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'''Welcome to the Prediction Markets wiki of the Graduate School of Management, University of Haifa'''
'''Welcome to the Prediction Markets wiki of the Graduate School of Management, University of Haifa'''
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This wiki serves as a collaborative structured resource for the research and design of prediction markets. The mapping of the domain vocabulary to market implementations provides a repository of examples that can be used for a better understanding of the operations and performance of prediction markets in a variety of settings and configurations.
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This wiki grows out of ongoing research work in the field of Prediction Markets and Collective Intelligence which is performed at the [http://mba2.haifa.ac.il/index.php/english- Graduate School of Management] of the [http://www.haifa.ac.il/index_eng.html University of Haifa], under the supervision of Prof. [http://rafaeli.net/ Sheizaf Rafaeli] and [http://gsb.haifa.ac.il/~draban/home/ Dr. Daphne Raban]. At its core lies a mapping of domain vocabulary to market implementations which is presented in a paper ''"P-MART: Towards a Classification of Online Prediction Markets"'', currently under review.
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True to our belief in the value of collaboration we encourage you to contribute to this wiki. It is expected that through on-going contribution the domain vocabulary will be fine-tuned as the domain knowledge expands, and the implementation repository will grow as new examples emerge. Contributors, in order to maintain the structure of this wiki please follow [[Editing guidelines|editing guidelines]].
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The wiki is structured as a cross reference of '''[[:Category:Markets|Prediction Market implementations]]''' and '''[[:Category:Market properties|market attributes]]'''. The description of each market is contained in a separate wiki article and tagged with its attributes (in the form of wiki categories). In this way it is possible to view the property of each market, and access any market from any of its market property. It is also possible to access all markets and market properties from the sidebar. In the main page you will find an overview of the Prediction Markets classification, where each of the market attribute is listed in '''bold''' and links to its category page.
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Consult the [http://meta.wikimedia.org/wiki/Help:Contents User's Guide] for information on using the wiki software.
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The objective of this wiki is to act as a knowledge repository for researchers and practitioners in the field of Prediction Markets. True to our belief in the value of collaboration we encourage you to contribute to this wiki. It is expected that through on-going contribution the domain vocabulary will be fine-tuned as the domain knowledge expands, and the implementation repository will grow as new examples emerge. Contributors need to register first. In order to maintain the structure of this wiki please follow [[Editing guidelines|editing guidelines]].
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For more details contact [[User:Dorit.Geifman|Dorit Geifman]]
== Introduction ==
== Introduction ==
We can trace the origins of the Prediction Markets concept to the works of [http://en.wikipedia.org/wiki/Friedrich_Hayek Friedrich Hayek], the winner of the Nobel Prize in Economics, and a social and political philosopher. Hayek claimed that the price mechanism serves to share and synchronize local and personal knowledge, allowing society's members to achieve diverse, complicated ends through a principle of spontaneous self-organization.
We can trace the origins of the Prediction Markets concept to the works of [http://en.wikipedia.org/wiki/Friedrich_Hayek Friedrich Hayek], the winner of the Nobel Prize in Economics, and a social and political philosopher. Hayek claimed that the price mechanism serves to share and synchronize local and personal knowledge, allowing society's members to achieve diverse, complicated ends through a principle of spontaneous self-organization.
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We are now starting to witness the proliferation of Information Markets into the corporate decision-making environment. One of the pioneering organizations to use Prediction Market as an internal decision-support tool is Hewlett Packard, which is using it as a sales forecasting tool. Intel too is using Information Markets for managing products forecast and production plans. There is evidence that many other organizations like Google, Eli Lilly and Microsoft are jumping into the water, but most of this activity is still in an experimental stage. Organizations are still trying to figure out the kind of incentives to be used, how to make sure that established hierarchies are not threatened and how to maintain a cost effective process etc.
== What are Prediction Markets used for? ==
== What are Prediction Markets used for? ==
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Prediction Markets cover a wide range of topics. These may be in the areas of '''[[:Category:Current or recreation events|Current or recreation events]]''', '''[[:Category:Business topics|Business topics]]''', '''[[:Category:Policy issues|Policy issues]]''', '''[[:Category:Synthetic events|Synthetic events]]''' etc.
Prediction Markets cover a wide range of topics. These may be in the areas of '''[[:Category:Current or recreation events|Current or recreation events]]''', '''[[:Category:Business topics|Business topics]]''', '''[[:Category:Policy issues|Policy issues]]''', '''[[:Category:Synthetic events|Synthetic events]]''' etc.
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== In what setting are they used? ==
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== In what setting are markets used? ==
