Mercury’s Blog

If you're new here, you may want to get Mercury's Blog by Email or subscribe to my RSS feed. Thanks for visiting!

My apologies for taking a week to write this up, but I had some other commitments back in the US, and I only just returned to London.

First of all, congratulations to Dave Perry and ConsensusPoint for assembling so many interesting speakers and attendees into a beautiful venue (the Tribeca Grand Hotel in New York.) With people like Robin Hanson and James Surowiecki anchoring the morning and afternoon, it was bound to be a great event.

Here are some of my notes from the day:

Robin Hanson-

Robin gave a fairly standard introduction to prediction markets lecture that some may have seen at other events or downloaded from his website. It was a good overview of the topic.

The question and answer period was the most interesting part with Robin. He was asked about manipulation, and provided some fairly convincing answers that manipulation shouldn’t be a worry (at least with the correct incentives.) Robin described the situation in terms of sheep and wolves. Sheep aren’t that knowledgeable; they are trading for any number of reasons, and are the “noise” in the marketplace. Wolves take advantage of that, and consequently they look for markets with lots of sheep. With better information, the wolves will easily have plenty to “eat.” The net result is that those noisy markets are accurate markets.

Another concept he talked about was creating a “fudge” account. Let’s say you want to weight one set of traders more than another, or simply want to “move” the forecast in one direction or another; create a “fudge” account to conduct those transactions. If after the account has been running for a while and it’s positive, you’ll know you’ve done a good job fudging. But if the fudge account is negative, you don’t know more than the market so just stop fudging and leave the market to itself. It’s a great idea, and fairly easy to implement.

Dave Perry-

Dave talked about ConsensusPoint and prediction markets in general. One of the more exciting clients they are dealing with is BestBuy, which is rolling out prediction markets to every single employee, all the way down to the hourly workers in the retail stores. BestBuy is making a strong push for prediction markets, and it will be exciting to hear about the results. (I’m very bullish for them.) That they developed an internal DVD to help promote the markets showed the dedication they have to the project.

Dave also showed off a demo site with their prediction market software. The newest development is that they have now implemented three different trading interfaces: Simple, Standard and Advanced. The Standard is their traditional interface, where you choose to buy or sell a certain number of shares or a dollar value at which to purchase shares. The Advanced interface shows both the buy and sell order books so you have more information when making a trade. The Simple interface just asks questions about how a person views the contract; ie, do they “believe it is likely” to occur. They are then led to select how many shares or dollars to spend. While it doesn’t quite match the ideal world I’ve discussed before, it’s a great step towards accommodating people with different backgrounds, who may or may not understand “trading” on a financial market.

When discussing BestBuy, they had a couple of instances where the prediction markets were particularly valuable. One was where a forecasting team was trading against their official forecast, demonstrating the power of anonymity in the markets! The second case was where a potential problem showed up by a dropping price in the market, even though the executive dashboard for the project was “green” across the board; the market showed the problem a couple of weeks before the official reports made their way to the executive suite.

Finally, Dave stated two great reasons why prediction markets are used. One, is that it pays people for their knowledge of their company and their industry. Two, it also pays people to “shut up.” Markets are self-selecting and very equal; a person can be a wallflower in a conference room and not be heard, but they will be heard on a prediction market. The influence of the stereotypical loud, brash, know-it-all is greatly minimised.

Fortune Elkins- Misys

Fortune is very passionate both about prediction markets and her company, Misys. In her company, as in most others, “uncertainty costs money.” Fortune has been successfully testing prediction markets at Misys, and has found that they have been working quite well. She’s also had some interesting results, where the person that made massive winnings by (correctly) betting against the crowd was an outsider to the project in question, but someone with extensive knowledge of the company itself. It shows that anyone can be successful in a market, so long as they use the knowledge, experience and resources they have within the company.

Karim Tarwahi- MyCurrency

Karim is a former derivatives trader that has founded MyCurrency. One of their first products is a website (homepredict.com) that attempts to forecast housing prices by individual house and by zip code. This functionality has the ConsensusPoint software at its core, though through a totally custom-designed interface. One of the things they want to do is provide a forum where real estate agents can prove that they know what they’re talking about, and then leverage that reputation. Again, while not strictly a prediction market, MyCurrency is using forecasting as a key component of social networking and reputation building.

—————-

So those are my notes and thoughts on the morning portion of the conference. I hope you find them helpful and informative. Please contact me if you have any questions, and I’ll be posting the notes from the afternoon portion of the day later this week.