Prediction market
Encyclopedia
Prediction markets are speculative
markets created for the purpose of making predictions. The current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter.
People who buy low and sell high are rewarded for improving the market prediction, while those who buy high and sell low are punished for degrading the market prediction. Evidence so far suggests that prediction markets are at least as accurate as other institutions predicting the same events with a similar pool of participants.
's Iowa Electronic Market. The Hollywood Stock Exchange
, a virtual market game established in 1996 and now a division of Cantor Fitzgerald, LP, in which players buy and sell prediction shares of movies, actors, directors, and film-related options, correctly predicted 32 of 2006's 39 big-category Oscar
nominees and 7 out of 8 top category winners. HedgeStreet
, designated in 1991 as a market and regulated by the Commodity Futures Trading Commission
, enables Internet traders to speculate on economic events.
Prediction markets have a long and colorful lineage. Betting on elections was common in the U.S. until at least the 1940s, with formal markets existing on Wall Street in the months leading up to the race. Newspapers reported market conditions to give a sense of the closeness of the contest in this period prior to widespread polling. The markets involved thousands of participants, had millions of dollars in volume in current terms, and had remarkable predictive accuracy.
Around 1990 at Project Xanadu
, Robin Hanson
used the first known corporate prediction market. Employees used it in order to bet on, for example, the cold fusion
controversy.
In July 2003, the U.S. Department of Defense publicized a Policy Analysis Market
and on their website speculated that additional topics for markets might include terrorist
attacks. A critical backlash quickly denounced the program as a "terrorism futures market" and the Pentagon
hastily canceled the program.
Prediction markets are championed in James Surowiecki
's 2004 book The Wisdom of Crowds
, Cass Sunstein
's 2006 Infotopia, and How to Measure Anything: Finding the Value of Intangibles in Business by Douglas Hubbard.
The research literature is collected together in the peer reviewed The Journal of Prediction Markets, edited by Leighton Vaughan Williams and published by the University of Buckingham Press. The journal was first published in 2007, and is available online and in print.
In John Brunner
's 1975 science fiction story The Shockwave Rider
there is a description of a prediction market that he called the Delphi Pool.
In October 2007 companies from the United States, Ireland, Austria, Germany, and Denmark formed the Prediction Market Industry Association, tasked with promoting awareness, education, and validation for prediction markets.
of Northwestern University
published “Interpreting the Predictions of Prediction Markets”, which attempts to show mathematically that under a wide range of assumptions the "predictions" of such markets do not closely correspond to the actual probability beliefs of the market participants unless the market probability is near either 0 or 1. Manski suggests that directly asking a group of participants to estimate probabilities may lead to better results.
However, Steven Gjerstad (Purdue) in his paper "Risk Aversion, Beliefs, and Prediction Market Equilibrium,"
has shown that prediction market prices are very close to the mean belief of market participants if the agents are risk averse
and the distribution of beliefs is spread out (as with a normal distribution, for example). Justin Wolfers (Wharton) and Eric Zitzewitz (Dartmouth) have obtained similar results, and also include some analysis of prediction market data, in their paper "Interpreting Prediction Market Prices as Probabilities." In practice, the prices of binary prediction markets have proven to be closely related to actual frequencies of events in the real world.
Douglas Hubbard has also conducted a sample of over 400 retired claims which showed that the probability of an event is close to its market price but, more importantly, significantly closer than the average single subjective estimate. However, he also shows that this benefit is partly offset if individuals first undergo calibrated probability assessment
training so that they are good at assessing odds subjectively. The key benefit of the market, Hubbard claims, is that it mostly adjusts for uncalibrated estimates and, at the same time, incentivizes market participants to seek further information.
A common belief among economists and the financial community in general is that prediction markets based on play money cannot possibly generate credible predictions. However, the data collected so far disagrees. Analyzed data from the Hollywood Stock Exchange and the Foresight Exchange concluded that market prices predicted actual outcomes and/or outcome frequencies in the real world. Comparing an entire season's worth of NFL predictions from NewsFutures
' play-money exchange to those of Tradesports
, an equivalent real-money exchange based in Ireland, both exchanges performed equally well. In this case, using real money did not lead to better predictions.
Hollywood Stock Exchange
creator Max Keiser suggests that not only are these markets no more predictive than their established counterparts such as the New York Stock Exchange
and the London Stock Exchange
, but that reducing the unpredictability of markets would mean reducing risk and, therefore, reducing the amount of speculative capital needed to keep markets open and liquid.
