August 05, 2005

Idea Futures Permalink

I've just finished reading The Future of Work by Thomas W. Malone. I found really interesting the (not so recent, but new for me) idea of prediction markets. [Wikipedia entry: prediction market].
Q: What is a prediction market?
A: A real-money market that floats a prediction (i.e., an event-driven futures contract) and put a 0–to–100 price on that prediction —price that we understand as the probability of this event.
Q: What for?
A: Making running-time probabilistic predictions ("Clinton #42 will be re-elected: 95%." - "Bush #43 will be re-elected: 55%.") —as opposed to fixed-time binary predictions ("Will Bush #43 be re-elected? Yes.").
Q: Does it work?
A: Overall, these market-generated predictions outsmart the polls, the experts and the commentariat —in any topic where information can be aggregated by traders.
Q: Where is that?
A: On Web-based prediction exchanges. Each of these exchanges organizes many prediction markets that generate probabilistic predictions for topics ranging from sports to weather, finance, politics and geopolitical events.
Q: What's next?
A: Science, technology or business predictions. Internal corporate markets. Play-money prediction exchanges. New market designs. Market-generated predictions conditional on other market-generated predictions and that propose or make decisions (i.e., decision markets). CEOs possibly outsmarted and ousted by decision markets. The Republic entirely run thru decision markets —maybe.
commerce.net, is developing Zocalo, an open-source framework for performing experiments with prediction markets.
A collection of references can be found here. Also interesting: the Foresight Exchange:
At the Foresight Exchange you are able to use your "funny money" (FX-bucks) to bet on the liklihood of future events
Update: two more games based on prediction markets: Yahoo Buzz Game and ProTrade (related to professional athletes).

Update: I just read on Slashdot that FX Exchange has just open sourced their code.

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