prediction markets

Melanie Swan Founder

MS Futures Group+1-650-681-9482

@LaBloggam@melanieswan.com

www.melanieswan.com

July 20, 2012Slides: http://slideshare.net/LaBlogga

Live Prediction Markets Simulation

Futures & Forecasting - Quantitative Methods

Image: http://wall.alphacoders.com/

SU GPS for the Mind: www.mindtimemaps.com/start/sugp1 SU Prediction Market: gsp12.inklingmarkets.com

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Prediction MarketsJuly 20, 2012

Workshop timeline

Quantitative methods introduction 10 min GPS for the Mind exercise 5 min Prediction markets lecture 25 min Estimation exercise 10 min Live prediction markets workshop 90 min

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Prediction MarketsJuly 20, 2012

About Melanie Swan

Hedge fund manager, futurist, entrepreneur, founder DIYgenomics

Work experience: Fidelity, JP Morgan, Arthur Andersen, iPass, RHK/Ovum

Education: MBA Finance, Wharton; BA French/Economics, Georgetown Univ

Current projects: melanieswan.com Sample publications

Swan, M. Crowdsourced Health Research Studies: An Important Emerging Complement to Clinical Trials in the Public Health Research Ecosystem. J Med Internet Res 2012, Mar;14(2):e46.

Swan, M. Multigenic Condition Risk Assessment in Direct-to-Consumer Genomic Services. Genet. Med. 2010, May;12(5):279-88.

Swan, M. Translational antiaging research. Rejuvenation Res. 2010, Feb;13(1):115-7.

Swan, M. Engineering Life into Technology: the Application of Complexity Theory to a Potential Phase Transition of Intelligence. Symmetry 2010, 2, 150:183.

Swan, M. Emerging patient-driven health care models: an examination of health social networks, consumer personalized medicine and quantified self-tracking. Int. J. Environ. Res. Public Health 2009, 2, 492-525.

Source: http://melanieswan.com/publications.htm

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Prediction MarketsJuly 20, 2012

Forecasting and future studies toolkit

Short term (0-5 yrs): insight and certainty Forecasting Scanning Business intelligence Trend analysis Market research Time orientation Outlier identification Technology checklist

Long term (5-20+ yrs): uncertainty, discontinuity Scenario planning Simulation Frameworks Wild-carding Longitudinal studies

Multiple time frames Prediction markets Image: Bill Frymire

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Prediction MarketsJuly 20, 2012

GPS for the Mind exercise

Plot time orientation: certainty, possibility, probability www.mindtimemaps.com/start/sugp1

Image: http://www.mindtime.com

Source: Fortunato, VJ and Furey, JT. The theory of MindTime: The relationships between Future, Past, and Present thinking and psychological well-being and distress. Personality and Individual Differences. January 2011, 50(1), pp. 20-4. http://www.miindtime.com

certainty possibility

probability

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Prediction MarketsJuly 20, 2012

Prediction markets definition

Images: http://www.intrade.com

1Source: Trepte, K. et al. Forecasting consumer products using prediction markets. MIT. 2009. http://dspace.mit.edu/handle/1721.1/53546

Prediction markets are a tool for collecting group opinion using market principles

• Research has shown that prediction markets can develop more accurate forecasts than polls or experts1

July 2011

July 2012

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Prediction MarketsJuly 20, 2012

Nexus of markets and collective intelligence

Collectiveintelligence

Markets

PredictionMarkets

•Google+•Question networks (Quora, formspring,

Hunch) •Wikipedia, wikis,

Etherpad•Unconferences

•Ignite talks•Tag intros

•Twitter

http://www.cs.cornell.edu/home/kleinber/networks-book

•Group purchasing (Groupon)

•Reverse group purchasing (Loopt u-

deals, Ringleadr)•Real-time economy

feed (Blippy)•Affinity capital•P2P lending•Gift economy

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Prediction MarketsJuly 20, 2012

History of prediction markets

Decision markets, idea futures, information markets, event derivatives, virtual markets

Long history of event betting Election betting, sports betting, stock markets

Modern incarnation – last ~15 years 1988 Iowa Electronic Markets ran first market1

2002 US DARPA terrorism futures debacle Proliferation of enterprise and consumer prediction markets Testbed for financial contracts

Housing and weather futures, carbon trading, movie futures

Futarchy Notion of using prediction markets in government policy

Really re-inventing government

1Source: http://www.midasoracle.org/2007/07/17/history-prediction-markets-timeline

Image: http://www.bookshift.com

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Prediction MarketsJuly 20, 2012

Prediction markets - definition

Price: probability of event occurring

Value: leading indicator, expose hidden information

Pay-off: monetary, reputational, indirect

Accuracy: better than conventional forecasting1

1Source: Arrow, K.J. et al “The Promise of Prediction Markets” Science, 2008, 320, 5878, 877-878 http://www.sciencemag.org/cgi/content/summary/320/5878/877

Iowa Electronic Markets: 2008 US Democratic Convention Market

Clinton

Obama

Image: http://upload.wikimedia.org/wikipedia/commons/1/13/IEM_DCON2008.svg

Tool for collecting and aggregating opinion using market principles

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Prediction MarketsJuly 20, 2012

Prediction market view: Obama in 2012

Source: http://www.intrade.com

Blip: May 1, 2011, Osama bin Laden killed

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Prediction MarketsJuly 20, 2012

Intrade active markets

Source: http://www.intrade.com

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Prediction MarketsJuly 20, 2012

