This is just for the openers. It could be that Keith Jacks Gamble will publish a blog post on Midas Oracle, soon &#8212-if he wishes.