There can also be direct attempts to manipulate such markets. In the Tradesports
2004 presidential markets there was an apparent manipulation effort. An anonymous trader sold short so many Bush 2004 presidential futures contracts that the price was driven to zero, implying a zero percent chance that Bush would win. The only rational purpose of such a trade would be an attempt to manipulate the market in a strategy called a "bear raid
". If this was a deliberate manipulation effort it failed, however, as the price of the contract rebounded rapidly to its previous level. As more press attention is paid to prediction markets, it is likely that more groups will be motivated to manipulate them. However, in practice, such attempts at manipulation have always proven to be very short lived. In their paper entitled "Information Aggregation and Manipulation in an Experimental Market" (2005), Hanson, Oprea and Porter (George Mason U), show how attempts at market manipulation
can in fact end up increasing the accuracy of the market because they provide that much more profit incentive to bet against the manipulator.
Using real-money prediction market contracts as a form of insurance can also affect the price of the contract. For example, if the election of a leader is perceived as negatively impacting the economy, traders may buy shares of that leader being elected, as a form of insurance.
/TradeSports
, which escapes U.S. legal restrictions by operating from Dublin, Ireland, where gambling is legal and regulated, and the Iowa Electronic Markets
, which operates from the University of Iowa under the cover of a no-action letter
from the Commodity Futures Trading Commission
and allows bets up to $500.
.
which had a valuation in the region of £1.5 billion GBP in 2010. Others include, Intrade
a for-profit company with a large variety of contracts not including sports. The Iowa Electronic Markets
an academic market examining elections where positions are limited to $500, iPredict
and TradeSports
a prediction markets for sporting events.
In addition there are a number of virtual prediction markets where purchases are made with virtual money, these include The simExchange
, Hollywood Stock Exchange
, NewsFutures
, the Popular Science Predictions Exchange
, Hubdub
, Knew The News, Tahministan, The Industry Standard
's technology industry prediction market, and the Foresight Exchange Prediction Market. Bet2Give is a charity prediction market where real money is traded but ultimately all winnings are donated to the charity of the winner's choice.
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
markets created for the purpose of making predictions. The current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter.
People who buy low and sell high are rewarded for improving the market prediction, while those who buy high and sell low are punished for degrading the market prediction. Evidence so far suggests that prediction markets are at least as accurate as other institutions predicting the same events with a similar pool of participants.
History
One of the oldest and most famous is the University of IowaUniversity of Iowa
The University of Iowa is a public state-supported research university located in Iowa City, Iowa, United States. It is the oldest public university in the state. The university is organized into eleven colleges granting undergraduate, graduate, and professional degrees...
's Iowa Electronic Market. The Hollywood Stock Exchange
Hollywood Stock Exchange
The Hollywood Stock Exchange, or HSX, is a web-based, multiplayer game in which players use simulated money to buy and sell "shares" of actors, directors, upcoming films, and film-related options....
, a virtual market game established in 1996 and now a division of Cantor Fitzgerald, LP, in which players buy and sell prediction shares of movies, actors, directors, and film-related options, correctly predicted 32 of 2006's 39 big-category Oscar
Academy Awards
An Academy Award, also known as an Oscar, is an accolade bestowed by the American Academy of Motion Picture Arts and Sciences to recognize excellence of professionals in the film industry, including directors, actors, and writers...
nominees and 7 out of 8 top category winners. HedgeStreet
HedgeStreet
Nadex , formerly known as HedgeStreet, is an electronic exchange that allow trading in a number of financial derivatives...
, designated in 1991 as a market and regulated by the Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
, enables Internet traders to speculate on economic events.
Prediction markets have a long and colorful lineage. Betting on elections was common in the U.S. until at least the 1940s, with formal markets existing on Wall Street in the months leading up to the race. Newspapers reported market conditions to give a sense of the closeness of the contest in this period prior to widespread polling. The markets involved thousands of participants, had millions of dollars in volume in current terms, and had remarkable predictive accuracy.
Around 1990 at Project Xanadu
Project Xanadu
Project Xanadu was the first hypertext project, founded in 1960 by Ted Nelson. Administrators of Project Xanadu have declared it an improvement over the World Wide Web, with mission statement: "Today's popular software simulates paper...
