Conference on
Corporate Applications of Prediction/Information Markets
Thursday, 1 November
2007
Summary of talks
Koleman Strumpf—Opening remarks
Strumpf provided an overview of the nature of prediction markets and the focus of the conference—the application of prediction markets within organizations.
Henry Berg (Microsoft)
Berg gave a brief history of the adoption and adaptation process of prediction markets within Microsoft. Microsoft executives organized a products group around PM after they realized the unique power of this tool for helping to measure and monitor key work processes. Indeed, Berg noted that the PM tool can work so well under certain applications that it can intimidate managers; this phenomenon creates its own barriers to adoption.
Berg noted that one of the key obstacles to more widespread use of the tool within Microsoft is the lack of well-designed case studies. Berg’s group has projects underway to fill this void.
Hansen’s remarks explored the academic versus business perspective on PM accuracy creating barriers to adoption. After noting that such barriers seem strange to the frameworks employed by academic economists, he discussed several theories that might help explain the phenomenon.
Christina LaComb (General
Electric)
LaComb set the stage for her comments by noting GE managements desire to implement reliable intelligence aggregation processes. PM offers one such technology.
GE management, to date, has had little interest in the forecasting applications of PM. Rather, they want methods for grappling with new technologies and other factors associated with disruptive change. So, in the GE setting PM takes on the nature of “preference markets” rather than “prediction markets.”
LaComb went on to describe lessons learned in the implementation of GE preference markets. Much of this information is available in a published case study.
LaComb stressed that: “Validation is a huge challenge.” To date, the validation most relevant in the GE environment has been “gut checks” from senior management.
Ottaviani framed his remarks around the challenge of idea validation. He drew insightful parallels about the evaluation of new ideas by venture capitalists in activities that allow for appropriability and the professional reputation of inventors/innovators in activities for which appropriability is difficult (like basic research in the sciences). Overcoming evaluation bias is a critical challenge.
Dawn Keller (Best Buy)
Keller began her remarks by explaining how Best Buy management wants to become better at listening. There is an authentic passion for tapping into the best information available among the vast network of Best Buy personnel.
PM offer a powerful tool in this regard. PM fits with the Best Buy mantra of: “Have fun while being the best.”
Keller framed her remarks around how management has tried to educate the Best Buy workforce about PM and the evolution of PM implementation from a committed band of volunteers to senior management buy-in. Best Buy has opted for a “shot gun” approach rather than a “rifle shot” approach. Best Buy tends to run many parallel markets at once to see what sticks rather than trying a few targeted pilots. Consistent with many other speakers, Best Buy runs many non-business related markets to invoke interest and fun, noting that participation is key and must be continually cultivated.
Rhode made several humorous, tongue-in-cheek comments related to how startled economists were to learn that firms actually existed; so, they will become doubly puzzled to learn that there are now markets within firms. These comments set up his discussion about the inherent tension between market structures and hierarchical decision-making structures.
Rhode noted that business people become famous for succeeding by bucking conventional wisdom. In a world with widespread use of internal PM, the next famous CEO’s will be those that succeed by bucking the PM forecasts.
Bo Cowgill (Google) and Eric Zitzewitz (Commenter)
Cowgill briefly described how Google uses prediction markets. The rest of the discussion highlighted the first round of statistical research conducted by Cowgill, Zitzewitz, and Wolfers related to internal trading activity. Google has rich datasets related to both trading activity and traders. In addition to their prediction and preference applications, PM can also help a firm learn about the internal dynamics of a firm, particularly issues related to work groups and the flow of knowledge.
Jim Lavoie (Keynote—CEO of Rite Solutions)
Based on his wealth of experience as a senior executive in a hierarchical corporate environment, Lavoie described his management vision for Rite Solutions: “An employee-centric community that maximizes passion and perspective.”
Lavoie discussed how Mutual Fun—the PM tool used at Rite Solutions—helps to facilitate engagement, ownership, innovation, and commensurate cooperation with the firm’s production goals. He called the framework an “easy bake oven for half-baked ideas.” Mutual Fun has mobilized the “quite genius” spread throughout the firm, helped motivate self-organizing teams around shared passions, and has provided for ready recognition of individual contribution, a key motivator for members of Generation X and Y, according to Lavoie.
John Delaney (Intrade)
Delaney explained that Intrade, and other like firms, that offer trading platforms offer a basic service to organizations interested in PM: it acts as a facilitator for aggregating valuable information and knowledge. In addition, well-designed PMs enrich communication, provide a laser-like focus on the most important questions, and give voice to knowledgeable yet reluctant individuals.
Delany stressed the obvious (but often under-appreciated): Participation is key
Other Lessons Learned
§ Organizational buy-in is critical. Need a champion at the right level(s).
§ The work genuinely begins once you get the technical part of the PM working.
§ Getting involvement is critical and difficult. The full array of incentives must be right.
§ Highlight successes and failures.
§ Issue definition is very important.
§ Make sure PMs are liquid from the start; that is, always seed the market with a prediction/benchmark before opening it for trading.
David Perry (Consensus Point)
Perry shared many lessons learned, and chose to focus people’s attention on the pitfalls of PMs (in addition to their power).
§ Implementation can take a long time. It’s a change management process.
§ Asking the wrong questions can be a killer, but often the right questions emerge after trading begins.
§ Poor incentive structures is the #1 killer, according to Perry.
§ Don’t suppress the reputational incentives associated with PMs.
§ Be explicit and transparent about how traders will be compensated.
Mat Fogarty (Xpree)
Fogarty has had substantial work experience as a traditional forecaster in large consumer products firms, so he has a well-rounded perspective on the power of PMs as a superior business tool.
Lessons Learned
§ Support from senior management is crucial.
§ Many people are uncomfortable with the stock trading metaphor, which can be a barrier to participation.
§ Allocate sufficient resources for training.
§ Participation is key. To facilitate top-of-mind participation, PMs must have continual activity or the have a half-life of less than a week.
§ Fun is a participation driver as well as recognition.
Tom Bell (
Robert Litan
(Kauffman)
Litan expanded upon