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The Forrester executive summary:

The “wisdom of crowds” is capturing the attention of corporate strategists across the globe, and, as a result, many are now looking to prediction markets — speculative markets in which traders collectively predict future events — to generate collective intelligence. For enterprises, prediction markets bring unique value: They focus on the future, aggregate diverse information pools that can be applied to multiple decision-making domains, create streams of actionable data suitable for executive decision-making, and can often cut through corporate politics and pressures at lower cost than traditional forecasting methods. Market researchers will, however, need to have an active hand in the management of these mechanisms, ensuring strong management support, the right incentives for traders, and a focus on appropriate questions. When executed properly, the value to the enterprise is enormous; as a result, Forrester believes that prediction markets will ultimately find a permanent home in the market research toolbox.

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For information on hard-copy or electronic reprints, please contact the Client Resource Center at +1 866.367.7378, +1 617.617.5730, or resourcecenter –at– forrester –dot– com. We offer quantity discounts and special pricing for academic and nonprofit institutions.

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APPENDIX #1: Prediction Markets – DRM Review

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APPENDIX #2:

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Here is a list of companies that provide software for prediction markets:

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Inkling Markets – (MSR + AMM)

NewsFutures – (CDA + optional AMM + SR)

Xpree – (MSR + AMM)

Zocalo – (CDA + MSR + AMM) – (open-source)

Nosco – (CDA + MSR + AMM)

QMarkets – (MSR + AMM)

Ask Markets – (MSR + AMM)

Exago Markets – (CDA + optional AMM)

Gexid – (?)

ProKons – (?)

Spigit – (?)

HSX Virtual Markets – (Virtual Specialist + AMM)

HubDub – (MSR + AMM) – (not licensed)

Yahoo!‘s Prediction Exchange – (MSR + AMM + DPMM) – (not licensed)

Google‘s Prediction Exchange – (CDA) – (not licensed)

MicroSoft PredictionPoint – (MSR + AMM) – (not licensed)

InTrade – (CDA + AMM for play money) – (not licensed)

TradeSports – (CDA + AMM for play money) – (not licensed)

Iowa Electronic Markets – (CDA) – (not licensed)

HedgeStreet – (CDA) – (not licensed)

TradeFair – (CDA) – (not licensed)

BetFair – (CDA) – (not licensed)

Trading Technologies International – (CDA) – (not for event derivatives)

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Here’s a list of prediction market consultants:

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Robin Hanson – (George Mason University, Virginia, U.S.A.)

• Robin Hanson does prediction market consulting work, and have no exclusive arrangements.
• “I’m more interested in helping groups that want to add lots of value to big decisions, versus groups that just want to dabble in a new fad.”

Inkling – URL: Inkling Markets – (Chicago, Illinois, U.S.A.)

• Adam Siegel
• Nathan Kontny

NewsFutures – (Maryland, U.S.A. & Paris, France, E.U.)

• Emile Servan-Schreiber — Post Archive at Midas Oracle
• Maurice Balick

Xpree – (California, U.S.A.)

• Mat Fogarty

Chris Hibbert – (California, U.S.A.)

• Chris Hibbert (Software architect / Zocalo project manager) — Post Archive at Midas Oracle
• Chris Hibbert’s personal website — Chris Hibbert’s personal blog —
• Chris Hibbert’s CommerceNet profile — (His stint there ended in mid 2006.)

Justin Wolfers – (University of Pennsylvania’s Wharton Business School, Pennsylvania, U.S.A.)

• Justin Wolfers takes on prediction market consulting work.
• The prediction market industry is “a case where the interaction between firm practice and academic research are reasonably close.”

Koleman Strumpf – (University of Kansas, Kansas, U.S.A.)

• Koleman Strumpf — Post Archive at Midas Oracle
• Koleman Strumpf can be approached to consult on prediction market projects.
• “Prediction markets help harness the knowledge of diverse groups. They have great potential as a tool for industry.”

Nosco – (Danemark, E.U.)

• Jesper Krogstrup
• Oliver Bernhard Pedersen

Qmarkets – (Israel)

• Noam Danon

Ask Markets – (Greece, E.U.)

• George Tziralis — Post Archive at Midas Oracle

HP Services & HP Labs – (U.S.A.)