, Robin Hanson
Robin Hanson
Robin D. Hanson is an associate professor of economics at George Mason University and a research associate at the Future of Humanity Institute of Oxford University. He is known as an expert on idea futures, markets and was involved in the creation of the Foresight Exchange and DARPA's FutureMAP...
used the first known corporate prediction market. Employees used it in order to bet on, for example, the cold fusion
Cold fusion
Cold fusion, also called low-energy nuclear reaction , refers to the hypothesis that nuclear fusion might explain the results of a group of experiments conducted at ordinary temperatures . Both the experimental results and the hypothesis are disputed...
controversy.
In July 2003, the U.S. Department of Defense publicized a Policy Analysis Market
Policy Analysis Market
The Policy Analysis Market , part of the FutureMAP project, was a proposed futures exchange developed by the United States' Defense Advanced Research Projects Agency and based on an idea first proposed by Net Exchange, a San Diego research firm specializing in the development of online prediction...
and on their website speculated that additional topics for markets might include terrorist
Terrorism
Terrorism is the systematic use of terror, especially as a means of coercion. In the international community, however, terrorism has no universally agreed, legally binding, criminal law definition...
attacks. A critical backlash quickly denounced the program as a "terrorism futures market" and the Pentagon
The Pentagon
The Pentagon is the headquarters of the United States Department of Defense, located in Arlington County, Virginia. As a symbol of the U.S. military, "the Pentagon" is often used metonymically to refer to the Department of Defense rather than the building itself.Designed by the American architect...
hastily canceled the program.
Prediction markets are championed in James Surowiecki
James Surowiecki
James Michael Surowiecki is an American journalist. He is a staff writer at The New Yorker, where he writes a regular column on business and finance called "The Financial Page".-Background:...
's 2004 book The Wisdom of Crowds
The Wisdom of Crowds
The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, published in 2004, is a book written by James Surowiecki about the aggregation of information in groups, resulting in decisions that, he argues, are often better...
, Cass Sunstein
Cass Sunstein
Cass R. Sunstein is an American legal scholar, particularly in the fields of constitutional law, administrative law, environmental law, and law and behavioral economics, who currently is the Administrator of the White House Office of Information and Regulatory Affairs in the Obama administration...
's 2006 Infotopia, and How to Measure Anything: Finding the Value of Intangibles in Business by Douglas Hubbard.
The research literature is collected together in the peer reviewed The Journal of Prediction Markets, edited by Leighton Vaughan Williams and published by the University of Buckingham Press. The journal was first published in 2007, and is available online and in print.
In John Brunner
John Brunner (novelist)
John Kilian Houston Brunner was a prolific British author of science fiction novels and stories. His 1968 novel Stand on Zanzibar, about an overpopulated world, won the 1968 Hugo Award for best science fiction novel. It also won the BSFA award the same year...
's 1975 science fiction story The Shockwave Rider
The Shockwave Rider
The Shockwave Rider is a science fiction novel by John Brunner, originally published in 1975. It is notable for its hero's use of computer hacking skills to escape pursuit in a dystopian future, and for the coining of the word "worm" to describe a program that propagates itself through a computer...
there is a description of a prediction market that he called the Delphi Pool.
In October 2007 companies from the United States, Ireland, Austria, Germany, and Denmark formed the Prediction Market Industry Association, tasked with promoting awareness, education, and validation for prediction markets.
Accuracy
Some academic research has focused on potential flaws with the prediction market concept. In particular, Dr. Charles F. ManskiCharles F. Manski
Charles Frederick Manski, Professor of Economics at Northwestern University, is an econometrician in the realm of Rational choice theory, an innovator in the arena of identification. Manski’s research spans econometrics, judgement and decision, and the analysis of social policy...
of Northwestern University
Northwestern University
Northwestern University is a private research university in Evanston and Chicago, Illinois, USA. Northwestern has eleven undergraduate, graduate, and professional schools offering 124 undergraduate degrees and 145 graduate and professional degrees....
published “Interpreting the Predictions of Prediction Markets”, which attempts to show mathematically that under a wide range of assumptions the "predictions" of such markets do not closely correspond to the actual probability beliefs of the market participants unless the market probability is near either 0 or 1. Manski suggests that directly asking a group of participants to estimate probabilities may lead to better results.
