talk > university of lausanne > january 2005 idea futures markets and technology foresight...

Talk > University of Lausanne > January 2005

Idea futures markets and technology foresightIdea futures markets and technology foresight

BFSH1 - 1015 Lausanne - Switzerland - Tel. +41 21 692.3416 - [email protected] - http://www.hec.unil.ch/yp

Université de LausanneEcole des Hautes Etudes Commerciales (HEC)

Introduction

ENVIRONMENT INTELLIGENCE• scenario• actor-issue• multi-criterion

IDEA FUTURES• concept• decision-making• Examples

TECHNOLOGY FORESIGHT• mobile IT• MICS• NSF project

Conclusion

Table of content

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Université de Lausanne

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Agenda

• ENVIRONMENT INTELLIGENCE– scenario

– actor-issue

– multi-criterion

• IDEA FUTURES MARKET– concept

– decision-making

– Examples

• TECHNOLOGY FORESIGHT– mobile IT

– MICS

– NSF project

SCENARIO | IDEA FUTURES | IT FORESIGHT

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Assessing a technology environment

Observation & capture

STUDY

Multi-perspective

MODELREPRESENTATION

LANDSCAPE CustomerMarket

CustomerMarket

Futureissues

Futureissues

Financialaspects

Financialaspects

InfrastructureIndustry

InfrastructureIndustry

ANALYSIS

VISUALIZATION

> MICS Swiss NSF project]

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No prediction …

• “This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.”[West Union internal memo, 1876]

• “I have travelled the length and breadth of this country and walked with the best people, and I can assure you that data processing is a fad that won't last out the year.”[The editor of management books at Prentice-Hall, 1957]

• “There is no reason anyone would want a computer in their home.”[Ken Olsen, President and founder of Digital Equipment Corp., 1977]

• More recently, nobody anticipates the SMS phenomena …


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But scenarios

1

2

3

A B

C D?

Clear-enough future

forecast

Traditional toolkit

Alternate futures

Discrete options

Game theoryDecision analysis

True ambiguity

No basis for forecast

analogiesPattern recognition

Range of futures

No natural option

Scenarioplanning

Levels of uncertainty:

WHAT IF …

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SCENARIO: Comparison of scenario approaches

1. First comparison of scenarios published by major research groups

2. Scenarios for (centralized and self-organized) music distribution

3. Scenarios for broadband wireless in China

Scenarios for m-commerce 2006(2002)

Wireless Foresight in 2015 (2002)

[Debetaz, 2004]

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FRAMEWORK: Assessing a technology environment

[Bendahan, 2004] [Monzani, 2004] [Camponovo, 2004

uncertain

complex disruptive

ISSUE

ACTOR USE

Env

iron

men

tO

ntol

ogy

Ana

lysi

s

Five forces analysis Policy network analysis

Structural analysisActor-issue analysis

Disruption analysisAdoption analysis

BEST PAPER AWARD

JMISJDSDSS’2004

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ASSESSMENT: Disruptive innovation

[Ondrus, 2005]

Smartcard payment Schemesdriven by financial institutions

Phone-based payment Schemesoperated by mobile operators

Independent d payment schemesusing cards

Independent d payment schemesusing a mobile handset

Card-based payment solutions Phone-based payment solutions

Operator-driven(Finance or MNOs)

SELF-ORGANIZED(Newcomers)

• Multi-Criteria Decision Makingapproach for analyzing disruptions

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Delphi method

1. Formation of a team to undertake and monitor a Delphi on a given subject.

2. Selection of one or more panels to participate in the exercise. Customarily, the panelists are experts in the area to be investigated.

3. Development of the first round Delphi questionnaire

4. Testing the questionnaire for proper wording (e.g., ambiguities, vagueness)

5. Transmission of the first questionnaires to the panelists

6. Analysis of the first round responses

7. Preparation of the second round questionnaires (and possible testing)

8. Transmission of the second round questionnaires to the panelists

9. Analysis of the second round responses(Steps 7 to 9 are reiterated as long as desired or necessary to achieve stability in the results.)