Prediction markets are implemented in a variety of environments
Prediction markets are implemented in a variety of environments
* '''[[:Category:Public domain markets|Public domain]]''' – open to the general public. May take the form of stand-alone web-sites e.g. [[Intrade]] or add-ons to larger web-sites e.g. [http://www.ftpredict.com/ FTPredict] of the Financial Times.  
* '''[[:Category:Public domain markets|Public domain]]''' – open to the general public. May take the form of stand-alone web-sites e.g. [[Intrade]] or add-ons to larger web-sites e.g. [http://www.ftpredict.com/ FTPredict] of the Financial Times.  
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* '''[[:Category:Field experiment|Field experiments]]''' – controlled experiments in real-world settings
* '''[[:Category:Field experiment|Field experiments]]''' – controlled experiments in real-world settings
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== Online Markets and Platforms ==
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== How do Prediction Markets work? ==
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The [http://en.wikipedia.org/wiki/Prediction_market Prediction Markets entry] in Wikipedia provides an extensive list of operating markets, categorized according real-money and play-money markets. It also lists a wide range of proprietary as well as open-source prediction markets software. The intention in this section is to mention only markets and platforms that can contribute in some way to deeper understanding of prediction markets and assist in the teaching and research activity.
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=== Iowa Electronic Market (IEM)===
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[http://www.biz.uiowa.edu/iem/ Iowa Electronic Market (IEM)] is a real-money, non-profit market, operated by the Henry B. Tippie College of Business at the University of Iowa as part of its research and teaching mission. IEM was first opened on 1988 and is since known and widely cited mainly for its political prediction markets. Some of its markets are open to the public while others are available for classroom traders only. For the latter, the IEM web-site also includes [http://www.biz.uiowa.edu/iem/classroom/ course modules, sample assignments] and reference to many [http://www.biz.uiowa.edu/iem/archive/references.html research papers]. True to its research mission, IEM has opened its [http://www.biz.uiowa.edu/iem/archive/historicaldata.cfm historical trading data] for research activity and consequently it is widely cited in academic papers as well as by the media.
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=== Zocalo - an open-source prediction markets platform ===
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[http://zocalo.sourceforge.net/ Zocalo] is an open-source toolkit for building prediction markets. The project is lead by [http://mydruthers.com/ Chris Hibbert] and supported by [http://www.commerce.net/ CommerceNet]. The software was first released on July 2006 on SourceForge.net and there have been ongoing updates since. Hibbert's short-term plan is to support experimental markets in economic labs, at a later stage support internal pilot markets to businesses and for the long-term deploy public markets with partners. Currently it is in used by George Manson University (GMU) to experiment whether manipulators affect the market price. Hibbert is looking for collaboration and the software can be [http://sourceforge.net/projects/zocalo/ downloaded] from the Zocalo project page at SourceForge.net.
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== How do they work? ==
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Prediction Markets differ in their internal design, operational model and structure of assets. In this section we will provide an overview and references for more detailed information.
Prediction Markets differ in their internal design, operational model and structure of assets. In this section we will provide an overview and references for more detailed information.
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=== Trading currency ===
=== Trading currency ===
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The currency that is used for trade execution may be:
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Trading may be executed through the use of '''[[:Category:Real-money|Real-money]]''', i.e. trader’s money or play-money with a well defined monetary exchange rate, or '''[[:Category:Play-money|Play-money]]''', which is not directly tied to the final reward.
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* '''[[:Category:Real-money|Real-money]]''' – trader’s money or play-money with a well defined monetary exchange rate.
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* '''[[:Category:Play-money|Play-money]]''' – which is not directly tied to the final reward.
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=== Trading funds ===
=== Trading funds ===
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* '''[[:Category:Initial securities endowment|Initial securities endowment]]''' – traders' accounts are initialized with a number of securities.
* '''[[:Category:Initial securities endowment|Initial securities endowment]]''' – traders' accounts are initialized with a number of securities.
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=== Market size ===
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=== Market size and duration ===
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the number of '''active''' traders during market activity period:
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The market size is defined by the number of ''active'' traders during market activity period. This may range from '''[[:Category:Small size markets|small]]''', 15 or less, through '''[[:Category:Medium size markets|medium]]''' – 15 – 50 traders, to '''[[:Category:Large markets|large]]''' – larger than 50, common in public markets but can also be found in corporate settings
