The document discusses effective enterprise markets, what makes them work, and why markets are a good medium for forecasting. It provides examples of prediction market prices on current events. Markets work because traders buy low and sell high, incorporating diverse views into prices. Markets generally outperform alternatives like polls and experts in accuracy. The advantages of using markets for forecasting include incentives for truth-telling, numerical precision, and frequent updating. The document discusses considerations for designing effective enterprise prediction markets.
2. Agenda
• Introduc;ons
• What makes Enterprise Markets work
• Why markets as a medium for predic;ng the future
• Enterprise Do’s and Don’ts
• Discussion
3. What Makes Markets Work
Buy Low, Sell High
Will price
rise or fall?
“Pays $1 if
Obama wins” sell
E[ price change | ?? ]
buy
price
sell Lots of ?? get tried,
buy price includes all!
5. What Makes Markets Work
Beats Alterna%ves
• Vs. Public Opinion
– I.E.M. beat presiden;al elec;on polls 709/964 (Berg et al ‘08)
– Re NFL, beat ave., rank 7 vs. 39 of 1947 (Pennock et al ’04)
• Vs. Public Experts
– Racetrack odds beat weighed track experts (Figlewski ‘79)
• If anything, track odds weigh experts too much!
– OJ futures improve weather forecast (Roll ‘84)
– Stocks beat Challenger panel (Maloney & Mulherin ‘03)
– Gas demand markets beat experts (Spencer ‘04)
– Econ stat markets beat experts 2/3 (Wolfers & Zitzewitz ‘04)
• Vs. Private Experts
– HP market beat official forecast 6/8 (Ploh ‘00)
– Eli Lily markets beat official 6/9 (Servan‐Schreiber ’05)
– Microsoi project markets beat managers (Proebs;ng ’05)
6. What Makes Markets Work
Example: Iowa Electronic Market
Item 1988 1992 1996 2000 2004 All
# big 59 151 157 229 368 964
polls
Poll 25 43 21 56 110 255
“wins”
Market 34 108 136 173 258 709
“wins”
% 58% 72% 87% 76% 70% 74%
Market
P-value 0.148 0.000 0.000 0.000 0.000 0.000
“Prediction Market Accuracy in the Long Run”
Joyce Berg, Forrest Nelson and Thomas Rietz, Jan. 2008.
7. Why Markets as a Medium for Forecas%ng
Advantages
Incen(ves
• Numerically precise Self‐Selec(on
• Consistent across many issues Correct Biases
• Frequently updated
• Hard to manipulate
• Need not say who how expert when
– Issue is not experts vs. amateurs
• At least as accurate as alterna;ves
11. Why Markets as Medium for Forecas%ng
Factors Might Influence Sales
E[Sales|Factor]
P[Factor]
• Economy recovers fast?
• Compe;tors introduce new version?
• We do big promo;on?
• We lower prices? They lower prices?
• We add distribu;on channel?
• We add feature F? They add feature F?
• Our defect rate very low?
12. Why Markets as Medium for Forecas%ng
Issues
Input: Contribu%ons Output: Forecasts, Scores
• What info can express? • What ques(ons can ask?
• How account for costs? • How account for value?
• Who let in where? • Use or validate system?
• Enough Incen;ves • Should adjust outputs?
– T‐shirts enough?
– Zero‐sum scoring? • Who let see outputs?
• Limit Costs • Sabotage & manipula;on
– Awkward Interface • Legal, P.R. risks?
– Wait for offer accept
– Retribu;on
13. Why Markets as Medium for Forecas%ng
Requirements
Use: • Ques%ons really want answered now
– Will eventually know answer (or parts)
– Suspect not geong frank info via usual channels
– Don’t mind par;cipants knowing best es;mates
• People who have or can get key info
– Their ;me is the main cost
– Lihle penalty for invite many don’t know
• Incen%ves to en;ce careful par;cipa;on
– Money, ahen;on, influence can legally offer
– Valued when ques;ons answered
Validate: • Many fast ques;ons, status quo es;mates
14. Enterprise Do’s and Don’ts of Enterprise
Markets
Customer
• Do
– Integrate into Enterprise processes
– Nurture execu;ve sponsorship
– Make accessible to all
– Customize to your business
– Make it Part of your Value Prop
14
15. Integrate Into Enterprise Processes Customer
Challenge Ac;on Result
• Facing too many • Deployed internal • Increased accuracy
unknowns, leaders market, integrated from market has
were planning for all into exis;ng streamlined short
possible futures Enterprise and mid‐term
processes and planning
• Costly and ;me‐
dashboards
consuming • An;cipated
• Appropriate ;me improvements in
horizons matched metrics, e.g. cash
Enterprise management,
deadlines balance sheet
15
16. Nurture Execu%ve Sponsorship Customer
Challenge Ac;on Result
• Market introduced • Sought exec air • Balanced top‐down
by self‐ini;a;ng cover, not mandate endorsement with
team, not C‐suite • Targeted key bohoms‐up culture
• Fit entrepreneurial leaders as early • Grassroots growth
culture adopters more sustainable
• S;ll needed to drive • Champion is one of • Consulta;ve
awareness, top users rela;onship with
par;cipa;on, and • Opened market to key leaders paves
execu;ve usage everyone way for followers
16
17. Make It Accessible To All Customer
Challenge Ac;on Result
• Accelerate the • Incorporated • Improved overall
process of market into ;me to market,
priori;zing ideas broader innova;on speed of idea
and product plaqorm ac;on‐ by 100 days
features • Deployed market • 5‐10X ROI
• Engage more globally • Tripled
employees in • Feed ideas to every collabora;on and
innova;on business unit cut duplicate ideas
in half
17
18. Customize It to Your Business Customer
Challenge Ac;on Result
• Looking for new • Market well‐named • Made it familiar
ways to engage and branded and instantly
their customer base • Seamless accessible to target
• Seeking integra;on with group
differen;a;on from company website • Drove par;cipa;on
the significant • Develop custom and accelerated
compe;;on in their interface to match engagement
market user community • Differen;ated from
compe;;on
18
19. Make It Part of Your Value Prop Client
Challenge Ac;on Result
• Customers • Recognized market • Provide clients with
represent broad as amplifier of beher data via
array of industry exis;ng informa;on public market
stakeholders and service • Enable client
• Universal client offerings specific experience
need: predic;ng • Integrated market • Provide superior
behaviors into all aspects of services and ;mely
• Tradi;onal research how they create insights, create
& forecas;ng value and conduct compe;;ve
insufficient given business advantage
industry changes
19
20. Enterprise Do’s and Don’ts of Enterprise
Markets
Customer
• Don’t
– Run a 30 day pilot
– Use a similar group of par;cipants
– Run a market without promo;ng it
– Assume leaders will act on insights
20