10.Preparation of a report by the analysis team to present the conclusions

[http://www.iit.edu/~it/delphi.html]

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Commodity and financial futures markets

• A future contract is an agreement to buy or sell an asset at a certain time in the future for a certain price[Hull, 2000]

– Reduce the risks & uncertainties about the future prices & availability– Chicago Board of Trade (19th century) for commodities, and – International Monetary Market (1972) for foreign currency– WHO?

• hedgers, who have an interest in the underlying commodity and are seeking to hedge out the risk of price changes

• speculators, who seek to make a profit by predicting market moves and buying a commodity "on paper" for which they have no practical use.

• Hayek hypothesis– The price discovery process in a futures market …– aggregates the market information …– hold by all the buyers and sellers

who can bid or ask for future contract prices

[Passmore, 2004]


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Idea futures and prediction markets

• Idea of Robin Hanson back to 1988– Free-speech right to bet on political question in policy market– New form of government on idea futures

• People can enter a “claim” in the market– Proposition or statement that an event will happen by a certain date

• A claim pays off ($1) if the claim becomes true, 0 otherwise– $1 represents a 1.0 probability– Cost of a claim is the probability estimated by the market for a claim coming true

• Bettors can thereafter bet FOR or AGAINST a claim

• “why the many are smarter than the few, and how collective wisdom shapes business, economies, societies, and nations”[Surowiecki, 2004]

[Hanson, 1999] http://hanson.gmu.edu/ideafutures.html

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Linear market

• Contracts based on a set of measurable future outcomes V1, V2, … Vm

– Normalized to sum 1

• Prediction markets designed to forecast these outcomes would have liquidating dividends tied to the normalized outcome values– Percentage of votes received by candidates in an (two-party) election

• Participants on the market can trade contracts with liquidation values that equal the outcomes

• Contracts paid liquidating dividends of the form:– CLINTON contract had a liquidating dividend of $1 times the Democratic nominee’s

share of the vote– DOLE contract had a liquidating dividend of $1 times the Republican nominee’s

share of the vote

[Berg, 2003]

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Winner-takes-all market

• Contracts based on whether a particular event occurred– A set of possible future outcomes E1, E2, … Em

• Prediction markets designed to forecast the probabilities of these outcomes would have liquidating dividends tied to the occurrence of each event

• Contracts paid liquidating dividends of the form:– CLIN contract: $1 if Clinton wins the election, $0 otherwise– REP contract: $1 if the Republican nominee wins– OTDEM contract: $1 if a Democratic nominee other than Clinton wins– ROF96 contract: $1 if any other candidate wins

– P.YES: $1 if Powell placed in nomination at the Republican convention– P.NO: $1 if Powell not placed in nomination at the Republican convention

[Berg, 2003]

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[Berg, 2003]

Prediction markets as DSS (I)

• Powell would have been a strong candidate against Clinton

illustration

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Conditional prediction market

• Prediction about future events conditional to other events– A set of measurable future outcomes V1, V2, … Vm

– A second set of possible future outcomes E1, E2, … Em

• A set of conditional outcomes Vi | Ej

• Contracts paid liquidating dividends based on the conditional outcomes:– CL|DOLE: $1 times the Democratic nominee’s vote share conditional on Robert

Dole being the Republican nominee

– V.DOLE: $1 times the Republican nominee’s vote share conditional on Robert Dole being the Republican nominee

[Berg, 2003]

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• Dole was predicted to be weak candidate against Clinton

[Berg, 2003]

Prediction markets as DSS (II) illustration

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• Small-scale, online future markets– 24H/day continuous double-auction trading mechanism

• Real money– Min $5 and max $500– “no one spends your money better than you do”– Profit from trades, but bear the risk of losing money

• Contract on economic and political events – Elections, companies’ earning per share, stock price return, …

• Research and teaching mission– University of Iowa Tippie College of Business

• Under the regulatory purview of the Commodity Futures Trading Commission– No-action letter (if IEM conforms to certain guidelines)

• Better predictor than opinion polls for political elections

Iowa Electronic Market (IEM)

[Berg, 2002] [Passmore, 2004]

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Iowa Electronic Market (IEM) illustration

http://www.biz.uiowa.edu/iem/

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http://www.biz.uiowa.edu/iem/modules/supdem.html

Iowa Electronic Market (IEM)

• How do bid & ask prices happen?– The bid and ask prices on the IEM trading screen are offers to buy and sell posted by traders

in the market• "I bid $.536 per contract for 4 contracts in IBMm, and this bid is good until March 3, 1999, at noon.”