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* '''[[:Category:Small size markets|Small]]''' –15 or less traders, usually found in laboratory experiments.
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* '''[[:Category:Medium size markets|Medium]]''' – 15 – 50 traders, expected in corporate environment and field experiments
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* '''[[:Category:Large markets|Large]]''' – larger than 50, common in public markets but can also be found in corporate settings
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=== Market duration ===
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Markets should be open as long as new information streams in, whether information that is exogenous to the market or information that is inferred from market price, and as long as the actual outcome is yet unknown. Here their duration is arbitrarily defined as:
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Markets should be open as long as new information streams in, whether information that is exogenous to the market or information that is inferred from market price, and as long as the actual outcome is yet unknown.
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The market length can be arbitrarily be defined as:
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* '''[[:Category:Short duration|Short]]''' – does not exceed one day, in a laboratory setting usually lasts a few minutes
* '''[[:Category:Short duration|Short]]''' – does not exceed one day, in a laboratory setting usually lasts a few minutes
* '''[[:Category:Medium duration|Medium]]''' – a few days, does not exceed one week
* '''[[:Category:Medium duration|Medium]]''' – a few days, does not exceed one week
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* '''[[:Category:Variable duration|Variable]]''' – the market closing date is defined ad-hoc, and is dictated by the topic of the market and the external events which affect the subject of trade.
* '''[[:Category:Variable duration|Variable]]''' – the market closing date is defined ad-hoc, and is dictated by the topic of the market and the external events which affect the subject of trade.
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=== Interaction ===
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=== Interaction means ===
Does the market platform or trading procedure enable complementary information exchange between traders?
Does the market platform or trading procedure enable complementary information exchange between traders?
* '''[[:Category:No interaction|No interaction]]''' – platform does not facilitate interaction among traders. Traders are instructed to refrain from off platform interaction.  
* '''[[:Category:No interaction|No interaction]]''' – platform does not facilitate interaction among traders. Traders are instructed to refrain from off platform interaction.  
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The information which is available to the group of traders may be '''[[:Category:Perfect information|perfect]]''', i.e. the all information which is needed exists but is private to a subset of the traders, '''[[:Category:Complete information|complete]]''', i.e. each trader only holds uncertain or incomplete information but the combination of the information which is accessible to all traders forms a complete picture of the subject of trade, or '''[[:Category:Incomplete information|incomplete]]''', the available information, private or public, contains a variable level of uncertainty.
The information which is available to the group of traders may be '''[[:Category:Perfect information|perfect]]''', i.e. the all information which is needed exists but is private to a subset of the traders, '''[[:Category:Complete information|complete]]''', i.e. each trader only holds uncertain or incomplete information but the combination of the information which is accessible to all traders forms a complete picture of the subject of trade, or '''[[:Category:Incomplete information|incomplete]]''', the available information, private or public, contains a variable level of uncertainty.
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== Why do they trade? ==
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== Why do traders participate? ==
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Market institutions use a variety of incentive schemes in order to encourage participation. These may take the following forms:
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* '''[[:Category:Performance incentive|Performance]]''' - payoffs are directly tied to the performance of the trader, i.e. gains profits from trading.
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* '''[[:Category:Performance-rank incentive|Performance rank]]''' – reward is associated with the rank of the trader in the descending list of performance.
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* '''[[:Category:Participation incentive|Participation]]''' – reward is tied to participation. Can be associated with participation level or drawn by lottery.
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* '''[[:Category:Contribution incentive|Contribution]]''' – participants are rewarded for their contribution to the marketplace, e.g. creation of new markets.
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The traders may be awarded a '''[[:Category:Monetary reward|cash]]''' payment, a material, non-monetary '''[[:Category:Gift reward|prize]]''', '''[[:Category:Bonus shares reward|bonus shares]]''' or an intangible reward such as '''[[:Category:Reputational reward|increased reputation]]''' or '''[[:Category:Intrinsic reward|intrinsic satisfaction]]'''.
== Is the market outcome accurate? ==
== Is the market outcome accurate? ==
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== Do traders affect market accuracy? ==
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== Does traders' behavior affect market accuracy? ==
=== Manipulation ===
=== Manipulation ===
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=== Judgment biases ===
=== Judgment biases ===
   