However, Steven Gjerstad (Purdue) in his paper "Risk Aversion, Beliefs, and Prediction Market Equilibrium,"
has shown that prediction market prices are very close to the mean belief of market participants if the agents are risk averse
Risk aversion
Risk aversion is a concept in psychology, economics, and finance, based on the behavior of humans while exposed to uncertainty....
and the distribution of beliefs is spread out (as with a normal distribution, for example). Justin Wolfers (Wharton) and Eric Zitzewitz (Dartmouth) have obtained similar results, and also include some analysis of prediction market data, in their paper "Interpreting Prediction Market Prices as Probabilities." In practice, the prices of binary prediction markets have proven to be closely related to actual frequencies of events in the real world.
Douglas Hubbard has also conducted a sample of over 400 retired claims which showed that the probability of an event is close to its market price but, more importantly, significantly closer than the average single subjective estimate. However, he also shows that this benefit is partly offset if individuals first undergo calibrated probability assessment
Calibrated probability assessment
Calibrated probability assessments are subjective probabilities assigned by individuals who have been trained to assess probabilities in a way that historically represents their uncertainty. In other words, when a calibrated person says they are "80% confident" in each of 100 predictions they...
training so that they are good at assessing odds subjectively. The key benefit of the market, Hubbard claims, is that it mostly adjusts for uncalibrated estimates and, at the same time, incentivizes market participants to seek further information.
A common belief among economists and the financial community in general is that prediction markets based on play money cannot possibly generate credible predictions. However, the data collected so far disagrees. Analyzed data from the Hollywood Stock Exchange and the Foresight Exchange concluded that market prices predicted actual outcomes and/or outcome frequencies in the real world. Comparing an entire season's worth of NFL predictions from NewsFutures
NewsFutures
Prediction markets company NewsFutures has evolved into , "a consulting firm that specializes in developing and customizing online systems for large organizations to use to gather so-called Collective Intelligence from their employees."...
' play-money exchange to those of Tradesports
TradeSports
Tradesports was an online trading exchange website whose members speculate on the outcomes of future sports events. Founded by John Delaney in 2000, and located in Dublin, Ireland, by 2005 it reported 50,000 members and an average monthly volume of four million trades.Tradesports' sister website,...
, an equivalent real-money exchange based in Ireland, both exchanges performed equally well. In this case, using real money did not lead to better predictions.
Hollywood Stock Exchange
Hollywood Stock Exchange
The Hollywood Stock Exchange, or HSX, is a web-based, multiplayer game in which players use simulated money to buy and sell "shares" of actors, directors, upcoming films, and film-related options....
creator Max Keiser suggests that not only are these markets no more predictive than their established counterparts such as the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
and the London Stock Exchange
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...
, but that reducing the unpredictability of markets would mean reducing risk and, therefore, reducing the amount of speculative capital needed to keep markets open and liquid.
Sources of inaccuracy
Prediction markets suffer from the same types of inaccuracy as other kinds of market, i.e. liquidity or other factors not intended to be measured are taken into account as risk factors by the market participants, distorting the market probabilities. Prediction markets may also be subject to speculative bubbles. For example, in the year 2000 IEM presidential futures markets, a flood of new traders in the final week of the election caused the market to gyrate wildly, making its "predictions" useless.There can also be direct attempts to manipulate such markets. In the Tradesports
TradeSports
Tradesports was an online trading exchange website whose members speculate on the outcomes of future sports events. Founded by John Delaney in 2000, and located in Dublin, Ireland, by 2005 it reported 50,000 members and an average monthly volume of four million trades.Tradesports' sister website,...
2004 presidential markets there was an apparent manipulation effort. An anonymous trader sold short so many Bush 2004 presidential futures contracts that the price was driven to zero, implying a zero percent chance that Bush would win. The only rational purpose of such a trade would be an attempt to manipulate the market in a strategy called a "bear raid
Bear raid
A bear raid is a type of stock market strategy, where a trader attempts to force down the price of a stock to cover a short position...
". If this was a deliberate manipulation effort it failed, however, as the price of the contract rebounded rapidly to its previous level. As more press attention is paid to prediction markets, it is likely that more groups will be motivated to manipulate them. However, in practice, such attempts at manipulation have always proven to be very short lived. In their paper entitled "Information Aggregation and Manipulation in an Experimental Market" (2005), Hanson, Oprea and Porter (George Mason U), show how attempts at market manipulation
Market manipulation
Market manipulation describes a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency...
can in fact end up increasing the accuracy of the market because they provide that much more profit incentive to bet against the manipulator.