• Predicting the future –with games — Introductory article
• Information Dynamics Lab — Internal prediction markets
• BRAIN – (Behaviorallly Robust Aggregation of Information in Networks) — Scoring Rules (i.e., non-trading technique)
• Bernardo A. Huberman – Bernardo Huberman – Senior Fellow & Director
• Kay-Yut Chen -
• Google Search for “prediction markets”

Hollywood Stock Exchange (HSX) & HSX Research – (L.A., California, U.S.A.)

• Prediction market consultancy firm
• Movie business

IntelliMarket Systems – (L.A., California, U.S.A.)

• Charles R. Plott – Charles Plott – (CalTech Inst., California, U.S.A.)

Gexid – Global Exchange for Information Derivatives – (Germany, E.U.)

• Bernd Ankenbrand — Post Archive at Midas Oracle

ProKons – (Germany, E.U.)

• Peter Gollowitsch

Exago Markets – (Portugal, E.U.)

• Pedro Da Cunha

NimaniX – (Israel)

• Elad Amir (CEO), Littal Shemer Haim (VP Business development), David Shahar (VP R&D)

Michael Giberson – (Texas, U.S.A.)

• Michael Giberson (Energy Economist – Center for Energy Commerce, Rawls College of Business, Texas Tech University) — Post archive at Midas Oracle
• Knowledge Problem – Blog on economics, energy policy, more.

Other Consulting Firms

McKinsey – (U.S.A.)

• Google Search for “prediction markets”
• The Promise Of Prediction Markets – by McKinsey – 2008-04-XX

Accenture – (U.S.A.)

• Google Search for “prediction markets”

Gartner – (U.S.A.)

• Google Search for “prediction markets”

Forrester – (U.S.A.)

• Google Search for “prediction markets”
• Prediction Markets: Wisdom Of The Crowd Comes To The Enterprise. – 2008-07-14

The Boston Consulting Group – (U.S.A.)

• Google Search for “prediction markets”

CapGemini – (U.S.A.)

• Google Search for “prediction markets”

KPMG – (U.S.A.)

• Google Search for “prediction markets”

Price Waterhouse Cooper – (U.S.A.)

• Google Search for “prediction markets”

Ernst & Young – (U.S.A.)

• Google Search for “prediction markets”

Deloitte – (U.S.A.)

• Google Search for “prediction markets”

IBM – (U.S.A.)

• Google Search for “prediction markets”

EDS – (U.S.A.)

• Google Search for “prediction markets”

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Inkling – URL: Inkling Markets – (Chicago, Illinois, U.S.A.)

• Adam Siegel — Post Archives at Midas Oracle
• Nathan Kontny

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NewsFutures – (Maryland, U.S.A. & Paris, France, E.U.)

• Emile Servan-Schreiber — Post Archives at Midas Oracle
• Maurice Balick

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Xpree – (U.S.A.)

• Mat Fogarty — Post Archives at Midas Oracle

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HP Services – HP Labs – (U.S.A.)

• Predicting the future –with games — Introductory article
• Information Dynamics Lab — Internal prediction markets
• BRAIN – (Behaviorallly Robust Aggregation of Information in Networks) — Scoring Rules (i.e., non-trading technique)
• Bernardo A. Huberman – Bernardo Huberman – Senior Fellow & Director
• Kay-Yut Chen -
• Google Search for “prediction markets”

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Hollywood Stock Exchange (HSX) & HSX Research – (L.A., California, U.S.A.)

• Prediction market consultancy firm
• Movie business

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Chris Hibbert – (California, U.S.A.)

• Chris Hibbert (Software architect / Zocalo project manager) — Post Archives at Midas Oracle
• Chris Hibbert’s personal website — Chris Hibbert’s personal blog —
• Chris Hibbert’s CommerceNet profile — (His stint there ended in mid-2006.)

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Robin Hanson – (George Mason U., Virginia, U.S.A.)

• Robin Hanson — Post Archives at Midas Oracle
• Robin Hanson does prediction market consulting work, and have no exclusive arrangements.
• “I’m more interested in helping groups that want to add lots of value to big decisions, versus groups that just want to dabble in a new fad.”

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Justin Wolfers – (U. of Pennsylvania’s Wharton business school, Pennsylvania, U.S.A.)

• Justin Wolfers — Post Archives at Midas Oracle
• Justin Wolfers takes on prediction market consulting work.
• The prediction market industry is “a case where the interaction between firm practice and academic research are reasonably close.”

