I don’t see any compelling argument in favor of enterprise prediction markets, so far.
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Prediction markets were designed exactly these sort of hard problems – contributors know they face a risk of losing as well as gaining from their contributions. So folks think a little more carefully about what they might say, and choose not to speak when they doubt they have something useful to say. Prediction markets allow organizations to tap the collective to aggregate info on their most important and controversial topics. But of course they aren’t the only or best way to support collaboration on all topics.
I think organizations are interested in the most effective and cheapest way to obtain objective forecasting. From what Robin Hanson writes above, it does not seem that enterprise prediction markets are the most effective and cheapest solution. He failed to tell when exactly enterprise prediction markets can make a big difference.
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Robin Hanson of George Mason University, presented last, exploring how organizations can make decisions based upon unverifiable or controversial data. He described prediction markets as a great way to evaluate controversial and political topics and to incentivize people to “shut up when they don’t know the answer”. Best Buy’s success in crushing Circuit City, for example, may be attributed to their markets asking employees about the direction of certain technologies, leading them to be better stocked with Blu-Ray players when that was decided upon as the HD video player of choice.
From what is highlighted above, I get that Circuit City did a bad technology intelligence regarding the ‘HD-DVD versus Blu-Ray’ issue (which was a topic well covered by the technology magazines and blogs). The solution is to fire the Circuit City employee in charge of technology intelligence, and replace him/her with a competent individual who can read. I don’t see any need for the enterprise prediction markets in this case.
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It is a chance that “Tap The Collective” was a free event. It is not worth one cent and one minute of my time to listen to the kind of shallow arguments above. I hope that the food was good, and that the drinking was joyful. The next time that our good friend Adam Siegel of Inkling Markets sets up an event (and I have a lot of respect and consideration for him), he should make sure that solid arguments supported by solid facts are presented. My time is precious. I don’t like to waste it. A good event should be something else that a small coterie of market aficionados flattering each other.
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Previously: Tap The Collective — The Photos
You think that just any “competent individual who can read” could have told Circuit City that blu-ray was going to win, and that in general companies have no need for prediction markets since it is cheaper and more effective to just hire such employees? OK, but how do you tell who is “competent” on a topic *before* that topic is resolved, rather than after? In what sense do you like prediction markets if you think their results can always be replaced by any “competent individual who can read”?
The ‘HD-DVD versus Blu-Ray’ problematic was (and still is) well covered by the technology media. The task is to:
- select the most informed sources of information;
- follow them (and the great thing with the Internet is that we have news aggregators like TechMeme.com, which highlights important news and debates);
- detect the important bits of information;
- assess the impact of the new info in the big picture;
- assess whether the organization’s strategy should be changed.
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I perform technology intelligence on a daily basis. It takes time. It requires curiosity and analysis skills. As for your question of who is competent, what businesses do is that they hire employees who have had positive results in a similar position in the past. They hire someone who can prove that he/she has been successful in the past at doing technology intelligence. They hire the experience.
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Prediction markets might be useful, sometimes. But we don’t need them to perform technology intelligence.
You may predict on a daily basis, but I don’t know if you do it well; where is your track record and a repository of other track records to compare yours with? Prediction markets don’t do intelligence, their participants do it. You don’t replace people with prediction markets, you use prediction markets to figure out *which people* to believe. Just telling people to listen to “who have had positive results in a similar position in the past” is not good enough, because it is often hard to tell which previous forecast tasks are similar to this one, prior success might have been dumb luck, and those who did well before may not be trying very hard this time.
You are reasoning like a professor. Business people reason and act in a different manner. I will answer more fully at a later time.
Do businesses need enterprise prediction markets?
http://www.midasoracle.org/2009/09/08/do-businesses-need-enterprise-prediction-markets/