Using real-money prediction market contracts as a form of insurance can also affect the price of the contract. For example, if the election of a leader is perceived as negatively impacting the economy, traders may buy shares of that leader being elected, as a form of insurance.
Legality
Because online gambling is outlawed in the United States through federal laws and many state laws as well, most prediction markets that target U.S. users operate with "play money" rather than "real money": they are free to play (no purchase necessary) and usually offer prizes to the best traders as incentives to participate. Notable exceptions are IntradeIntrade
Intrade is an online trading exchange website. The website's members speculate on the outcomes of non-sports-related future events. Intrade was founded by John Delaney in 2001 and acquired by Tradesports in 2003. Dublin-based owner Trade Exchange Network Limited also operated TradeBetX.com, which...
/TradeSports
TradeSports
Tradesports was an online trading exchange website whose members speculate on the outcomes of future sports events. Founded by John Delaney in 2000, and located in Dublin, Ireland, by 2005 it reported 50,000 members and an average monthly volume of four million trades.Tradesports' sister website,...
, which escapes U.S. legal restrictions by operating from Dublin, Ireland, where gambling is legal and regulated, and the Iowa Electronic Markets
Iowa Electronic Markets
The Iowa Electronic Markets are a group of real-money prediction markets/futures markets operated by the University of Iowa Tippie College of Business...
, which operates from the University of Iowa under the cover of a no-action letter
No-action letter
A no-action letter is a letter written by the staff members of a government agency, requested by an entity subject to regulation by that agency, indicating that the staff will not recommend that the agency take legal action against the entity should the entity engage in a course of action proposed...
from the Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
and allows bets up to $500.
Controversial incentives
Some kinds of prediction markets may create controversial incentives. For example, a market predicting the death of a world leader might be quite useful for those whose activities are strongly related to this leader's policies, but it also might turn into an assassination marketAssassination market
An assassination market or market for assassinations is a prediction market where any party can place a bet on the date of death of a given individual, and collect a payoff if they "guess" the date accurately...
.
Public prediction markets
There are a number of commercial prediction markets, one of the largest is BetfairBetfair
Betfair is the world's largest Internet betting exchange. The company is based in Hammersmith in West London, England. Since Betfair was launched in June 2000 it has become the largest online betting company in the UK and the largest betting exchange in the world. Betfair claim to have over 3...
which had a valuation in the region of £1.5 billion GBP in 2010. Others include, Intrade
Intrade
Intrade is an online trading exchange website. The website's members speculate on the outcomes of non-sports-related future events. Intrade was founded by John Delaney in 2001 and acquired by Tradesports in 2003. Dublin-based owner Trade Exchange Network Limited also operated TradeBetX.com, which...
a for-profit company with a large variety of contracts not including sports. The Iowa Electronic Markets
Iowa Electronic Markets
The Iowa Electronic Markets are a group of real-money prediction markets/futures markets operated by the University of Iowa Tippie College of Business...
an academic market examining elections where positions are limited to $500, iPredict
IPredict
iPredict is a New Zealand prediction market that offers prediction exchanges on current events, political issues and economic issues. iPredict is jointly owned by the New Zealand Institute for the Study of Competition and Regulation and the Victoria University of Wellington...
and TradeSports
TradeSports
Tradesports was an online trading exchange website whose members speculate on the outcomes of future sports events. Founded by John Delaney in 2000, and located in Dublin, Ireland, by 2005 it reported 50,000 members and an average monthly volume of four million trades.Tradesports' sister website,...
a prediction markets for sporting events.
In addition there are a number of virtual prediction markets where purchases are made with virtual money, these include The simExchange
The simExchange
The simExchange is a web-based prediction market in which players use virtual money to buy and sell stocks and futures contracts in upcoming video game properties. The main purpose of the web site is to predict trends in the video game industry, particularly how upcoming products will sell and how...
, Hollywood Stock Exchange
Hollywood Stock Exchange
The Hollywood Stock Exchange, or HSX, is a web-based, multiplayer game in which players use simulated money to buy and sell "shares" of actors, directors, upcoming films, and film-related options....
, NewsFutures
NewsFutures
Prediction markets company NewsFutures has evolved into , "a consulting firm that specializes in developing and customizing online systems for large organizations to use to gather so-called Collective Intelligence from their employees."...