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Koleman Strumpf – (U. of Kansas, Kansas, U.S.A.)

• Koleman Strumpf — Post Archives at Midas Oracle
• Koleman Strumpf can be approached to consult on prediction market projects.
• “Prediction markets help harness the knowledge of diverse groups. They have great potential as a tool for industry.”

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Michael Giberson – (Virginia, U.S.A.)

• Michael Giberson (energy economist, who is also an expert in prediction markets) — Post archives at Midas Oracle
• Knowledge Problem – Blog on economics, energy policy, more.

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Robert Hahn – (American Enterprise Institute, Washington, D.C., U.S.A.)

• Robert Hahn — Post Archives at Midas Oracle
• Robert Hahn does consulting focused on improving decision making in the private and public sector. “This work builds on our evolving understanding of prediction markets and other economic tools.”

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IntelliMarket Systems – (L.A., California, U.S.A.)

• Charles R. Plott – Charles Plott – (CalTech Inst., California, U.S.A.)

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Mercury Research and Consulting – (United Kingdom, E.U.)

• Jed Christiansen — Post Archives at Midas Oracle

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Ask Markets – (Greece, E.U.)

• George Tziralis — Post Archives at Midas Oracle

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Gexid – Global Exchange for Information Derivatives – (Germany, E.U.)

• Bernd Ankenbrand — Post Archives at Midas Oracle

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Nosco – (Danemark, E.U.)

• Jesper Krogstrup — Post Archives at Midas Oracle
• Oliver Bernhard Pedersen

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Qmarkets – (Israel)

• Noam Danon — Post Archives at Midas Oracle

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ProKons – (Germany)

• Peter Gollowitsch

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Hive Insight – (Raleigh-Durham, North Carolina, U.S.A. & London, U.K., E.U.)

• Robert Wilburn (ex-NewsFutures)

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Foresight Markets – (??)

• BPH Technologies

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NimaniX – (Israel)

• Elad Amir (CEO), Littal Shemer Haim (VP Business development), David Shahar (VP R&D)

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PrediCom – (London, United Kingdom, E.U.)

• Mikael Edholm

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This is exactly what makes Rails a ghetto. A bunch of half-trained former PHP morons who never bother to sit down and really learn the computer science they were too good to study in college.

And can he read English? On June 8, 2007, and more recently on August 29, 2007, I have highlighted that there’s a historical error (among other improprieties) on their Inkling page. The Iowa Electronic Markets was created in 1988 —not in 1998, as stated by Inkling. How much time should we wait again to see this error corrected on their page? Hurry up, boys.

- I would like to see Inkling Markets rank all its prediction market managers (the people who set up and expire the event derivatives), so we can know whether a particular prediction market is worth speculating on it or is a dead end —which happens when the manager who created it is not here anymore to expire it.

A BIG THANK YOU TO ADAM SIEGEL AND NATHAN KONTNY.

Chris Hibbert Explainers:

• PM Intro: Basic Formats – [simple double auctions] – by Chris Hibbert – 2005-12-30
• PMs with Open-Ended Prices – [markets with open-ended prices] – by Chris Hibbert – 2006-01-05
• Looking at Both Sides – [the symmetry of complementary purchases] – by Chris Hibbert – 2006-04-17
• Market Design: Book and Market Maker – [how to integrate an order book with an automated market maker] – by Chris Hibbert – 2006-04-28
• Increasing Liquidity in Multi-Outcome Claims – [the mechanics of multi-outcome markets] – by Chris Hibbert – 2006-07-19
• Continuous Outcomes: Bands, Ladders, and Scaled Claims – [predicting the value of a continuous variable] – by Chris Hibbert – 2006-09-20
• Integrating Book Orders and Market Makers – (mirror on MO) – by Chris Hibbert – 2006-09-20
• Conditional and Combinatorial Betting – (mirror on MO) – by Chris Hibbert – 2007-03-06

Chris [Masse] speculated on whether the simExchange will become a more generalist exchange, like BetFair, which began as a horseracing market before transforming into a general prediction market.

The simExchange is indeed exploring the possibility of expanding beyond traditional console and PC games, such as the immediately close tangent of downloaded games, such as Xbox Live Arcade and Wii Virtual Console games, and new online games, such as Second Life type games. However, our focus continues to be developing a strong prediction market in which the video game industry and gamers can rely upon to gauge video games.

