Do businesses need enterprise prediction markets?

Competitive advantage can be obtained either by differentiation or by low cost. Enterprise prediction markets certainly don’-t foster the innovation process, and they are surely not the cheapest forecasting tool. EPMs require special software, the hiring of consultant(s), the participation of all, and a budget for the prizes. EPMs are costly, and they take time to deliver. As of today, I can’-t see why any sane CEO should be implementing EPMs as a decision-making support. At the contrary, I would say that any sane CEO should fire any employee who tried to sneak in internal prediction markets, and should dismember any existing corporate prediction exchange. Right now.

It has been suggested that EPMs have helped Best Buy getting it right on the ‘HD-DVD versus Blu-Ray’ issue. It’-s a boatload of bullsh*t. I know a lot about technology intelligence. It should be done by a smart and curious operator. There is no need of enterprise prediction markets to do this task. The tools you need consist of a bunch of IT news aggregators and a good search engine. Consider this:

The Inevitable Move Of iTunes To The Cloud

In the ‘-cloud’- piece above, there are facts and there are speculations. You’-ve got much more technology intelligence reading the ‘-cloud’- piece above than you would get from a crude, plain and simple prediction market. Gimme a break with EPMs. Make no sense at all.

Contrast EPMs (which are costly) with public prediction markets (a la InTrade or BetFair), where probabilistic predictions are offered for free. That makes all the difference for the reason that the added accuracy brought by prediction markets is very small. Market-generated odds are handed out for free to journalists —-still, few of them take the bait. The market-powered crystal ball is worth peanuts.

The reason CEOs are paid millions is that only a small percent of the population of business administration managers has the ability to cut through the non-sense and the balls to cut the cost of the non-sense. It is a rare skill. I am calling on CEOs to end EPMs. Right now.

Is Spigit stealing the Best Buy quotes on enterprise prediction markets that does in fact belong to Consensus Point (which is the software vendor that has Best Buy as its customer)?

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Look at the quote at the bottom of this webpage.

UPDATE: They have just brought the Best Buy quote down. :-D

The best presentations from the worlds best conference on enterprise prediction markets -ever

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Awesome slides in bold.

Brought to you by Koleman Strumpf (circa November 2007):

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Henry Berg, Microsoft &lt-slides&gt-
Discussant: Robin Hanson (George Mason Department of Economics) &lt-slides&gt-
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Christina Ann LaComb, GE (The Imagination Market- abstract is free, text is gated) &lt-slides&gt-
Discussant: Marco Ottaviani (Kellogg School of Management, Management and Strategy) &lt-slides&gt-
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Dawn Keller, Best Buy (Best Buy’s TAGTRADE Market) &lt-slides&gt-
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Bo Cowgill, Google (Putting Crowd Wisdom to Work) &lt-slides&gt-
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Jim Lavoie, Co-Founder and CEO, Rite-Solutions &lt-slides&gt-
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David Perry, Co-Founder and President, Consensus Point &lt-slides&gt-
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Mat Fogarty, Founder and CEO, Xpree Inc &lt-slides&gt-

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Tom W. Bell, Chapman University School of Law &lt-slides&gt-

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The Promise Of Enterprise Prediction Markets – The McKinsey conference should have been rooted in the economic science and McKinsey should have invited economists.

No GravatarMcKinsey: The Promise Of Prediction Markets

James Surowiecki: The premise is that under the right circumstances, the collective judgment of a large group of people will generally provide a better picture of what the future might look like than anything one expert or even a small group of experts will come up with. […-]

James Surowiecki: The Wisdom of Crowds is not an argument against experts. It is saying that you shouldn’t rely wholly on the judgment of one person or even a very small group of people. But for a crowd to be smart, it needs to satisfy certain criteria. It needs to be diverse, so that people are bringing different pieces of information to the table. It needs to be decentralized, so that no one at the top is dictating the crowd’s answer. It needs to summarize people’s opinions into one collective verdict. And the people in the crowd need to be independent, so that they pay attention mostly to their own information and don’t worry about what everyone around them thinks.

James Surowiecki: […-] One shortcoming is that a lot of people inside organizations don’t find the market mechanism intuitive or easily understood. They find it very challenging to use, which limits the pool of people who participate.

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On James Surowiecki’-s last remark, I would say that Robin Hanson’-s MSR technology (which powers most enterprise prediction exchanges but Google’-s one) brought much needed simplification to trading.

Overall, a good roundup, but the conference speakers should have mentioned Robin Hanson’-s pioneering work, and McKinsey should have invited him. He would have towered anybody and given great insights.

See Jed Christiansen for other remarks.

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As an aside, I’-d say I prefer the sketch that is supposed to represent Bo rather than the real photo. The sketch makes him look like he is subtitle, charming, smiling, humble, and modest —-quite a quantum leap. :-D

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Bo Cowgill

Bo Cowgill – Economics at Google

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  • PhotoShop designers improve the look of models on glossy magazine covers.
  • Sketchy artists improve the look of testosteroned, ultra-serious, ambitious, young business managers. :-D

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Previously: Do Google’s enterprise prediction markets work?

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Previous blog posts by Chris F. Masse:

  • 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.
  • You can’t measure the usefulness of a system by how many resources it consumes.

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