, the Popular Science Predictions Exchange
Popular Science Predictions Exchange
Popular Science Predictions Exchange was an online virtual Prediction market run as part of the Popular Science website. The application was designed by the same group behind the Hollywood Stock Exchange using their virtual specialist application. Users traded virtual currency, known as POP$,...
, Hubdub
Hubdub
Hubdub was a web-based prediction market in which players used virtual money to trade predictions on future events. Over time users built up a portfolio of live predictions across their chosen categories of interest such as politics, sport, entertainment, technology or other categories...
, Knew The News, Tahministan, The Industry Standard
The Industry Standard
The Industry Standard is a news web site dedicated to technology business news, part of InfoWorld, a news web site covering technology in general...
's technology industry prediction market, and the Foresight Exchange Prediction Market. Bet2Give is a charity prediction market where real money is traded but ultimately all winnings are donated to the charity of the winner's choice.
Use by corporations
- The simExchange introduced a perpetual contract that it calls "stocks" to predict the global, lifetime sales of video game consoles and software titles. These stocks do not expire like most contracts on prediction markets because the founder, Brian Shiau, argued that video game sales can continue for years. The premise for these stocks is that Shiau believes the video game industry suffers from a "lack of comprehensive sales data" and he compares the information problem of a game's sales to the information problem of evaluating a company's market value. Hanson warns that such a system may not work if a connection is not enforced. Keith Gamble has described the simExchange as a Keynesian beauty contestKeynesian beauty contestA Keynesian beauty contest is a concept developed by John Maynard Keynes and introduced in Chapter 12 of his work, General Theory of Employment Interest and Money , to explain price fluctuations in equity markets.-Overview:...
and that financial markets have certain remedies such as company buy-outs that cannot happen on the simExchange. Gamble concludes that such a prediction market can work but will be confined to play money. - Best Buy, Motorola, Qualcomm, Edmunds.com, and Misys Banking Systems are listed as Consensus Point clients.
- Hewlett-PackardHewlett-PackardHewlett-Packard Company or HP is an American multinational information technology corporation headquartered in Palo Alto, California, USA that provides products, technologies, softwares, solutions and services to consumers, small- and medium-sized businesses and large enterprises, including...
pioneered applications in sales forecasting and now uses prediction markets in several business units. Mentioned in academic publications from HP Labs. Also mentioned in Newsweek. It is working towards a commercial launch of the implementation as a product, BRAIN (Behaviorally Robust Aggregation of Information Networks). - Corning, Renault, Eli Lilly, Pfizer, Siemens, Masterfoods, Arcelor Mittal and other global companies are listed as NewsFuturesNewsFuturesPrediction markets company NewsFutures has evolved into , "a consulting firm that specializes in developing and customizing online systems for large organizations to use to gather so-called Collective Intelligence from their employees."...
customers. - Intel is mentioned in Harvard Business Review (April 2004) in relation to managing manufacturing capacity.
- Microsoft is piloting prediction markets internally.
- France Telecom's Project Destiny has been in use since mid-2004 with demonstrated success.
- GoogleGoogleGoogle Inc. is an American multinational public corporation invested in Internet search, cloud computing, and advertising technologies. Google hosts and develops a number of Internet-based services and products, and generates profit primarily from advertising through its AdWords program...
has confirmed that it uses a predictive market internally in its official blog. - The Wall Street Journal reported that General ElectricGeneral ElectricGeneral Electric Company , or GE, is an American multinational conglomerate corporation incorporated in Schenectady, New York and headquartered in Fairfield, Connecticut, United States...
uses prediction market software from Consensus Point to generate new business ideas. - BusinessWeek lists MGM and Lionsgate Studios as two HSX clients.
- HSX built and operated a televised virtual stock market, the Interactive Music Exchange for Fuse Networks Fuse TVFuse TVFuse is an American national television network dedicated exclusively to music. It features original series and specials, exclusive interviews, live concerts and video blocks....
to be used as the basis of their daily live television broadcast, IMX, which ran from January, 2003 through July, 2004. The television audience traded virtual stocks of artists/videos/songs, and predicted which would make it to the top of the Billboard music charts. The first of its kind, Fuse Network and HSX won an AFI Enhanced TV (American Film Institute) Award for innoviation in television interactivity. - StarwoodStarwood Hotels & Resorts WorldwideStarwood Hotels and Resorts Worldwide, Inc. is a hospitality ownership and management organization, headquartered in White Plains, New York. One of the world's largest hotel companies, it owns, operates, franchises and manages hotels, resorts, spas, residences, and vacation ownership properties...
embraced the use of prediction markets for developing and selecting marketing campaigns. Marketing department started out with some initial ideas and allowed employees to add new ideas or make changes to existing ones. Then subsequently incentives based prediction markets were leveraged to select the best of the lot.
