Via Fabian John (Financial Services Consultant)

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ABC 20/20 featuring InTrade – (May 9, 2008)

Foretelling The Future: Online Prediction Markets — (4 pages in all)

ABC video

YouTube video

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HSX software certainly has a lot of head room to offer to a relatively small project such as Storage Markets. Given the prediction market software vendors available to us during late 2005, we were very happy with our choice of HSX. Alex and his team at HSX provided excellent customer service and were extremely supportive of our experiment. [...]

Being the most popular blogger on prediction markets, I receive many inquiries from firms, and exchange with them views on available solutions. In late 2007, here are the best prediction market software providers:

• CDA: InTrade-TradeSports and NewsFutures.
• MSR: Consensus Point, Inkling Markets, and (recently) Xpree. (MicroSoft PredictionPoint, soon.)
• No Fortune-500 firm and no prediction market expert has ever talked to me positively about HSX (as a software provider).
• Companies prefer dealing directly with the software provider as opposed to some stand-alone consultant —unless that consultant is in a geographical zone far away from the software vendor’s home territory and the software vendor executive doesn’t want to travel.

Previously: Storage Markets, powered by HSX, has just bellied up.

Given the interest in prizes that my posts have generated since early 2007, I’ll continue exploring the intersections between philanthropy, markets and prizes in more depth – and in video – as the October theme over on the Giving Channel. New content will be posted by October 21 – and we’ll remind you here.

I can’t wait.

That’s your job to list these specific situations, mister Hanson.

Psstt… I’m in London, U.K. They made me drink hot chocolate with floating marshmallows!!!… In France, it’s considered a crime. Anyway. I love London and the Londoners. Sky’s blue today.

Forecast error comes from 5 sources:
1. Overoptimism when developing a new product, especially regarding ship dates
2. Lowballing sales forecasts in an effort to reduce sales quotas
3. Padding of spending budgets to reduce cost pressure
4. Uncertainty – the future is unknown
5. Black Swans – rare extreme events that have a large unforeseen influence

[...]

A prediction market typically allows individual members of the public, or an organization, to participate in a play money or real money market trading on a prediction. Accurate traders win money and are recognized and rewarded. [...]

Prediction markets utilize wisdom of crowds to overcome bias and enhance forecast accuracy. An Enterprise 2.0 solution, prediction markets enable employees to collaborate around estimating future events and metrics.  Used to forecast ship dates, sales volumes or strategic events, market based solutions have repeatedly demonstrated their superiority compared to more traditional forecasting methods. [...]

Mat Fogarty (Prediction Markets Consultant – Founder CEO Xpree)

[...] Robin Hanson, an economics professor at George Mason University and a consultant to companies building prediction markets, said: “A lot of new business plans are based on this idea. There’s a big trend in this area, with people thinking this is cool.” But Mr. Hanson said he was skeptical about many of the dozens of businesses he had seen forming around the concept, because outside of topics like politics, movies or sports, few subjects would entice people to render carefully considered opinions. “It’s kind of like a job,” he said. [...]

UPDATE: eLab Exchange uses two non-trading techniques that harness the wisdom of crowds —idea pageants and competitive forecasting.

NEXT: Robin Hanson seems to think that the foundations of the eLab eXchange are planted in moving sands.

Ran a 240 participant prediction market at EA which demonstrated the power of collaborative forecasting in a corporate setting.

Every time somebody tells me about EA, they use the past tense, “ran”. Does it mean it’s over, now that Mat Fogarty is out??

[...] Chris F. Masse, a [] consultant in Sophia Antipolis, France, who specializes in prediction markets, says that by 2010, “10 percent of Fortune 500 companies will have gone public about their use of internal prediction markets, and probably another 10 percent will be testing some projects.” [...]

As [Robin] Hanson notes, “the winners are attracted by losers, just as wolves are attracted by sheep.” [...]

Go reading the article, if you haven’t done already (and then read Mike Giberson’s comments). — Bet on It! – (page two – page three) — Via Steve Roman

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UPDATE: Robin Hanson comments…

I don’t that much care about terminology here, but I do agree that prediction markets should shine best at the meta level, when competing institutions try to draw what insight they can from other institutions running in parallel.

In August 2004, Todd Proebsting, a researcher in Microsoft’s platform and services division, was approached by a manager in the company’s testing organization who had spent months helping to create a piece of software to be used by other Microsoft programmers. Although it was an internal product, the software still had a rigid development schedule and an official launch date: November 2004, just a few months away. The manager had heard a talk by Proebsting about something called a prediction market, a sort of stock market for ideas, in which Microsoft employees would in effect place bets on predictions, instead of on racehorses or football teams. A lot was riding on the timely completion of the testing software. “You said that a market could be used to predict schedules,” the manager said. “I want to know when my team will finish writing the software.” Proebsting created a market with six possible bets: that the product would ship before November, in November, in December, in January, in February, or later than February. His pool of bettors included members of the development team itself, other developers, and program managers from related teams, as well as internal “customers”—the programmers within Microsoft who would use the software. He showed them all how to use the market, gave them each US $50 with which to wager, and then sat back and watched prices fluctuate. “All six months were started equally at 16 2/3 cents on the dollar,” Proebsting says, meaning that you only had to bet that amount to win $1 if you were right. “Within seconds, the pre-November market went to $0.00 and never moved from there.” So much for beating the deadline. “The November date went down to 1.2 cents in about 3 minutes.” So much for meeting the deadline. “The director of the group came to see me. He asked, ‘What have you done?’?” “No one believes your product will ship on time,” Proebsting told him. The director replied, “No one on the team is telling me this.” After discussing things with his development team, the director came to accept what the market was “saying.” He decided to cut some of the software features that were holding things up. “And the price of the markets started to reflect that—the November price rose,” Proebsting says. “Then the internal customers got wind of the fact that some of their favorite features were being cut and demanded their features back. So the market then reflected that!” In other words, the markets that predicted the software would be very late went back up. “In the end,” Proebsting says, “the product shipped in February, which is what the market predicted.” [...]

Chris F. Masse, a [] consultant in Sophia Antipolis, France, who specializes in prediction markets, says that by 2010, “10 percent of Fortune 500 companies will have gone public about their use of internal prediction markets, and probably another 10 percent will be testing some projects.” [...]

Henry Berg, who runs the Information Markets group within Microsoft, notes that in many cases a company has no formal prediction methods in place. “An organization adopting prediction markets needs to make two major adjustments: deciding to start making formal predictions about the future and choosing to use prediction markets as the mechanism,” Berg says. “In my experience, the first adjustment is greater than the second.” [...]

BetFair, NewsFutures and HSX Research are not cited.

Other than that, it’s a nice article. — Bet on It! – (page two – page three) — Via Steve Roman