I have thought for a long time that the most interesting and underexplored set of corporate prediction market applications were the financial ones.
One idea is to run public markets on events that affect one’s stock market value. Eli Lilly did this for public policy events with Newsfutures in 2003. But as far as I know, no one has expanded on this idea or taken it outside of public policy (to earnings or product launch success, for example).
Doing so could have several benefits. First, by understanding what the market is thinking, you can know to correct misimpressions when it is advantageous to do so. Second, by understanding how the market thinks a decision would affect your value, you might make better decisions.
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#1. What’s the legality of that? Is that SEC or CFTC? Could TradeSports do that with U.S. stocks? Could BetFair do that with British stocks? [In 2004, BetFair ran a market on Canadian CEOs departure. I rated it as the most boring stuff of 2004. No liquidity.]
#2. As I said, the focus should be on the wisdom of the prediction market creator. Who is going to select those “events that affect one’s stock market value”? [*] Financial analysts and economists.
—-> It probably requires open collaboration between a real-money prediction exchange and one Wall Street research firm.
[*] And how to pick, among all them, the contracts that would be popular with the traders? Because that’s the ultimate factor.
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Addendum: Jason Ruspini posted a comment…
“What’s the legality of that? Is that SEC or CFTC?â€
A public market on whether or not a CEO will be fired would be the CFTC, probably.
A public market on the stock price contigent on whether the CEO is fired would be the SEC.
A public market on earnings contingent on whether the CEO is fired would be the CFTC, probably… but the SEC might be particularly sensitive to earnings events. (Anything predicting dividend announcements would be SEC jurisdiction.)
“What’s the legality of that? Is that SEC or CFTC?”
A public market on whether or not a CEO will be fired would be the CFTC, probably.
A public market on the stock price contigent on whether the CEO is fired would be the SEC.
A public market on earnings contingent on whether the CEO is fired would be the CFTC, probably.. but the SEC might be particularly sensitive to earnings events. (Anything predicting dividend announcements would be SEC jurisdiction.)