Prediction Markets

Melanie Swan Principal

MS Futures Group+1-650-681-9482

m@melanieswan.comwww.melanieswan.com

July 28, 2010Slides: http://slideshare.net/LaBlogga

Collective Intelligence Live Prediction Markets Simulation

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

“The future is something which every one reaches at the rate of sixty miles an hour,

whatever he does, whoever he is.”- C. S. Lewis

SU Prediction Market: https://gsp10.inklingmarkets.com SU Online Polling: http://www.rwpoll.com/

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Prediction MarketsJuly 28, 2010

About Melanie Swan

Hedge fund manager, futurist, entrepreneur, founder DIYgenomics

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

MBA, Wharton; BA, Georgetown University Sample publications

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. [Summary of Singularity University technology and implication synthesis]

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 28, 2010

Summary

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

Enterprise prediction markets (social business intelligence) are in use in 100-200 large organizations for project management and revenue forecasting

Consumer prediction markets are becoming widely used for event prediction (election results, product sales, box office receipts)

Image: http://www.inklingmarkets.com

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Prediction MarketsJuly 28, 2010

Futurist toolkit for collaborative intelligence

Short term (0-5 yrs): some degree of insight and certainty Forecasting Scanning Business intelligence Trend analysis Market research Outlier identification Technology evaluation

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 28, 2010

Crowd-sourced toolkit for collaborative intelligence

Wikipedia, wikis, Etherpad

Unconferences

Ignite talks

Tag intros

Twitter

Question networks Quora, formspring, Hunch

Image: http://nmk.co.uk

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

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Prediction MarketsJuly 28, 2010

History of prediction markets

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

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

Modern incarnation – last ~10 years 1988 Iowa Electronic Markets ran first market1

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

Housing and weather futures, carbon trading, movie futures

Futarchy Notion of using prediction markets in government policy

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

Image: http://www.bookshift.com

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Prediction MarketsJuly 28, 2010

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 28, 2010

Social business intelligence in organizations

PMs in use at 100-200 US organizations (July 2010) Ex: HP, BestBuy, Electronic Arts, Boeing, Amazon, Harvard,

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

Applications Project management, risk

management Revenue forecasting, demand

planning, capital budgeting Idea management (rate, filter,

prioritize ideas) Vendors

Consensus Point, Crowdcast, Bright Idea, Qmarkets, Inkling

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

Crowdsourcing vendors: chaordix.com, jovoto.com – marketplace for creative concepts

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Prediction MarketsJuly 28, 2010

When to use prediction markets

Complexity (ecosystem)

Uncertainty

Many decision points

Clear outcomes

Market liquidity

Diversity of opinion

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Prediction MarketsJuly 28, 2010

Consumer prediction markets

Iowa Electronic Markets Intrade Prediction Markets simExchange Hollywood Stock Exchange

Oscar predictions LongBets

Source: http://www.hsx.com/security/view/INCPT

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Prediction MarketsJuly 28, 2010

Consumer prediction markets – LongBets

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

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Prediction MarketsJuly 28, 2010

Consumer prediction markets - simExchange

Source: http://www.simexchange.com/stock.php?id=238

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Prediction MarketsJuly 28, 2010

Consumer prediction markets - Inkling

Source: http://home.inklingmarkets.com/expiring/markets

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Prediction MarketsJuly 28, 2010

Consumer prediction markets - Inkling

Source: http://home.inklingmarkets.com/markets/28753

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Prediction MarketsJuly 28, 2010

Prediction market apps

1Source: Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves

Intrade Viral Loop1

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Prediction MarketsJuly 28, 2010

Prediction market design

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

Participation incentive Users are anonymous Time frame

Episodic or continuous Question design:

What is your opinion? What do you think others

will say? How accurately do you

think others will answer?

Source: http://www.intrade.com/jsp/intrade/common/c_cd.jsp?conDetailID=693480&z=1278982073468

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Prediction MarketsJuly 28, 2010

Future of prediction markets

Consumer prediction markets Opinion capture standard website feature

Digg, bookmarking, socnet, updates, gaming Two-way XML element

Real-time polling – automatic alerts for opinion entry per interest profile

Enterprise prediction markets BOL / ERP / supply chain integration Sales and CRM integration

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

Market mechanisms become more pervasive Automatic markets for transparent allocation of fungible resources

based on pre-specified preferences

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

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Prediction MarketsJuly 28, 2010

Summary

Prediction markets are a tool for collecting and aggregating opinion using market principles

Enterprise prediction markets (social business intelligence) are in use in 100-200 large organizations for project management and revenue forecasting

Consumer prediction markets are becoming widely used for event prediction (election results, product sales, box office receipts)

Image: http://www.intrade.com HIGGS.BOSON.DEC10

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Prediction MarketsJuly 28, 2010

Resources

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

Prediction Markets Cluster http://pmclusters.com

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

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

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Prediction MarketsJuly 28, 2010

Prediction markets simulation workshop

NT – Nanotechnology

NCS – Networks & Computing Systems

EES – Energy & Environmental Systems

AIR – AI & Robotics

BIO – Biotech, Bioinformatics, Medicine & Neuroscience

You are the world’s leading social venture capitalists Seeking ideas with social, environmental & economic impact 5 teams, $1 billion to invest Alongside prediction market registering opinion on outcomes

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Prediction MarketsJuly 28, 2010

Futures simulation workshop

Image: Natasha Vita-More, Primo Posthuman

2010 – 2020 Each team creates two

plausible future technology ideas to pitch to the other teams

Each person votes by investing in the top technologies

Winning teams and technologies are those that garner the most investment

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Prediction MarketsJuly 28, 2010

Future simulation workshop: 2010-2020 Each team creates two plausible future technology ideas

to pitch to the other teams, for example Technology, product Startup, research group, non-profit organization, NGO Policy, social shift, new governance/economic model Strategy undertaken by existing companies/countries Water/food/upcycling/space/energy or not

Criteria Novelty Social, environmental & economic impact Trade-off: high-impact idea vs. practical realizability

Present to the group Concept soundbite (‘eBay for Genomes’) 1-2 minute pitch summarizing the idea

Image:http://bit.ly/csxwqv

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Prediction MarketsJuly 28, 2010

Team formation & Inkling intro

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Prediction MarketsJuly 28, 2010

Futures simulation workshop - debrief

What did you realize thinking about energy in 2020? AI in 2030?

How did earlier technology developments influence future outcomes?

How is it best to think about multiple technology areas together?

What did you notice about the simulation and the prediction market together? Reliable?

In what situations could you see using prediction markets? SU?

Image: http://van.embl.de/htfg/img/htfg_logo.png

What did you learn about trying to predict innovation development in long time frames with high uncertainty?