See also
- Election Stock MarketElection Stock MarketElection stock markets are financial markets in which the ultimate values of the contracts being traded are based on the outcome of elections. Participants invest their own funds, buy and sell listed contracts, earn profits and bear the risk of losing money...
- FutarchyFutarchyFutarchy is a form of government proposed by economist Robin Hanson, in which elected officials define measures of national welfare and prediction markets are used to determine which policies will have the most positive effect....
- Futures exchangeFutures exchangeA futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of...
- Policy Analysis MarketPolicy Analysis MarketThe Policy Analysis Market , part of the FutureMAP project, was a proposed futures exchange developed by the United States' Defense Advanced Research Projects Agency and based on an idea first proposed by Net Exchange, a San Diego research firm specializing in the development of online prediction...
- Prediction gamesPrediction gamesA prediction game is a game which allow users to guess at the outcome of future events. Prediction games are generally operated online and are free for users to play...
Academic Papers
- Bell, Tom W. Prediction Markets For Promoting the Progress of Science and the Useful Arts - PDF file - George Mason Law Review (14 Geo. Mason L. Rev 37) (2006)
- Berg, Joyce E., & Thomas A. Rietz. The Iowa Electronic Market: Lessons Learned and Answers Yearned - PDF file - 2005-01-00
- Erikson, Robert S., & Christopher Wlezien. "Are Political Markets Really Superior to Polls as Election Predictors?" Public Opinion QuarterlyPublic Opinion QuarterlyPublic Opinion Quarterly is an academic journal published by Oxford University Press for the American Association for Public Opinion Research...
72(2), Summer 2008, pp. 190–215. - Gjerstad, Steven. "Risk Aversion, Beliefs, and Prediction Market Equilibrium," University of Arizona Working Paper 04-17, 2005.
- "Gruca, Thomas S., Berg, Joyce E. & Cipriano, Michael (2005). Consensus and Differences of Opinion in Electronic Prediction Markets." "Electronic Markets", 15 (1), 13-22. DOI: 10.1080/10196780500034939
- Hanson, Robin. The Informed Press Favored the Policy Analysis Market - PDF file - 2005-05-05
- Manski, Charles F. Interpreting the Predictions of Prediction Markets - PDF file - Revised Aug 2005—Manski suggests that there needs to be a better theoretic basis for interpreting market prices as probability, and provides a simple model for this.
- "Rosenbloom, E. S. & Notz, William (2006). Statistical Tests of Real-Money versus Play-Money Prediction Markets." "Electronic Markets", 16 (1), 63-69. DOI: 10.1080/10196780500491303
- "Servan-Schreiber, Emile, Wolfers, Justin, Pennock, David M. & Galebach, Brian (2004). Prediction Markets: Does Money Matter?" "Electronic Markets", 14 (3), 243-251. DOI: 10.1080/1019678042000245254
- Spann, Martin & Skiera, Bernd."Internet-Based Virtual Stock Markets for Business Forecasting" - PDF file - Discusses theory, design options and presents empirical comparisons on forecasting accuracy of prediction markets
- Wolfers, Justin, & Eric Zitzewitz. Prediction Markets - PDF file - 2004-05-00
- Wolfers, Justin, & Eric Zitzewitz.Interpreting Prediction Market Prices as Probabilities - PDF file - Draft version 2007-01-08 - Expands on the work of Manski, providing a more general model wherein it is somewhat rational to interpret market prices as probabilities
- Watkins, Jennifer H.Prediction Markets as an Aggregation Mechanism for Collective Intelligence - Proceedings of 2007 UCLA Lake Arrowhead Human Complex Systems Conference, Lake Arrowhead, CA, 25–29 April 2007.
- Storkey, A.J. Machine Learning Markets - Journal of Machine Learning Research C&WP 15:AISTATS. 2011.