• "I offer to sell 4 contracts in IBMm for $.540 per contract, this order is good until June 5, at 3pm."

• How do you get contracts to sell?1. Buy a bundle of contracts from the market

• each market has a set of contracts

• only one will pay $1, all others pay 0$

• keep the contracts that you think will pay off and sell the others

2. Buy from another trader

– How do you make money in the IEM markets?– Buy and hold those contracts which eventually pay $1– Buy contracts at a low price and sell them when the prices rise– Sell one of each contract when sum of all bid prices is greater than $1 (Why?)

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[Hanson, 1999] [Passmore, 2004] http://www.ideosphere.com/

Foresight Exchange (FX) - ideosphere

• A betting pool or market on future events andmost disputed questions,with the going odds made available, and treated socially as the current consensus– 24H/day continuous double-auction trading mechanism

• A place to check the current odds of upcoming events, trade and make bets.– not real money: "funny money" (FX-bucks)

• New form of entertainment– combining the real-time interactive potential of the internet

with a game of predictive skill.

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Foresight Exchange (FX) - ideosphere illustration

http://www.ideosphere.com/

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• Trading on securities corresponding to movies (MOVIESTOCKs) and stars (STARBOND)

– Including those in production and in theaters

• Using fake money– “Hollywood Dollars”

• A movie security is liquidated 4 weeks after the release of the movie– for $1 per $1 million in box office gross

• Entertainment mechanism– Public interest

• Sophisticated mechanisms– Reserve & investment banks, leader boards, trading club, tickers, insided trading,

funds, options, warrants,“Hollywood Securities and Exchange Commission”

• Accurate predictor– Week-end revenue of movies, academy awards (35 on 40 Oscar nominees in 2003)

Hollywood Stock Exchange (HSE)

[Passmore, 2004] [Surowiecki, 2004]

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Hollywood Stock Exchange (HSE) illustration

http://www.hsx.com/

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• Gambling forum• Ireland location

– For evading anti-gambling laws

• Diverse betting topics– Sports, political, terrorism, …

• Use of market mechanisms to operate the betting system– Price driven by market transactions, self-organized under market principles

– No handicappers settings the odds for TradeSport bets

[Passmore, 2004]

TradeSports

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TradeSports illustration

http://www.tradesports.com

12:48PM GMT, Jan 19

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• Market-based decision-making– Claims and completion date– $100 per contract– Estimation of 10’000 traders

• Sponsored and cancelled (2003) by the US DoD– Joint venture with NetExchange (Caltech spin-off) and The Economist– Criticized by US politicians “market for death” …

• Allowing defense and intelligence analysts to speculate about strategies and geopolitical issues

• For avoiding surprise and predicting future events

Policy Analysis Market (FutureMAP)

[Ray, 2004] [Passmore, 2004]

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Policy Analysis Market (FutureMAP) illustration

http://cryptome.org/pam/pam-site.htm

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Policy Analysis Market (FutureMAP) illustration

http://cryptome.org/pam/pam-site.htm

PAM futuresderivatives contracts

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[Servan-Schreiber, 2004] http://us.newsfutures.com/index.html

Newsfutures

Real-Money (TradeSport) Vs play-money (NewsFuture)

• the play-money markets performed as well as the realmoney markets– real-money markets may better motivate information discovery

– play-money markets may yield more efficient information aggregation

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Predictive markets inside corporations

http://blog.commerce.net/archives/2005/01/market_experime.html

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Hewlett-Packard IAMInformation Aggregation Mechanism

• Market-based prediction• Internal corporate idea futures markets

– To predict their sales, and eventually– the success of their product development projects …

• Participants bought and sold predictions about the future sales of HP printers– salespeople

