Tag Archives: prediction markets

New Product Innovation: Enterprise Prediction Markets Can Help.

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Via the New York-based Yahoo! Research scientist who was video-interviewed by the New York Post, the other day- Teck-Hua Ho &amp- Kay-Yut Chen:

New Product Blockbusters: The Magic and Science of Prediction Markets
Teck-Hua Ho &amp- Kay-Yut Chen
50/1 (Fall 2007): 144-158

New product innovation is a strategic business activity that involves significant financial resources and managerial attention. Most new product launches fail because existing methods are unable to forecast their commercial successes accurately. In this article, we describe a market-based method to address this gap. This method capitalizes on the power of the “wisdom of crowds” by allowing people to interact in organized markets governed by well-defined rules. The working of these markets relies on five scientific principles referred to as I4C (pronounced as “I foresee”). These markets motivate people to share information freely through a price discovery process. Prediction markets seek information aggregation from a large group of diverse individuals by encouraging active participation. We demonstrate the power of the markets with real application examples from a wide variety of industries.

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More:

The principles are incentive, indicator, improvement, independence, and crowd.

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New Product Innovation: NewsFutures, Inkling Markets, Consensus Point and Xpree can help.

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Enterprise Prediction Markets: Co-Creating An Organizations Future

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Prediction Markets: Co-Creating An Organization&#8217-s Future – (PDF file) – by Inside Knowledge Magazine&#8217-s Victoria Axelrod and Jenny Ambrozek – 2008-05-10

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David Perry of Consensus Point:

Yes, markets are early warning systems for many things, they give you a sense of what your people know and do not know.

Prediction markets are not necessary if everyone has perfect knowledge- markets are designed to tell people what they do know, to be quiet when they do not
know and are designed to get around take place over time, allowing for prices to fluctuate depending on traders’ confidence.

The longer the markets run, the more informed. They are like wine, they get better with time.

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Emile Servan-Schreiber of NewsFutures is cited too.

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Speculating on event derivative markets is not investing.

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No GravatarUltra pertinent remark from the Club For Growth blogger:

[The New York Post video] is an informative video, but I want to quibble about two things. I view the term &#8220-investing&#8221- as the act of buying an asset with the hopes of it appreciating in value sometime in the future. Used correctly, you &#8220-invest&#8221- in a new home, a company on the stock exchange, or a baseball card collection.

However, you can&#8217-t &#8220-invest&#8221- in politics as the New York Post reporter said you could. The reason why you can&#8217-t is because contracts sold on prediction markets like InTrade.com are not assets– they are derivatives. Their value is based on the outcome of some event. Like futures contracts for frozen concentrated orange juice. [&#8230-]

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I have been blogging about that for years, here, on Midas Oracle.

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Previous blog posts by Chris F. Masse:

  • If Midas Oracle were to meet, would we use Huddle, and why?
  • WORLD’S SUCH A SMALL PLACE: Smarkets meet HubDub.
  • 50% of our prediction market luminaries have a MacBook.
  • STRAIGHT FROM OUR TRUISM DEPARTMENT: Money buys happiness.
  • Ron Paul (R) and Barney Frank (D) ally together to attack “the practical hurdles of the federal law, known as the Unlawful Internet Gambling Enforcement Act, rather than its legitimacy”.
  • Clicking on the “SPHERE: RELATED CONTENT” button, at the bottom of each Midas Oracle post, will bring you a list of external webspots.
  • FRIGHTENING: Jed Christiansen’s prediction market blog was briefly overtaken by web spammers, who inserted invisible links to their commercial sites so as to game the Google PageRank system.

The New York Times article doesnt mention Googles enterprise prediction markets, alas. – Bo Cowgill says that the illustration published in the sidebar defines exclusively what is done at Google.

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Right-click on the New York Times graphic below, open Bo Cowgill&#8217-s post in another browser tab, and read his arguments.

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NYT PMs

Image Credit: Chris Gash for the New York Times

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Adam Siegel of Inkling Markets is also out with a post on that NYT article, but it is of no intellectual interest. Maybe Adam should blog less quickly and eat more fish.

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I forgot to tell you, the other day, that Best Buy is a Consensus Point client, but you knew that already.

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Previously: The New York Times is telling the business world that enterprise prediction markets are an essential management tool.

[Via Xpree]

Previously: Do Google’s enterprise prediction markets work?

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Previous blog posts by Chris F. Masse:

  • The Terror Finance Blog
  • Playing fantasy sports is not gambling. The Unlawful Internet Gambling Enforcement Act includes a specific exemption for fantasy sports, provided the prizes are determined in advance and the imaginary teams don’t correspond to any real teams.
  • Inkling Markets’ Advisory Board… which does not want to tell its name
  • BetFair created the world’s largest ad banner —as certified by the Guinness Book of World Records.
  • Why Emile Servan-Schreiber is on to something with Bet 2 Give —and why InTrade, TradeSports and BetFair should each have a philanthropy wallet.
  • The CFTC is going to close the comments in 14 days. We have 14 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges, and counter the evil petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowitz, the bright masterminder of the Iraq war).
  • The purpose of X2 is to identify future disruptions, opportunities, and competitive landscapes related to the content and dynamics of global science and technology innovation- to develop a new platform for understanding global innovation trends- and to present this information to policy- and decision-makers, as well as the general public, in a useful form.

