Prediction Markets & Idea Futures effect Web Strategy
A wikipedia definition for predicitve markets
“Prediction markets (also known as predictive markets, information markets, decision markets, idea futures, event derivatives, or virtual markets) are speculative markets created for the purpose of making predictions. Assets are created whose final cash value is tied to a particular event (e.g., will the next US president be a Republican) or parameter (e.g., total sales next quarter). The current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter. Prediction markets are thus structured as betting exchanges, without any risk for the bookmaker.”
Sounds like interesting stuff but can this model be used to benefit our business and our life. The answer to this is maybe.
Yesterday on the way home from work I was listneing to the BBC world service and a short radio program about predictive markets for Health. Below is the extract describing predictive markets from the BBC World Service website.
“Prediction Markets in Public Health
Since the 1980s one method of making judgements in economics has been through “prediction markets”. A large group of people, maybe fifty, all gamble on what they think might happen to a share price, either with real or toy money. The idea is the average of lots of individual estimates can often give you a more accurate prediction than those worked out by an expert panel. But now a behavioural scientist, Dr Dylan Evans, at University College Cork in Ireland wants to use the same methods, but applied to health forecasting, something he believes could have global public health benefits.”
Dr Evans makes some interesting observations about human behaviour. When someone asks you to guess the outcome of an election then you will give a response. When the same person asks you to bet some money on the outcome of an election your guess is more accurate. By throwing money into the mix it seems to focus individuals on caring more about the outcome – this is even more so if you will lose your own money if you are incorrect.
As a side point a young Auckland University under graduate Qi-Shan Lim created an election predicitve market website in May 2008 check out the article. This site has expanded to include other questions in which you can predict the outcome.
Continuing with the radio program Dr Evans talks about can we use this model of prediction markets to better plan the resources within a health system. The example would be, if we pulled together all the health professional, Therpists, Doctors etc and asked them to bet on a health question such as
” what do you think the growth of obeseity will be over the next 3 years?”
and then ask them to bet using virtual money on the outcome we might have a more accurate prediction on the real life outcome.
So maybe this is something we should be looking at to decide our web strategy? We select a cross section of our organisation, community, network and ask them a series of questions about how they think they will work in the future. With a bit of analysis this may be a tool that we can use to help be more accurate about the services we need to provide to employees, partners and customers.
If you want to have a play with prediction markets there are a number of places to go. Go and check out Open Democracy a place to bet virtual money on political outcomes. There are others such as Google, andan open source option from Zocalo, and corporate options such as Predicitve Markets.
As I was thinking about prediction markets it dawned on me that Innovation Jams from the likes of IBM ask a series of questions on a number of key topics to assertain how to best deal with future challenges. The difference is an Innovation Jam doesn’t involve the betting of virtual money. The idea of a “Jam” has spread since the first formal Jam by IBM in early 2000. One of my colleagues at New Zealand Telecom John Eyles created a Telco “jam” with Telco thought leaders around the world which is focused at the telco futures website.
I wanted to leave you with one last information reference on Prediction Markets by Justin Wolfers and Eric Zitzewitz. Their article is really interesting as it describes a couple of scenarios of prediction markets winthin the Department of Defense – DARPA. You can download the document here.