BetFair was at inception a British horse racing betting exchange (real-money prediction exchange), and it as been expanding into other sports (soccer, cricket, basketball, football, rugby, tennis, etc.) and a little bit into politics and financials. On the other hand, the Hollywood Stock Exchange can be described as a betting exchange that hasn’t expanded much beyond movies and movie stars. (Previous: US presidential election prediction markets: HedgeStreet or Hollywood Stock Exchange??)

Of course, the difference between the Sim Exchange and BetFair is that the latter provides its service to play-money speculators… for free. How would the Sim Exchange finances the managing of non-game event derivatives? Let’s look at the Inkling’s business model for a partial answer. Inkling is unique in the prediction market scene in that it is an unmanaged prediction exchange: only the users (e.g., ABC7 San Francisco) do create, run and expire the prediction markets —the exchange managers don’t create and expire anything. In a way, Inkling resembles Second Life, whose CEO made the determination early on not to be a game creator —Second Life is in the business of selling/renting lands (servers), only, and does not create itself any content. Look at it this way: Inkling does not pay for event derivative management —it does outsource that to its users. Just like TypePad.com or WordPress.com do not pay for blog content creation —they outsource that to volunteers (the bloggers who live as a sub-domain). The two Inkling managers, instead, focus on creating their great on-demand software, and on servicing a fistful of corporate customers, which puts food on the table.

The Sim Exchange could look into the eccentric Inkling’s business model for inspiration, if it decided to move beyond video games. In a Web 2.0 world, user-generated content (here, event derivative) is King. One idea (among many others) would be to have Brian Shiau et al. creating and managing the prediction markets on video games, while letting qualified users designing and managing prediction markets on the topic they have a strong interest in. In the case of Midas Oracle (as a group), we would love to partner with one or more betting exchange(s) so as to do prediction markets on the prediction market industry, among other themes. (Previous: Midas Oracle Opportunities For Your Business)

Just one idea among many… Do the Midas Oracle readers have any suggestions to Brian Shiau?

Previous: An invitation to join the simExchange beta

Previous: Are Nathan Kontny and Adam Siegel of Inkling Markets being EXPLOITED by Paul Graham’s Y Combinator?

Chris,

We have been asked this many times. Really what it comes down to is a group’s financial situation and comfort level with getting in to the deal. It’s true yCombinator doesn’t give much money, but they also don’t take a big equity stake in the company either. We’re “boot-strapping” the company now and making enough we haven’t had to go out for additional VC funding, so the yCombinator model worked very well for us. So for Inkling, it wasn’t really the money we were getting, it was about:

- overcoming the inertia of being in very well paid jobs at Accenture and Digital River
- a validation of our idea and approach
- making tremendous connections
- namebrand recognition associated with Paul Graham. This is less important now but as any startup knows, in the beginning, gaining legitimacy is extremely important. We met the O’Reilly folks while out in California during our development period. Working with that first brandname got us started in being able to talk to others about the work we were doing. When someone looks at a list of your clients and sees names they recognize, it makes them feel more comfortable working with you because others are sharing in the risk.

So if you are talking strictly money, sure, it’s not much, but we felt there was enough upside with what they offered otherwise, that it wasn’t an issue. And frankly, we’ve met plenty of start-ups who have gotten big VC funding and they’ve lost their focus and fail. If our business doesn’t do well, we don’t eat and pay our mortgages. That keeps us focused.

Previous: Are Nathan Kontny and Adam Siegel of Inkling Markets being EXPLOITED by Paul Graham’s Y Combinator?

[...] [C]ompanies that Y Combinator is funding are at a 60x discount to what a VC is funding companies at. [...]

Sudhir Jha:

I am also a big fan of Paul’s writings and Y combinators’ concept in general but this model seems to exploit the entrepreneurs. Paying $2000 for living expenses and giving only 3 months to develop the idea, means that these folks are putting in long hours and are under tremendous pressure to complete the project while living in quite poor conditions! It is great for Y combinator as they are able to spread the risk and play with very little money on each project but I am not sure if this is such a good deal for the entrepreneurs.

But I guess these kids (21-25 years old) do not have other options since they do not have personal savings and are hoping to leverage Y combinator’s contacts to get follow on rounds or get acquired. But it does smell like exploitation to me as they are getting paid less than minimum wage if you take into the account the extra hours they are putting in.

Inkling Markets