Prediction Markets - Singularity University 2013

Melanie Swan Founder

MS Futures Group+1-650-681-9482

@[email protected]

www.melanieswan.com

June 25, 2013Slides: 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: gsp13.inklingmarkets.com

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Prediction MarketsJune 25, 2013

Workshop Timeline

Quantitative Methods Introduction 10 min GPS for the Mind Exercise 5 min Prediction Markets Overview 25 min Estimation Exercise 10 min Live Prediction Markets Workshop 60 min

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About Melanie Swan

Hedge fund manager, futurist, entrepreneur, founder DIYgenomics, philosopher

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. The Quantified Self: Fundamental Disruption in Big Data Science and Biological Discovery. Big Data 2013, In Press.

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.

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

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Future Studies & Forecasting 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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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 Markets Definition

Image: http://www.simExchange.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

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Markets and Crowd Intelligence

Collectiveintelligence

Markets

PredictionMarkets

• Google+• Question networks

(Quora, formspring) • Crowdsourced labor

marketplaces • Competitions (Kaggle, foldIT,

eteRNA)• Wikipedia, wikis,

Etherpad• Unconferences

• Ignite talks• Tag intros• Twitter

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

• Crowdfunding (Kickstarter, Indiegogo)

• Resource allocation (Airbnb, Uber, Gettaround)

• Group purchasing (Groupon)

• Reverse group purchasing (Loopt u-

deals, Ringleadr)• Affinity capital• P2P lending• Gift economy

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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 ~20 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

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

Image: http://www.bookshift.com

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Prediction Markets – ‘Pricing’ Details

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 Market view: Obama 2012 (July)

Source: http://www.intrade.com

Blip: May 1, 2011, Osama bin Laden killed

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Prediction Market view: Obama 2012 (Nov)

Source: http://www.intrade.com

Election Day: November 7, 2013 – 4 pm EST

Election Day: November 7, 2013 – 10 pm EST

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US Republican Nominee: Iowa caucus 2012

Source: http://www.yahoo.com

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Bets of Bitcoin Prediction Markets

Source: http://betsofbitco.in (digital currency)

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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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Types of Prediction Markets

Enterprise Collective Intelligence (organizational) Revenue forecasting, demand planning, capital budgeting Innovation life cycle 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.hsx.com

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Enterprise Prediction Markets

Aggregate hidden organizational opinion and expertise PMs in use at 100-200 US organizations (June 2013)

Ex: Paypal, HP, BestBuy, Electronic Arts, Boeing, Amazon, Harvard, GM, Hallmark, P&G, Ford, Microsoft, Chevron, Lockheed Martin, CNN, Adobe, American Express, Bosch

Prediction market vendors (enterprise idea management) Consensus Point, Inkling,

Spigit/Crowdcast, Bright Idea, Qmarkets

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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Consumer Prediction Markets

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


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HSX – shorting Will Smith


Monetizing reputation and the likes, attention, intention thought economy

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HSX Reputation Portfolios


The Whuffie Economy!! Monetizing reputation New forms of valuation and

exchange in the likes, attention, intention, and thought economy

Fantasy football leagues for LinkedIn colleagues, Facebook friends

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Gaming Prediction Market - SimExchange

Source: http://www.simexchange.com

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Iowa Electronic Health Markets

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

Flu markets Disease markets

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Health Markets and Disease Eradication

Source: http://iehm.uiowa.edu

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Crowdsourced Data as Prediction Market

Source: http://iehm.uiowa.edu

HealthMap

Google Flu Trends

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Futurist Prediction Markets – LongBets

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

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Futurist Prediction Markets – LongBets

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

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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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Future of Prediction Markets

Public Prediction Markets Opinion capture as a standard feature

Activity Chiclets: Like, Vote Up/Down, +1, tweet, share, comment, bookmark, opine

Quality, Valence, Value/Interesting-ness Two-way XML element

Ubiquitous real-time polling Automatic markets 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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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 Idea Management 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

Ec

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Resources

Prediction Markets Twitter Handles and Blogs @CassSunstein, @JustinWolfers http://www.midasoracle.org http://www.ingenesist.com http://torontopm.wordpress.com

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

Relevant 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

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Prediction Markets Summary

Image: http://www.simExchange.com

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

Questions?

Melanie SwanPrincipal

MS Futures Group+1-650-681-9482

[email protected]

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: gsp13.inklingmarkets.com

Prediction Markets - Singularity University 2013

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