• Contracts for each of ten different sales ranges– Contract: “Sales in September would be between 1501 and 1600 units”– Claim: buy shares (a kind of future contract for this prediction)– If true: $1 for each owned share if true

• 16 experiments

• Predictions better than the official predictions– The dispersed salespeople COLLECTIVELY have the information– Motivation of salespeople

[Plott, 2002] [Malone, 2004]

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Securities Trading of Concepts (STOC)

• Application of the pricing mechanism for marketing research using pseudo-securities markets to measure preferences over new product concepts– Virtual concept testing (VTC)

• STOC games last between 10 and 60 minutes• STOC securities can describe actual product concepts or virtual ones• The incentive is to win a prize

in a one-shot, short term game,• Geared toward

predicting preferences

– Double auctions market– No market-makers– Transaction when an order matches– with another on the opposite side

[Chan, 2002]

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Project management @ Siemens

• experimental stock market, • designed to support project management decisions. • People involved in a software development project traded

– in simple real money double auction markets

• Market focused on the date the project should be finished and

• should help to aggregate informationon the progress of the projectmore quickly than conventional management techniques.

[Ortner, 1997]

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newsbet

• Speculations about news• newsbet Dollars

– N$ 1000 at registration and N$ 500 per month

• The prices reflect how much newsbet players have been willing to pay for certain outcomes to come true– Like the stock market

• Each coupon pays N$1 if its outcome becomes true. • The more likely you are to win, the more you'll pay for the coupon.

– If an event is very likely, its coupons might be selling for N$0.80;Its opposite for N$0.20

– If you buy 100 such coupons,you'll pay N$80 to win N$100.

– If you buy 100 opposite coupons,you'll pay N$20 to win N$100.

http://www.newsbet.com/

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Explanation for successful predictions

• Markets are efficient at aggregating information– quickly and largely

• Using the COLLECTIVE WISDOM of knowledgeable people– including insiders

• Without political pressures and personal agenda– Anonymously

BUT• Information trap, illiquidity, market manipulation, inability to settle on an equilibrium price

…– More research needed!

[Ray, 2004] [Sorowiecki, 2004] [Passmore, 2004]

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Questions

• What are the requirements for the group of “traders”? • How many are needed? • Need they be experts at securities trading? • How long do they need to trade to collect useful data? • How knowledgeable does each participant need to be? • And what strategy do traders adopt in order to win the game? • What exactly is being measured by an idea future market?

– Is it an aggregation of diverse, independent opinions or a negotiation process in which participants learn from and are influenced by each other, ultimately achieving consensus?

• What matters most in the market operation?– the underlying fundamentals of each security, based on some external “truth”, or

– the (potentially biased) perceptions of those truths by the actual traders playing the game?

• How can the data collected during the market operation be best summarized?– closing prices the ultimate measure of the market consensus, or

– should metrics based on all of the data collected be employed?

[Chan, 2002]

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Platform for building Idea futures markets

http://us.newsfutures.com/home/trader.htmlPRIZE January 2005

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Open source project for building Idea futures markets

[Hibbert, 2004] http://labs.commerce.net/wiki/index.php/ZMarket

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Idea futures and scientific forecast

• “Idea futures” market for reaching scientific consensus– Betting pool on disputed science issues

– The current odds are treated as the current intellectual consensus

• Betting odds could serve as a scientific barometer to guide public policy– Could increase the public’s interest and role in science

A young researcher proposes a new theory

Posting a bet on an idea futures market (1-to-3, in favour of her/his theory)

Academic insider would have to bet against this theory to drive down the odds

If insider has more money to spend, speculators might take an interest in this theory

Research patrons or policy makers might decide the question interest them,

enough to subsidize betting markets on the new theory

[Hanson, 1999] http://hanson.gmu.edu/ifwired.html WIRED Issue 3.09 | Sep 1995

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http://inforge.unil.ch/yp/TALK/slides/IdeaMarket.pdf

The end

• For fun …– James Surowiecki

The Wisdom of CrowdsDoubleday, 2004

• More serious …– Thomas Malone

The future of workHBSP, 2004

talk > university of lausanne > january 2005 idea futures markets and technology foresight...

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