(A note from AK: So, in case you haven’-t noticed, Chris has proposed email interviews as a way to get a bit more participation on MidasOracle. I’-m happy to start off by answering his questions to me.)
Chris Masse: What is the best public explanation of prediction markets? As “-stocks”- (Hollywood Stock Exchange, Washington Stock Exchange), as “-event futures”- (InTrade), or as “-event derivatives”- (HedgeStreet)?
Alex Kirtland: Considering that most people have probably never heard of derivatives, that most of the rest don’-t know much about futures, and that almost everyone has heard of the stock market, I’-m going to say that treating prediction market contracts as stocks is probably the best way to go for the general user.
For example, saying “-They’-re like stocks, but different,”- is easier for most people to understand than: “-You’-re buying a futures contract on the likelihood of an event occurring that pays out either 0 or 100 depending on the result.”-
Starting with something familiar, and then introducing complexity, rather than trying to be accurate right off the bat, is usually a better way to go.
That said, if the majority of your users are traders in pork belly futures, then using the stock market as your metaphor to explain prediction markets may just confuse them.
CM: What is the best trading model from a usability perspective: one single class of securities ala TradeSports (where selling means short-selling the “-yes”- contract) or two classes of securities ala Iowa Electronic Markets (where selling means selling the “-no”- contract)?
AK: I don’-t know the answer to that, and I’-ve actually pondered over this for some time. I’-d like to do usability testing/user research to try and figure this out. Just from an academic point of view I think understanding this would be fascinating. But also I think that this has implications beyond prediction markets. Certainly brokerage houses and exchanges might be interested in understanding how to make trading easier for people who may not know how to trade, or are less familiar with trading.
My hunch is that both models work (in fact both models do work), but which one is better is a question of context – who is the user- what is their experience trading- what is the market- is margin involved- if so, how do we communicate that to the user- and so on.
I know there is a large body of research on behavioral economics, which I’-m not as familiar with as I should be, but I don’-t believe anyone has ever researched this specific question.
CM: What is the best pricing model from a usability perspective: a continuous price (HSX) or a 0-100 price (TradeSports)?
AK: It depends on the situation. Sometimes they’-re clearly inappropriate – a linear contract for a binary question, for example. One is not inherently more usable than the other. It’-s more important how it’-s presented to the user.
CM: Should the designer of a new trading screen be innovative or be subordinated to the users’- mental model (if any)?
AK: This is a fascinating question. First understanding a mental model and being innovative are not incompatible things. The mental model is usually a starting point from which innovation can spring forth. This is why you do user research: so you can understand how your users think (or even if they do) about the task you want them to perform.
So, it’-s not so much that innovation (or, better, interface design), is subordinate to the user’-s existing mental model(s), but how do you take advantage of an existing mental model(s) to get the user to more easily do what you want them to do on your site.
Secondly, a lot of readers are probably asking, “-what the hell is a mental model?”- Briefly (and quite vaguely), a mental model is a mental representation of something. For example, most everyone has a mental model of how a restaurant works. You go in, there may be a host, you sit, you order, they bring you food, you eat, you agonize over whether you’-re going to get desert or not, you pay, and then you leave.
There’-s a lot of subtlety to this mental model. Things can change drastically depending on whether you’-re at a diner, a food cart on the street, or a five star restaurant. But the basic process is the same.
It’-s important to note, though, that in and of itself a mental model has nothing to do with the interface of an application. It is usually a hodge podge of heuristics, tasks and sub tasks, and so on, all jumbled together. They don’-t necessarily need to be a true representation of the world, but they need to help the person act in the world.
Referring to the above example, my mental model of a restaurant allows me to go to all sorts of restaurants I’-ve never been to before, have appropriate expectations about what will happen there, and act accordingly.
As an experience designer we’-re not necessarily interested in shaping our interfaces to someone’-s mental model – we don’-t want all interfaces to be exactly like McDonalds – but we do want to be aware of them and take advantage of them …- and not violate them either. We don’-t want to build a restaurant and not serve any food, for example. Once you violate someone’-s mental model of some thing, then they’-ll have no idea what to do next.
Donald Norman’-s book, The Design of Everyday Things, is a good place to learn more about mental models and how they should used when designing an inteface.
CM: Should prediction exchanges set up corporate blog(s) and why? (And if “-no”-, why not???)
AK: Trendio, The Public Gyan, and TradeSports, for example, actually use their blogs quite nicely. These blogs, generally speaking, tell people about contract expirations, changes in margin, new contracts, and so on. They’-re very useful to the people who trade on these sites.
Other prediction exchange corporate blogs are nothing more than self-promotion. That’-s not a bad thing, but it’-s less useful for traders on the site, and more useful for the person promoting the site (or the blogsters covering that site).
Prediction exchange blogs shouldn’-t be treated differently than any other blog: they should publish on a timely basis, and write about something that is of interest to their users. If they can’-t manage that, then they shouldn’-t keep the blog.