U.S. republican nominee: Iowa caucus 2012

Source: http://www.yahoo.com

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Prediction MarketsJuly 20, 2012

When to use prediction markets

Complexity (ecosystem) Multi-party value chain

Uncertainty

Clear outcomes

Market liquidity

Diversity of opinion

Prediction markets books

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Prediction MarketsJuly 20, 2012

Types of prediction markets

Enterprise collective intelligence (organizational) Revenue forecasting, demand planning, capital budgeting Idea management (rate, filter, prioritize ideas) Project management, risk management

Consumer prediction markets (public) Event prediction (politics: election results; economics: box office

receipts, product sales; health: pandemic prediction) Surfacing relevant content (information valuation)

Source: http://www.intrade.com

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Prediction MarketsJuly 20, 2012

Enterprise prediction markets gather hidden social business intelligence in organizations

PMs in use at 100-200 US organizations (July 2012) Ex: HP, BestBuy, Electronic Arts, Boeing, Amazon, Harvard,

GM, Hallmark, P&G, Ford, Microsoft, Chevron, Lockheed Martin, CNN, Adobe, American Express, Bosch

Prediction market vendors Consensus Point, Crowdcast,

Bright Idea, Qmarkets, Inkling Crowdsourcing and creative

concepts market vendors Chaordix Jovoto

Image: http://torontopm.files.wordpress.com/2009/06/quarterly-sales-graph.jpg?w=300&h=234

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Prediction MarketsJuly 20, 2012

Consumer prediction markets

Iowa Electronic Markets Intrade Prediction Markets Hollywood Stock Exchange (film) simExchange (gaming) CROWDPARK (general) LongBets (futurist)

Source: http://www.hsx.com

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Prediction MarketsJuly 20, 2012

HSX – shorting Tom Cruise

Source: http://www.hsx.com

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Prediction MarketsJuly 20, 2012

Gaming prediction market - simExchange

Source: http://www.simexchange.com

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Prediction MarketsJuly 20, 2012

Iowa Electronic Health Markets

Source: http://iehm.uiowa.edu/iehm/trnmt/trnmt.html?symbol=dengue

Flu markets Disease markets

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Prediction MarketsJuly 20, 2012

Health markets and disease eradication

Source: http://iehm.uiowa.edu

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Prediction MarketsJuly 20, 2012

Crowdsourcing as early prediction market

Source: http://iehm.uiowa.edu

HealthMap

Google Flu Trends

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Prediction MarketsJuly 20, 2012

Futurist prediction markets – LongBets

Source: http://www.longbets.org/bets

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Prediction MarketsJuly 20, 2012

Prediction market design

Structure Event outcome (win/loss) Market scoring (continuum)

Time frame Episodic or continuous

Participants Anonymous users Participation incentive

Question design: (the question) What is your opinion? (the feedback loop) What do you think others will say? How

accurately do you think others will answer? Calibration round(s)

Image: http://www.consensuspoint.com

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Prediction MarketsJuly 20, 2012

Future of prediction markets

Public prediction markets Opinion capture as a standard feature

Activity icon cloud: like, +1, tweet, share, comment, bookmark, register opinion

Two-way XML element Ubiquitous real-time polling – automatic

alerts for opinion entry per interest profile Enterprise prediction markets

BOL / ERP / supply chain integration Sales and CRM integration

Reputation: knowledge acuity ratings of individuals become a valuable and personally-tradable currency Accurate predictor, information steward

Image:http://www.tvrage.com/shows/id-23464

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Prediction MarketsJuly 20, 2012

Broader context: markets are the platform

Types of markets Resource allocation

Exchange: supply &

demand meet

Information (price)

discovery

Value identification & attribution

Utility creation

Traditional markets Prediction markets Affinity capital Multicurrency society Automatic markets Ideas marketplaces Scarcity management / abundance injection (PSE)

Roles of markets

Source: Swan, M. New Banks, New Currencies and New Markets in a Multicurrency World: Roadmap for a Post-Scarcity Economy by 2050, presented at Create Futures IberoAmérica, Enthusiasmo Cultural, São Paolo Brazil, October 14, 2009. http://melanieswan.com/documents/economy_20.pdf

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Prediction MarketsJuly 20, 2012

Resources

Prediction Markets blogs http://www.midasoracle.org http://www.ingenesist.com http://torontopm.wordpress.com

Prediction Market Industry Association http://www.pmindustry.org

Important papers Prelec D. A Bayesian truth serum for subjective data. Science.

2004 Oct 15;306(5695):462-6. Trepte, K. et al. Forecasting consumer products using prediction

markets. MIT. 2009. http://dspace.mit.edu/handle/1721.1/53546 Chang, W. et al. Simulating prediction markets that include

human and automated agents. MIT. 2009. http://dspace.mit.edu/handle/1721.1/53097

Questions?

Melanie SwanPrincipal

MS Futures Group+1-650-681-9482

m@melanieswan.comwww.melanieswan.com

Slides: http://slideshare.net/LaBlogga

Creative Commons 3.0 license

Image: http://wall.alphacoders.com/

DIAMANDIS KURZWEIL

Well, Ray, we’re still waiting for the jet pack

Futurism 2050

DIAMANDIS KURZWEIL

Well, Ray, we’re still waiting for the jet pack

Futurism 2050

SU GPS for the Mind: www.mindtimemaps.com/start/sugp1 SU Prediction Market: gsp12.inklingmarkets.com