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Prediction Market Case Studies
A Hollywood Stock trader online trading:
Cantor Fitzgerald's Virtual Trading Platform Helps Film Producers Project Their Grosses
The waiting time to liquidate in Hollywood is very long and painful. Period from movie concept through optioning to star packaging, script acceptance, theatrical release, home media, television rights and library sales.
A film performance is usually foretold in the first four weekends at U.S. Box office.
How can PM help?
Cantor Fitzgerald set up Hollywood Stock Exchange, virtual platform, web-based, takes bets on box-office proceeds.
- to support industry research --> used by financial firms and studios who buy data captured by HSX
- HSX can potentially made into a global platform and extend its reach to India and China
- Traders can go short, or invest in a mutual fund of different genres. There is virtual specialist to make a round the clock trade and perform clearing function.
- experts such as Hollywood stock traders participate actively on this market
Comments on HSX
- Anita Elberse, an assistant professor of business administration at Harvard University, "it is interesting that collectively, HSX traders usually produce reladvely good forecasts of actual box-office returns. In fact, the forecasting accuracy is what makes HSX such a valuable research setting."
Google Case study
Using a faux currency called the Gooble, 2,000 workers have wagered on about 370 subjects, from the success of the company's Gmail service to the quality of a new ``Star Wars'' movie.
(http://www.bloomberg.com/apps/news?pid=20670001&refer=home&sid=aM37exe92vwc)
Cantor Fitzgerald's Virtual Trading Platform Helps Film Producers Project Their Grosses
The waiting time to liquidate in Hollywood is very long and painful. Period from movie concept through optioning to star packaging, script acceptance, theatrical release, home media, television rights and library sales.
A film performance is usually foretold in the first four weekends at U.S. Box office.
How can PM help?
Cantor Fitzgerald set up Hollywood Stock Exchange, virtual platform, web-based, takes bets on box-office proceeds.
- to support industry research --> used by financial firms and studios who buy data captured by HSX
- HSX can potentially made into a global platform and extend its reach to India and China
- Traders can go short, or invest in a mutual fund of different genres. There is virtual specialist to make a round the clock trade and perform clearing function.
- experts such as Hollywood stock traders participate actively on this market
Comments on HSX
- Anita Elberse, an assistant professor of business administration at Harvard University, "it is interesting that collectively, HSX traders usually produce reladvely good forecasts of actual box-office returns. In fact, the forecasting accuracy is what makes HSX such a valuable research setting."
Google Case study
Google is running one of the largest internal prediction markets in the world. In a sense, the fast-growing company has brought Wall Street inside, creating a marketplace to help it make decisions. Google thinks it helps them collect opinions, make better decisions, and generally use markets and economics to be a more effective company. (http://en.oreilly.com/money2008/public/schedule/detail/2170)
Using a faux currency called the Gooble, 2,000 workers have wagered on about 370 subjects, from the success of the company's Gmail service to the quality of a new ``Star Wars'' movie.
(http://www.bloomberg.com/apps/news?pid=20670001&refer=home&sid=aM37exe92vwc)
will Google open a Russia office?
how many users will Gmail have at the end of the quarter?
Advantages of Google Prediction Market (http://blog.wired.com/business/2008/03/etech-google-pr.html)
Cowgill says the market has proven to be quite good at predictions, but is just one tool for internal decision making. It's real use, according to Cowgill, is in the anonymous conversation that happens since only he sees who is making what bets. Participants in a given market don't know if they are betting against their co-worker, the masseuse or even Sergey Brin."The prediction market is a conversation among employees," Cowgill said. "This is a conversation that is happening without politics and no one has any incentive to kiss up, fudge the numbers or sandbag."
Why do managers use Prediction market?
PM are based on anonymous bets,employeescan weigh in without worrying what managers will think, said John Maloney, who helps organize research conferences on the subject.
There's a lot of things companies want to know that they have trouble getting through ordinary channels,'' said Robin Hanson, an associate economics professor at George Mason University in Washington. ``Prediction markets are a mechanism for cutting out some of the crap, getting people to be honest.
What's the incentive? (http://www.nytimes.com/2008/01/07/technology/07link.html?_r=3&ex=1357448400&en=9c759d229dc5b88f&ei=5088&partner=rssnyt&emc=rss&oref=slogin&oref=slogin&oref=slogin)
The lure, nominally, is accumulating those Goobles, which can be converted to modest prizes — $10,000 worth each quarter. As it happens, Google employees were also taking part in an experiment on how information courses its way through the company.
Result on the research of Google PM -http://googleblog.blogspot.com/2008/01/flow-of-information-at-googleplex.html
- Traders in the same location tend to make the same trades at the same time.The trades of cubemates within a small radius is the best predictor we found. By using a record of historical office changes, we could observe that the correlation begins shortly after people are seated nearby. It makes sense, because the physical proximity enables easy communication. As Eric Schmidt (our CEO) and Hal Varian (now our Chief Economist)advised in 2005: "The best way to make communication easy is to put team members within a few feet of each other. No telephone tag, no e-mail delay, no waiting for a reply." As you can see below, our finding about the importance of proximity holds, even once we account for many other factors.
- Although we did find strong correlations among professional and social contacts, these were substantially weaker than the correlations for micro-geography. We also measured the influence that people on similar projects, in similar places in the organization and with similar demographic characteristics exert on each other. This helped establish that geographic proximity -- and not some other type of similarity -- was responsible for the correlations we saw.
- Despite the markets'strong forecasting abilities, there is a slight optimistic bias driven mainly by new employees. On average, outcomes that were good for Google were overpriced by 20%. This bias was strongest on days after appreciations inGoogle stockand, ironically, for outcomes under our own control! We also find biases against extreme outcomes andshort selling. Given a range of five outcomes, the middle ones were typically overpriced and unprofitable by comparison with the outliers.
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