DAYS OF RECKONING: The New York Times is telling the business world that enterprise prediction markets are an essential management tool.

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Via forecasting expert Mat Fogarty of Xpree (cited but not linked to, alas, in that story), the New York Times (2 pages):

“The potential is that prediction markets may be the thing that enables a big company to act more like a small, nimble company again,” said Jeffrey Severts, a vice president who oversees prediction markets at Best Buy, the electronics retailer. The store chain has experimented with prediction markets on everything from demand for digital set-top boxes to store-opening dates. For example, Mr. Severts said that in the fall of 2006, the prices in a prediction market on whether a new store in Shanghai would open on time — in December 2006 — dropped sharply from $80 a share into the $40 to $50 range. Players made yes-no bets, and the virtual dollar drop reflected increasing doubt that the store would open on time. Indeed, Best Buy’s first store in China opened late, in January 2007, but the warning signs from the prediction market helped prevent further slippage. Mr. Severts noted that prices in a current prediction market — betting whether new offerings from its Geek Squad service will be introduced on time in June — are in the $90 range, an encouraging sign. Best Buy plans to move beyond pilot projects in prediction markets to involve more workers throughout the company, starting next month. “It helps on two fronts, the speed and accuracy of information, so that management can move faster to deal with problems or exploit opportunities,” Mr. Severts said.

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Previously: Do Google’s enterprise prediction markets work?

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Previous blog posts by Chris F. Masse:

  • 50% of our prediction market luminaries have a MacBook.
  • STRAIGHT FROM OUR TRUISM DEPARTMENT: Money buys happiness.
  • Ron Paul (R) and Barney Frank (D) ally together to attack “the practical hurdles of the federal law, known as the Unlawful Internet Gambling Enforcement Act, rather than its legitimacy”.
  • Clicking on the “SPHERE: RELATED CONTENT” button, at the bottom of each Midas Oracle post, will bring you a list of external webspots.
  • FRIGHTENING: Jed Christiansen’s prediction market blog was briefly overtaken by web spammers, who inserted invisible links to their commercial sites so as to game the Google PageRank system.
  • InTrade ditch market-leader Bloomberg for low-cost, second-tier data provider eSignal.
  • Drawing a parallel between our reluctance to seek advice and the experts’ reluctance to take the market-generated probabilistic predictions in an un-discriminating, un-critical fashion

Video on InTrades political prediction markets

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Via Yahoo! Research scientist David Pennock (pictured in the video, with, in the background, a whiteboard full of complex mathematical equations, which impressed the young New York Post journalist)&#8230- this New York Post video (embedded just below).
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John Delaney&#8217-s statement that people (did he say &#8220-pundits&#8221- or &#8220-people&#8221-?&#8230-) were predicting a John Kerry victory in November of 2004 (while InTrade was predicting that George W. Bush would be re-elected) should be backed by supportive evidence. It&#8217-s difficult to quantify the chatter in newspapers, magazines, TVs, blogs, etc. Did someone do that for the 2004 presidential elections? I know that the polls were favoring Bush, slightly, but I don&#8217-t know whether the political buzz was quantified scientifically, really.
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QUESTION TO THE READERS: Could anyone guess what Nassim Nicholas Taleb would think of the prediction markets?

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Fortune:

The idea that catastrophe can strike without warning does not seem particularly hard to understand. Why doesn&#8217-t Wall Street ever seem to allow for that possibility? And why doesn&#8217-t it learn from past catastrophes?

Let me blame business schools and the financial economics establishment – they have a vested interest in promoting models and devaluing common sense.

I worked on Wall Street for close to two decades in trading and risk management of derivatives. I noticed that while portfolio models got worse and worse in tracking reality, their use kept increasing as if nothing was happening. Why? Because in the past 15 years business schools accelerated their teaching of portfolio theory as a replacement for our experiences. It looks like science, and they have been brainwashing more than 100,000 students a year. There is no way my experiences can be transmitted to the next generation because of these schools. We&#8217-ve had fiascoes in finance that they need to neglect because they contradict their models. The problem may also be the Nobel in economics that gave a stamp to these junky theories. Someone needs to make the Nobel committee account for this, for the damage to society – and I hope to do so.

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Strongly anti-establishment guy. (More here, last year, with Felix Salmon.)

Could anyone guess what Nassim Nicholas Taleb would think of the prediction markets? Would he think that our prediction market researchers (Robin Hanson, Justin Wolfers, and company) are &#8220-giving stamp to junky theories&#8221-, hence &#8220-damaging society&#8221-?

Anyone (who knows NNT) willing to guess???&#8230-

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UPDATE: Jason Ruspini&#8230-

The basic answer is obvious – Taleb considers predicting as such to be nonsense, although the papers in this area by Wolfers et al only need appeal to information aggregation.

