Motivating the ranks
January 20th, 2007If you're new here, you may want to get Mercury's Blog by Email or subscribe to my RSS feed. Thanks for visiting!
In your aim to get a high-performance prediction market, one important aspect is getting as many people trading as you can. (In order to come as close as possible to the so-called “Efficient Marketâ€.) But many companies are rightly concerned about how to get their employees motivated to trade on their internal prediction markets.
Emile Servan-Schreiber made a good post to the Prediction Markets e-mail list last year, and mentioned what he called the “Three R’s: Rewards, Recognition and Relevance.†Some combination of these elements is needed to create the incentive structure that gets people to trade. It is important to remember that each company’s culture influences how much of each “R†is necessary in their specific environment.
I learned as a young Navy submarine officer that competition is a fantastic incentive. The results of any type of competition feed the Recognition incentive factor. Bragging rights will be fought for between colleagues and friends, and will likely be the source of at least a few water-cooler conversations. Some sites, like Hollywood Stock Exchange and The Washington Stock Exchange, explicitly list the ranking and net worth of all or many individual traders. (It’s how I know that I did a bit better in trading election predictions than Professor Justin Wolfers of Wharton.) I highly recommend this feature, as it easily shows each trader’s performance in context to their friends and colleagues, and could serve as a touch-point to initiate conversations about market topics. All of this will contribute to both the market’s and organisation’s success.
Other companies go further in the Recognition factor. One client of NewsFutures has a senior executive present an award to the top trader in their internal markets. Again, I highly recommend this to those companies which have a senior sponsor of a prediction markets project. Small ceremonies and newsletter articles can serve to advertise market prediction successes, further encourage participation, and demonstrate that company leaders value the results.
Relevance is a factor that should not be overlooked. If your employees care about a topic, they will be much more ready to trade in a prediction market on that topic. In the research I completed last summer (see our website for details and the paper) I needed no incentives whatsoever to get participants to trade. The reason for this was that the markets involved an area in which traders were particularly passionate; this passion was so relevant to their life that they needed no promise of rewards or real recognition. (At the time, the Inkling Markets software I used only listed the top 5 traders overall.) How does this apply to your company? Well, if you create a market on something interesting, something that your employees have knowledge of and care about, something that matters in their life, you will have gone a long way to ensuring that you get sufficient participation. There is a balance to be struck between the specificity of a question and the relevance to a broad population.
Finally, Rewards are the most common incentive to traders. This unfortunately can become a touchy subject, particularly in large organisations. It is surprising how little prizes go a long way in the rewards department. Google awards t-shirts and similar gifts to top traders. Sometimes all it takes is pizza and drinks! However, some companies give large cash prizes. (See the comment on this post, hat tip to Chris Masse of Midas Oracle.) What a business gives as rewards to traders really comes down to the company culture. Market project leaders should check their Human Resources policies, and think about how their reward structure can match the spirit of compensation in their company.
As Emile mentioned, each of these elements is important in creating an incentive structure. A well-designed set of incentives will ensure good participation in your company’s prediction markets, which should lead to well-deserved success!