Mercury's Blog

After reading my last post, specifically this section:

The second half of the paper examined the transmission of information within Google based on the authors’ analysis of the traders and their behaviours. While there is some really interesting analysis there, it has more to do with organisational behaviour than being directly applicable to prediction markets, so I’m not going to discuss it here. But if you’re interested, I highly recommend going to read the paper!

Bo wrote the following on his blog:

This is not the first reaction along these lines. I am perplexed by the response. I can understand why other companies may not want to replicate our analysis of information flows. Perhaps it wouldn’t be worth the effort. Perhaps they would get identical results. And perhaps the company wouldn’t have the all the necessary data.

However, I expected that people could easily see value in the analysis of granular trade-by-trade data — especially if that data is joined with data about traders and outside events happening at the moment of the trades.

To which I respond here:

Perhaps this was a bit of lazy writing at the end of what felt like a longish post. But what it really came down to was my focus on the very tangible, common questions that many people I talk to have when they’re first starting with their prediction market projects. The first issue for many is just getting a market working, with sufficient participation and liquidity, and hopefully accurate predictions. These were the main points and examples from the paper that I wanted to address in my post.

I believe Bo’s concern is that with just a “first-order” discussion on the paper, we leave out the “second-order” potential. Once a market is up and running, there is a LOT of data available to the company. If you know enough about your employees (and Bo’s subsequent post suggests that any decent-sized company does) this is information you likely already have. Specifics had to be left out of the Google paper for sensitivity reasons, but the paper demonstrated the kinds of things you can discover about your organisation through a prediction market.

Addressing these questions takes time and careful attention. There is certainly a privacy issue here, but that’s more an issue of managing perceptions. (You want to make sure people trade their true beliefs, and not some altered reality because they think the corporate Big Brother is watching them.) Both the data collection and analysis would certainly take some time.

However, there is some great data and metrics available to companies that are ready to take advantage of these “second-order” advantages of prediction markets. Again, to quote Bo:

The data contains real-time metrics on the distribution of knowledge and attitudes within a firm at a highly granular level. You can get metrics on for specific of the firm, for specific classes of employees and for specific topics. You can do this for either customers or employees, and have the metrics for any moment in time. The quality of these metrics will be extremely strong, because participants have been incentivized to reveal their true expectations.

So I don’t disagree with Bo at all, I just had a slightly different focus in my discussion. Perhaps this could provoke a little further discussion on the long-term potential of prediction markets in corporations.

[UPDATE]: My sincere apologies for the spam in the original post. I have no idea what happened, but must be related to the fact I didn’t use my regular posting program to put this post up. It should be fixed now.

This entry was posted on Thursday, March 20th, 2008 at 12:30 pm and is filed under General, Play-money Markets, Summary.