I do think Taleb would be very skeptical of the model-based papers on manipulation. While he and Robin Hanson seem to have some similar interests, this might be a difference. Consider Taleb&#8217-s &#8220-Fat Tony&#8221- and &#8220-Dr John&#8221- characters from The Black Swan. Fat Tony is more intuitive and &#8220-street-smart&#8221-. Dr John is more &#8220-platonic&#8221-, nerdy, and more apt to make mistakes because of a bad model or assumptions. The characters are each posed the following question: &#8220-Say I flip a fair coin ten times and it comes up heads all ten times. What are the chances of it coming up heads on the next flip?&#8221- Dr John replies, &#8220-Elementary. They are independent events, so 50%.&#8221-  Fat Tony says, &#8220-Less than 10% because the coin is probably loaded. Your assumptions are wrong or you are lying!&#8221-

The model-based papers on manipulation assume equal trading budgets and no feedback trading. These assumptions rarely hold.

Previous blog posts by Chris F. Masse:

  • “I’m very concerned with the international situation and what’s happening in Tibet.”
  • How to win $100 in play money at HubDub, regardless of any political outcome
  • Problem 17: Prediction Markets — USMA D/Math Problem of the Week — Submission Deadline: April 3, 2008 at 1600
  • Midas Oracle is now powered by WordPress 2.5 —and you should be too.
  • Would be fun to have the equivalent for event derivatives.

YouTube Videos on Prediction Markets

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I have created a &#8220-Prediction Market Videos&#8221- category in my &#8220-Links&#8221- page. I have listed there the InTrade and the Jed Christiansen webspots at YouTube.

Any other link(s) to suggest, folks?

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Jed Christiansen: What is a prediction market?

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Jed Christiansen: How can I use a prediction market for my business?

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Re-read Mikes testimony slowly, and then youll get which consumers need(s) prediction market journalism should fulfill.

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Mike Linksvayer:

Small comforts of prediction markets

Mike Linksvayer &#8212- November 19th, 2007

Yesterday I had dinner with a friend I hadn’t seen for a few years. I asked what he’d been doing, apart from being a nerd, and he said he’d been spending too much time following the U.S. presidential campaigns (actually just the Ron Paul campaign, but that’s not particularly relevant here). I realized that I don’t do this anymore. It could be because I’m maturing, but I’ll give credit to prediction markets.

Most of the yapping in the media is about the horse race and personalities, which I don’t care about, other than the status of the former. Instead I check prices at Intrade most days, which gives me a more accurate and much more concise status update than any amount of time spent reading or watching commentary.

Furthermore, betting that candidates I detest will win and against candidates I mind less, even in small amounts, really helps me not waste time thinking (mostly distressed thoughts) about the election.

So thank you prediction markets for the time and peace of mind!

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Mike&#8217-s post is the most important piece of wisdom ever published about the prediction markets since the creation of the Iowa Electronic Markets in 1988.

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Hence, I propose that the meager but smiling Mike Linksvayer be made the mascot of the prediction markets.

Mike Linksvayer

Mike Linksvayer&#8217-s profile at Midas Oracle

Lets face it. The political world doesnt give the first fig about the prediction markets, InTrade, BetFair, Betdaq, NewsFutures, HubDub, Robin Hanson, Justin Wolfers, and the rest of our little clique.

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No GravatarSome of our luminaries have had their vapors and have boldly stated that the public [*] prediction markets would soon take over the free world and become the forecasting tool of choice for decision makers. Since our movement has started, in 2003, that has not happened &#8212-and will never happen (let alone in the year 2020). We were duped by those cocky misleaders. In the coming weeks, I&#8217-m going to try to launch a big intra-industry initiative to find the right usage for the public prediction markets. Stay tuned&#8230- and I hope I&#8217-ll get you on board with me.

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[*] as opposed to the enterprise prediction markets, which is not the topic of my bombastic rant above, which is a horse of another color, and which would deserve a completely different analysis.

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WEB EXCLUSIVE: Here&#8217-s what the political world really cares about&#8230-

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Gallup 1

Gallup 2

Gallup 3

Previous blog posts by Chris F. Masse:

  • Last year’s best April Fool’s Day Joke had something to do with the Wisdom Of Crowds.
  • Will HedgeStreet USA, the hypothetical InTrade USA, and the hypothetical TradeFair USA, be regulated in the future by a merged SEC+CFTC regulatory structure?
  • WORST THAN ELIOT SPITZER (if it were possible): Formula One boss, Max Mosley, had sado-masochist sex with 5 prostitutes, for 5 hours (!!), reenacting a concentration camp scene (!!) in which he played the role of both Nazi guard and inmate.
  • Is BetFair Poker a booby trap for the gullible novices? Does The Sporting Exchange (the operator of the BetFair brands) help gangs plucking down innocent recreational poker players?? To get an inkling, don’t read The Guardian, seeded by the BetFair spin doctor- read Midas Oracle.
  • The video that the technologically retarded BetFair spin doctor should watch.