Prediction markets are a tool for collecting and aggregating opinion using market principles. Enterprise prediction markets are in use in 100-200 large organizations for project management and revenue forecasting. Public prediction markets are used for event prediction (election results, product sales, box office receipts).

1. Live Prediction Markets Simulation Image: http://wall.alphacoders.com/
Futures & Forecasting - Quantitative Methods
Melanie Swan
SU GPS for the Mind: www.mindtimemaps.com/start/sugp1
SU Prediction Market: gsp12.inklingmarkets.com Founder
MS Futures Group
+1-650-681-9482
@LaBlogga
July 20, 2012 m@melanieswan.com
Slides: http://slideshare.net/LaBlogga www.melanieswan.com

2. 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
Prediction Markets
2
July 20, 2012

3. 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.
Prediction Markets Source: http://melanieswan.com/publications.htm
3
July 20, 2012

4. Forecasting and future studies toolkit
 Short term (0-5 yrs):  Long term (5-20+ yrs):
insight and certainty uncertainty, discontinuity
 Forecasting  Scenario planning
 Scanning  Simulation
 Business intelligence  Frameworks
 Trend analysis  Wild-carding
 Market research  Longitudinal studies
 Time orientation
 Outlier identification
 Technology checklist
 Multiple time frames
 Prediction markets Image: Bill Frymire
Prediction Markets
4
July 20, 2012

5. GPS for the Mind exercise Image: http://www.mindtime.com
 Plot time orientation: certainty, possibility, probability
www.mindtimemaps.com/start/sugp1
probability
certainty possibility
Prediction Markets 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 5
July 20, 2012

6. Prediction markets definition
 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
Images: http://www.intrade.com
Prediction Markets
1
Source: Trepte, K. et al. Forecasting consumer products using prediction markets. MIT. 2009.
http://dspace.mit.edu/handle/1721.1/53546 6
July 20, 2012

7. Nexus of markets and collective intelligence
Collective
Markets
intelligence
•Group purchasing •Google+
(Groupon) •Question networks
•Reverse group (Quora, formspring,
purchasing (Loopt u-
Prediction Hunch)
deals, Ringleadr) Markets •Wikipedia, wikis,
•Real-time economy Etherpad
feed (Blippy) •Unconferences
•Affinity capital •Ignite talks
•P2P lending •Tag intros
•Gift economy •Twitter
http://www.cs.cornell.edu/home/kleinber/networks-book
Prediction Markets
7
July 20, 2012

8. History of prediction markets
Image: http://www.bookshift.com
 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
Prediction Markets
1
Source: http://www.midasoracle.org/2007/07/17/history-prediction-markets-timeline
8
July 20, 2012

9. Prediction markets - definition
 Tool for collecting and aggregating opinion using
market principles
Iowa Electronic Markets:
 Price: probability of event 2008 US Democratic Convention Market
occurring
 Value: leading indicator,
expose hidden information Clinton
 Pay-off: monetary, Obama
reputational, indirect
 Accuracy: better than Image: http://upload.wikimedia.org/wikipedia/commons/1/13/IEM_DCON2008.svg
conventional forecasting1
Prediction Markets
1
Source: 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 9
July 20, 2012

10. Prediction market view: Obama in 2012
Blip: May 1, 2011, Osama bin Laden killed
Prediction Markets Source: http://www.intrade.com
10
July 20, 2012

11. Intrade active markets
Prediction Markets Source: http://www.intrade.com
11
July 20, 2012

12. U.S. republican nominee: Iowa caucus 2012
Prediction Markets Source: http://www.yahoo.com
12
July 20, 2012

13. When to use prediction markets
 Complexity (ecosystem)
 Multi-party value chain
 Uncertainty
 Clear outcomes
 Market liquidity
 Diversity of opinion
Prediction markets books
Prediction Markets
13
July 20, 2012

14. 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)
Prediction Markets Source: http://www.intrade.com
14
July 20, 2012

15. 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
Prediction Markets
15
July 20, 2012

16. Consumer prediction markets
 Iowa Electronic Markets
 Intrade Prediction Markets
 Hollywood Stock Exchange (film)
 simExchange (gaming)
 CROWDPARK (general)
 LongBets (futurist)
Prediction Markets Source: http://www.hsx.com
16
July 20, 2012

17. HSX – shorting Tom Cruise
Prediction Markets Source: http://www.hsx.com
17
July 20, 2012

18. Gaming prediction market - simExchange
Prediction Markets Source: http://www.simexchange.com
18
July 20, 2012

19. Iowa Electronic Health Markets
 Flu markets
 Disease markets
Prediction Markets Source: http://iehm.uiowa.edu/iehm/trnmt/trnmt.html?symbol=dengue
19
July 20, 2012

20. Health markets and disease eradication
Prediction Markets Source: http://iehm.uiowa.edu
20
July 20, 2012

21. Crowdsourcing as early prediction market
HealthMap
Google Flu Trends
Prediction Markets Source: http://iehm.uiowa.edu
21
July 20, 2012

22. Futurist prediction markets – LongBets
Prediction Markets Source: http://www.longbets.org/bets
22
July 20, 2012

23. Prediction market design
 Structure
 Event outcome (win/loss)
 Market scoring (continuum)
 Time frame
 Episodic or continuous
 Participants
 Anonymous users
 Participation incentive Image: http://www.consensuspoint.com
 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)
Prediction Markets
23
July 20, 2012

24. 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 Image:http://www.tvrage.com/shows/id-23464
 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
Prediction Markets
24
July 20, 2012

25. Broader context: markets are the platform
Roles of markets
Types of markets Resource Exchange: Information Value Utility
allocation supply & (price) discovery identification & creation
demand meet attribution
Traditional markets     
Prediction markets   
Affinity capital   
Multicurrency society  
Automatic markets  
Ideas marketplaces 
Scarcity management /
abundance injection (PSE)
  
Prediction 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. 25
July 20, 2012 http://melanieswan.com/documents/economy_20.pdf

26. 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
Prediction Markets
26
July 20, 2012

27. Well, Ray, we’re still
waiting for the jet pack
DIAMANDIS KURZWEIL
Futurism 2050
Image: http://wall.alphacoders.com/
Questions?
SU GPS for the Mind: www.mindtimemaps.com/start/sugp1
SU Prediction Market: gsp12.inklingmarkets.com Melanie Swan
Slides: http://slideshare.net/LaBlogga Principal
MS Futures Group
+1-650-681-9482
m@melanieswan.com
Creative Commons 3.0 license www.melanieswan.com