Effec%veEnterpriseMarkets:WhatmakesthemworkandWhy
Dr.RobinHanson,ChiefScien%stRebeccaWMunn,SeniorVicePresident
KMChicagoSeptember14,2010
Agenda
• Introduc;ons• WhatmakesEnterpriseMarketswork• Whymarketsasamediumforpredic;ngthefuture• EnterpriseDo’sandDon’ts• Discussion
WhatMakesMarketsWorkBuyLow,SellHigh
price buy
buy
sell
sell
Will price rise or fall?
E[ price change | ?? ]
Lots of ?? get tried, price includes all!
“Pays $1 if Obama wins”
WhatMakesMarketsWorkExample:CurrentEventPrices
70‐71%RepublicanswinUSHousein11/201042‐47%Californialegalizesmarijuanain11/20106‐16%Californiacreditdefaultby201110‐20%USovertstrikeonN.Koreaby4/201124%USorIsraelovertstrikeonIranby201210‐19%USSup.Courtbansmed.mandateby201216‐18%PalinisRepublicannomineein201211‐30%Japansaysithasnukeby201345‐48%USCap&Tradesystemby201312‐14%ChinawaractonTaiwanby201315‐38%HiggsBosonseenby2014
www.InTrade.com
WhatMakesMarketsWorkBeatsAlterna%ves
• Vs.PublicOpinion– I.E.M.beatpresiden;alelec;onpolls709/964(Bergetal‘08)– ReNFL,beatave.,rank7vs.39of1947(Pennocketal’04)
• Vs.PublicExperts– Racetrackoddsbeatweighedtrackexperts(Figlewski‘79)
• Ifanything,trackoddsweighexpertstoomuch!– OJfuturesimproveweatherforecast(Roll‘84)– StocksbeatChallengerpanel(Maloney&Mulherin‘03)– Gasdemandmarketsbeatexperts(Spencer‘04)– Econstatmarketsbeatexperts2/3(Wolfers&Zitzewitz‘04)
• Vs.PrivateExperts– HPmarketbeatofficialforecast6/8(Ploh‘00)– EliLilymarketsbeatofficial6/9(Servan‐Schreiber’05)– Microsoiprojectmarketsbeatmanagers(Proebs;ng’05)
WhatMakesMarketsWorkExample:IowaElectronicMarket
“Prediction Market Accuracy in the Long Run” Joyce Berg, Forrest Nelson and Thomas Rietz, Jan. 2008.
Item 1988 1992 1996 2000 2004 All
# big polls
59 151 157 229 368 964
Poll “wins”
25 43 21 56 110 255
Market “wins”
34 108 136 173 258 709
% Market
58% 72% 87% 76% 70% 74%
P-value 0.148 0.000 0.000 0.000 0.000 0.000
WhyMarketsasaMediumforForecas%ngAdvantages
• Numericallyprecise
• Consistentacrossmanyissues• Frequentlyupdated• Hardtomanipulate• Neednotsaywhohowexpertwhen
– Issueisnotexpertsvs.amateurs
• Atleastasaccurateasalterna;ves
Incen(vesSelf‐Selec(onCorrectBiases
WhyMarketsasaMediumforForecas%ngCollec%veForecas%ng
ForecastsOnRequestedTopicsUser
Contribu;ons UserScores
Engagement
WhyMarketsasaMediumforForecas%ngCollec%veForecas%ngQues%ons
Consensus
MyForecast MyScore
Truth
Whatexactlyismyinfluence?
Whatexactlyaremyincen7ves?
HowexactlydoIexpressmyopinion?
WhyMarketsasMediumforForecas%ngEdi%ngInterfaceIsTransparent
Consensus
MyEdits MyScore
Truth
Idirectlychangetheconsensus
Ifmyeditincreasestheconsensuschanceoftruestate,Iwin.
Else,Ilose.
WhyMarketsasMediumforForecas%ngFactorsMightInfluenceSales
• Economyrecoversfast?
• Compe;torsintroducenewversion?• Wedobigpromo;on?
• Welowerprices?Theylowerprices?• Weadddistribu;onchannel?
• WeaddfeatureF?TheyaddfeatureF?
• Ourdefectrateverylow?
E[Sales|Factor]P[Factor]
WhyMarketsasMediumforForecas%ngIssues
Input:Contribu%ons• Whatinfocanexpress?• Howaccountforcosts?• Wholetinwhere?• EnoughIncen;ves
– T‐shirtsenough?– Zero‐sumscoring?
