Obstacles to Prediction Market Adoption

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BusinessWeek:

Harrah&#8217-s is setting up a pilot prediction market to forecast customer activity in one of its domestic casino operations. […]

Since the power of prediction markets hinges on effectively tapping into cognitive diversity throughout an organization, Page also argues convincingly that if members of a group do not have enough diversity in their perspectives, prediction markets can actually produce dismal results. […]

Until now, few of the companies sponsoring successful pilots or tests have deployed prediction markets on a broad or sustained basis. Why not? One explanation is that prediction markets are deeply subversive. After all, lots of midlevel executives are consumed with the task of forecasting. If prediction markets do a better job of it, doesn&#8217-t that discredit the efforts (and perhaps even the motives) of these executives? But as prediction markets shift their focus toward new knowledge creation, they may become less threatening within corporations. […]

I don&#8217-t buy this explanation &#8212-nor do I buy that other one.

My view is that we haven&#8217-t yet demonstrated clearly when and how prediction markets can be useful.

Collective Intelligence – Prediction Markets – NewsFutures

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Emile Servan-Schreiber of NewsFutures

YouTube videos:

1/2

PART 1: EVIDENCE OF PREDICTION MARKET ACCURACY

2/2

PART 2: WHY PREDICTION MARKETS ARE ACCURATE

Q&amp-A1

Q&#038-A 1: Aren’t political prediction markets just following the polls?

Q&amp-A2

Q&#038-A 2: Why did prediction markets fail to predict the lack of weapons of mass destruction in Irak?

Q&amp-A3

Q&#038-A 3: Would market predictions still be accurate if everyone believed them?

Q&amp-A4

Q&#038-A 4: Is Democracy ready for prediction markets?

Q&amp-A5

Q&#038-A 5: How can trading prices translate into probabilities if individual traders don’t trade accordingly?

Are prediction markets useful to you?

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It&#8217-s &#8220-pretty clear&#8221- that the prediction markets on political elections aggregate information from the polls &#8212-and from the political experts.

Previously: #1 – #2 – #3 – #4 – #5 – #6

It&#8217-s &#8220-pretty clear&#8221- that:

  1. InTrade has been over-selling the predicting power of its prediction markets.
  2. The prediction markets are information aggregation systems &#8212-not magical tools.
  3. The main benefit of a prediction market is to express an aggregated expected probability. Most of the times, this is of low utility.
  4. In complicated situations, this aggregation will contrast well with a poor reporting. In these instances, the prediction market is a useful source of information.

Are collective intelligence solutions being oversold?

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Xpree CEO Mat Fogarty:

Chris,

Management struggles to understand and plan for the future. When forecasts are inaccurate, corporations incur huge costs due to inventory write-offs, stock-outs, misallocated resources or cost of capital. Collective intelligence delivers objective, accurate forecasts in real time, thus saving many millions of dollars for our corporate clients. The solution is not being oversold, to the contrary, the potential vastly exceeds current awareness and adoption.

&#8220-If foresight is not the whole part of management, at least it is an essential part of it&#8221- (Henri Fayol, 1916).

In my 10 years experience as a management accountant and corporate planner, I have witnessed multiple forecasts suffer from inaccuracy due to uncertainty and biases. Whether forecasting a launch date, sales volume or cost of development, it is the systematic biases due to incentive systems, politics and common cognitive errors that contribute more to inaccuracy than the uncertainty. The problem stems from the fact that the owner of a forecast is normally the owner of the business unit / sales team / project, and budgets and bonuses are based on forecasts. This necessitates game playing and politics and makes the development of an objective, accurate forecast near impossible.

Collective intelligence can overcome these problems by incentivising a diverse crowd of knowledgeable employees to share their insight, balancing the resulting estimates, and rewarding accuracy and timeliness.

However, we are at an early stage in the development of this opportunity. There is still work ahead of us to develop the ideal mechanism to combine simplicy of UI [user interface] with richness of information gathering. In addition, we need to further develop the way collective intelligence interfaces with traditional corporate structures, processes and systems. These are Xpree&#8217-s challenges&#8230- stay tuned.

Mat
CEO, Xpree

Enterprise Prediction Markets = The wisdom of crowds comes to the enterprise.

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Here are short excerpts of the Forrester report on enterprise prediction markets and companies that provide software for enterprise prediction markets (e.g., Consensus Point &#8211-see the full list of providers at the bottom of this post).

The Forrester executive summary:

The &#8220-wisdom of crowds&#8221- 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.

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 &#8211-at&#8211- forrester &#8211-dot&#8211- com. We offer quantity discounts and special pricing for academic and nonprofit institutions.

My remark about the Forester report:

– It&#8217-s a very good document.

APPENDIX #1: Prediction Markets – DRM Review

APPENDIX #2:

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

Inkling Markets – (MSR + AMM)

NewsFutures – (CDA + optional AMM + SR)

Consensus Point – (CDA + MSR + AMM)

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!&#8217-s Prediction Exchange – (MSR + AMM + DPMM) – (not licensed)

Google&#8217-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)

Here&#8217-s a list of prediction market consultants:

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

  • Robin Hanson does prediction market consulting work, and have no exclusive arrangements.
  • &#8220-I&#8217-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.&#8221-

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

  • Adam Siegel
  • Nathan Kontny

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

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

Consensus Point – (Nashville, Tennessee, U.S.A. &amp- Calgary, Alberta, Canada)

  • David Perry
  • Ken Kittlitz, who co-founded the Foresight Exchange in 1994.