   
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== Corporate Prediction Markets ==
 
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We are now starting to witness the proliferation of Information Markets into the corporate decision-making environment. One of the pioneering organizations to use Prediction Market as an internal decision-support tool is Hewlett Packard, which is using it as a sales forecasting tool. Intel too is using Information Markets for managing products forecast and production plans. There is evidence that many other organizations like Google, Eli Lilly and Microsoft are jumping into the water, but most of this activity is still in an experimental stage. Organizations are still trying to figure out the kind of incentives to be used, how to make sure that established hierarchies are not threatened and how to maintain a cost effective process etc.
 
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=== Examples ===
 
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==== Google ====
 
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As posted in the [http://googleblog.blogspot.com/2005/09/putting-crowd-wisdom-to-work.html Google official blog] on September 2005, a prediction market was set up inside the company with the intention of forecasting product launch dates and other things of strategic importance to Google. More than a thousand Google employees bid on 146 events in 43 subjects. This was developed as one of the projects under Google's policy of employees spending 20% of their time developing whatever new ideas they find interesting. Recently the results 2.5 years running the experiment were published [http://bocowgill.com/GooglePredictionMarketPaper.pdf Cowgill, Wolfers, & Zitzewitz, 2008]. It is interesting to note that the experiment did not only provide the outcome of the future events that were traded, but also an insight in the organization's internal information flows.
 
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== Implementations of Prediction Markets ==
 
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* General Electric's [[Imagination Markets]]
 
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* [[Hubdub]]
 
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== Resources ==
== Resources ==
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=== Academic Articles ===
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=== References & Bookmarks ===
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* [http://siepr.stanford.edu/papers/pdf/03-25.pdf Wolfers,J. and E. Zitzewitz (2004). "Prediction Markets." SIEPR Discussion Paper No. 03-25] is a comprehensive paper on Prediction Markets that addresses various perspectives of the topic
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* [http://del.icio.us/doritgsb/predictionmarkets del.icio.us Prediction Markets tag] - various bookmarks on the topic.
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* [http://www.midasoracle.org/predictions/exchanges/ Prediction Exchanges] - a list from Midas Oracle .Org
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* [http://www.forecastingprinciples.com/PM/ Special Interest Group on Prediction Markets] - International Institute of Forecasters, IIF
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* [http://www.crowdworx.de/de/news/crowdworx-library CrowdWorkx]
=== Books ===
=== Books ===
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* '''Surowiecki, J. (2005)''' - ''The wisdom of crowds: why the many are smarter than the few''. This book is starter into the world of the wisdom of the crowd and specifically Prediction Markets.
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* '''Abramowicz, M.''' (2008). ''Predictocracy: Market Mechanisms for Public and Private Decision Making.'' Yale University Press.
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* '''Surowiecki, J.''' (2004). ''The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations.'' Doubleday.
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=== Wiki, Blogs & Bookmarks ===
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* [http://del.icio.us/doritgsb/prediction-markets Dorit's del.icio.us Prediction Markets bookmarks] - maintains a list of related bookmarks, tagged with sub-categories.
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=== Wikis & Blogs ===
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* [http://en.wikipedia.org/wiki/Prediction_market Wikipedia on Prediction Markets] - has good articles and references. It is being updated on a frequent basis.
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* [http://www.midasoracle.org/ Midas Oracle] - the most extensive information source on Prediction Markets.
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* [http://www.forecastingprinciples.com/PM/ Special Interest Group on Prediction Markets] - a good source for various types of resources in this domain.
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=== Prediction Markets in the media ===
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* [http://en.wikipedia.org/wiki/Prediction_market Wikipedia on Prediction Markets]
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* [http://www.time.com/time/magazine/article/0,9171,660965,00.html Time Magazine – The end of Management?] - dated mid 2004, it is one of the first articles that brings the concept of Corporate Prediction Markets to the public awareness and lists some of the pioneers in the area.
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* [http://crowdcast.com/wordpress/ Crowdcast Corporate blog]
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* [http://blog.mercury-rac.com/ Mercury's Blog] - Jed Christiansen's blog
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* [http://blog.inklingmarkets.com/ Inkling Corporate blog]
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* [http://www.midasoracle.org/ Midas Oracle] - Chris F. Masse's blog
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* [http://blog.oddhead.com/ Oddhead Blog] David Pennock's blog]
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* [http://www.overcomingbias.com/ overcomingbias] - Robin Hanson's blog
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* [http://torontopm.wordpress.com/ Toronto Prediction Market Blog] - Paul Hewitt's blog
=== Research Data ===
=== Research Data ===
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Some public exchanges open their data for academic exchange
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Public exchanges that open their data for academic research
* In [http://www.biz.uiowa.edu/iem/archive/index.html Iowa Electronic Markets (IEM)] you can find historical data and research papers.
* In [http://www.biz.uiowa.edu/iem/archive/index.html Iowa Electronic Markets (IEM)] you can find historical data and research papers.
* In [http://www.tradesports.com/data/ TradeSports] you can gain access to historical data (2004-2006), mostly sports, some political and entertainment.
* In [http://www.tradesports.com/data/ TradeSports] you can gain access to historical data (2004-2006), mostly sports, some political and entertainment.

Current revision as of 20:11, 30 December 2011

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