• LimitCosts– AwkwardInterface– Waitforofferaccept– Retribu;on
Output:Forecasts,Scores
• Whatques(onscanask?
• Howaccountforvalue?• Useorvalidatesystem?
• Shouldadjustoutputs?• Wholetseeoutputs?
• Sabotage&manipula;on
• Legal,P.R.risks?
WhyMarketsasMediumforForecas%ngRequirements
• Ques%onsreallywantanswerednow– Willeventuallyknowanswer(orparts)
– Suspectnotgeongfrankinfoviausualchannels– Don’tmindpar;cipantsknowingbestes;mates
• Peoplewhohaveorcangetkeyinfo– Their;meisthemaincost
– Lihlepenaltyforinvitemanydon’tknow
• Incen%vestoen;cecarefulpar;cipa;on– Money,ahen;on,influencecanlegallyoffer
– Valuedwhenques;onsanswered
• Manyfastques;ons,statusquoes;mates
Use:
Validate:
EnterpriseDo’sandDon’tsofEnterpriseMarkets
• Do– IntegrateintoEnterpriseprocesses– Nurtureexecu;vesponsorship– Makeaccessibletoall
– Customizetoyourbusiness
– MakeitPartofyourValueProp
Customer
14
IntegrateIntoEnterpriseProcesses
• Facingtoomanyunknowns,leaderswereplanningforallpossiblefutures
• Costlyand;me‐consuming
• Deployedinternalmarket,integratedintoexis;ngEnterpriseprocessesanddashboards
• Appropriate;mehorizonsmatchedEnterprisedeadlines
• Increasedaccuracyfrommarkethasstreamlinedshortandmid‐termplanning
• An;cipatedimprovementsinmetrics,e.g.cashmanagement,balancesheet
Customer
Challenge Ac;on Result
15
NurtureExecu%veSponsorship
• Marketintroducedbyself‐ini;a;ngteam,notC‐suite
• Fitentrepreneurialculture
• S;llneededtodriveawareness,par;cipa;on,andexecu;veusage
• Soughtexecaircover,notmandate
• Targetedkeyleadersasearlyadopters
• Championisoneoftopusers
• Openedmarkettoeveryone
• Balancedtop‐downendorsementwithbohoms‐upculture
• Grassrootsgrowthmoresustainable
• Consulta;verela;onshipwithkeyleaderspaveswayforfollowers
Customer
Challenge Ac;on Result
16
MakeItAccessibleToAll
• Acceleratetheprocessofpriori;zingideasandproductfeatures
• Engagemoreemployeesininnova;on
• Incorporatedmarketintobroaderinnova;onplaqorm
• Deployedmarketglobally
• Feedideastoeverybusinessunit
• Improvedoverall;metomarket,speedofideaac;on‐by100days
• 5‐10XROI• Tripledcollabora;onandcutduplicateideasinhalf
Customer
Challenge Ac;on Result
17
CustomizeIttoYourBusiness
• Lookingfornewwaystoengagetheircustomerbase
• Seekingdifferen;a;onfromthesignificantcompe;;onintheirmarket
• Marketwell‐namedandbranded
• Seamlessintegra;onwithcompanywebsite
• Developcustominterfacetomatchusercommunity
• Madeitfamiliarandinstantlyaccessibletotargetgroup
• Drovepar;cipa;onandacceleratedengagement
• Differen;atedfromcompe;;on
Customer
Challenge Ac;on Result
18
MakeItPartofYourValueProp
• Customersrepresentbroadarrayofindustrystakeholders
• Universalclientneed:predic;ngbehaviors
• Tradi;onalresearch&forecas;nginsufficientgivenindustrychanges
• Recognizedmarketasamplifierofexis;nginforma;onandserviceofferings
• Integratedmarketintoallaspectsofhowtheycreatevalueandconductbusiness
• Provideclientswithbeherdataviapublicmarket
• Enableclientspecificexperience
• Providesuperiorservicesand;melyinsights,createcompe;;veadvantage
Client
Challenge Ac;on Result
19
EnterpriseDo’sandDon’tsofEnterpriseMarkets
• Don’t– Runa30daypilot– Useasimilargroupofpar;cipants
– Runamarketwithoutpromo;ngit
– Assumeleaderswillactoninsights
Customer
20
Discussion