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&#8217-s personal website — Chris Hibbert&#8217-s personal blog —
  • Chris Hibbert&#8217-s CommerceNet profile — (His stint there ended in mid 2006.)

Justin Wolfers – (University of Pennsylvania&#8217-s Wharton Business School, Pennsylvania, U.S.A.)

  • Justin Wolfers takes on prediction market consulting work.
  • The prediction market industry is &#8220-a case where the interaction between firm practice and academic research are reasonably close.&#8221-

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.
  • &#8220-Prediction markets help harness the knowledge of diverse groups. They have great potential as a tool for industry.&#8221-

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 &amp- HP Labs – (U.S.A.)

  • Predicting the future &#8211-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 &amp- Director
  • Kay-Yut Chen –
  • Google Search for &#8220-prediction markets&#8221-

Hollywood Stock Exchange (HSX) &amp- 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&amp-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 &#8220-prediction markets&#8221-
  • The Promise Of Prediction Markets – by McKinsey – 2008-04-XX

Accenture – (U.S.A.)

  • Google Search for &#8220-prediction markets&#8221-

Gartner – (U.S.A.)

  • Google Search for &#8220-prediction markets&#8221-

Forrester – (U.S.A.)

  • Google Search for &#8220-prediction markets&#8221-
  • Prediction Markets: Wisdom Of The Crowd Comes To The Enterprise. – 2008-07-14

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

  • Google Search for &#8220-prediction markets&#8221-

CapGemini – (U.S.A.)

  • Google Search for &#8220-prediction markets&#8221-

KPMG – (U.S.A.)

  • Google Search for &#8220-prediction markets&#8221-

Price Waterhouse Cooper – (U.S.A.)

  • Google Search for &#8220-prediction markets&#8221-

Ernst &amp- Young – (U.S.A.)

  • Google Search for &#8220-prediction markets&#8221-

Deloitte – (U.S.A.)

  • Google Search for &#8220-prediction markets&#8221-

IBM – (U.S.A.)

  • Google Search for &#8220-prediction markets&#8221-

EDS – (U.S.A.)

  • Google Search for &#8220-prediction markets&#8221-

INTRADE-TRADESPORTS CEO JOHN DELANEY CENSORS CNBC ON YOUTUBE.

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HE CENSORS THE END OF THE FIRST CNBC VIDEO SEGMENT TO FIT HIS MARKETING AGENDA.

HE ORDERS THAT THE SECOND CNBC VIDEO SEGMENT NOT TO BE UPLOADED ON YOUTUBE.

THE PROOF OF THE CENSORSHIP:

YouTube video (whose last part was censored by InTrade-TradeSports CEO John Delaney – PRECISION: the discussion between the journalists and the guest on the TV set was suppressed)

PLEASE, SOMEBODY, DO UPLOAD THE FULL VIDEO SEGMENT ON YOUTUBE, UNCENSORED, AND HIT ME WITH ITS URL. I&#8217-LL RE-EMBED IT FOR EVERYONE TO SEE. THERE IS NO CENSORSHIP ON MIDAS ORACLE. WE ARE NEITHER IN CHINA NOR IN IRELAND. WE ARE FREE WORLD&#8217-S CITIZENS. WE WANT TO SEE THE NAKED TRUTH, NOT DOCTORED TAPES.

The second CNBC video segment that TradeSports-InTrade CEO John Delaney does not want you to see on YouTube

APPENDIX: CNBC video + CNBC video #2

APPENDIX: THE ULTIMATE THING THAT TRADESPORTS-INTRADE CEO JOHN DELANEY WANTED TO CENSOR BUT COULDN&#8217-T THANKS TO MIDAS ORACLE.

How do InTrades prediction markets work, and are they really accurate?

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Thanks to the InTrade person who uploaded the first CNBC segment on YouTube, and fixed the initial technical problem.

I renew my asking for the second CNBC segment to be uploaded at YouTube, too. [If someone else than InTrade does it, please hit me with the YouTube URL. Thanks.]

My analysis:

  1. InTrade-TradeSports CEO John Delaney does a good job explaining the mechanism of the wisdom of crowds.
  2. They cut professor Justin Wolfers too short. It&#8217-s a nuclear disaster &#8212-once again. Justin Wolfers is an admirable and ultra friendly person, a great prediction market researcher, a good prediction market analyst, and a wonderful blogger, but his TV appearances are, so far, totally crappy. The guy needs to hire a publicist who will teach him to flatten his Australian accent and to talk straight and plain &#8212-to go to the point real quick.
  3. &#8220-It seems like someone at CNBC decided at some point that they would NEVER address the legality issue.&#8221- – Dixit Deep Throat.
  4. After the broadcast of the video shot in Ireland, the camera goes back to the TV set, and, at this point, the comments from the journalists and the guest (Steve Forbes) show that they still don&#8217-t understand fully the prediction markets. They don&#8217-t have the right facts, and their analysis is not crystal clear.
  5. Overall, a good explainer on the prediction markets &#8212-taken into account that CNBC is an entertainment media. For deeper explainers, see the Wall Street Journal, the Financial Times, or Midas Oracle.

YouTube video (the last part was censored by InTrade-TradeSports CEO John Delaney – PRECISION: the discussion between the journalists and the guest on the TV set was suppressed)

APPENDIX: CNBC video + CNBC video #2

UPDATE: The second CNBC video segment that TradeSports-InTrade CEO John Delaney does not want you to see on YouTube