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How To Set Up a Prediction Market: HP Example

Here’s the closest thing I’ve found to an explanation of how to set up and conduct a prediction market. This paper, INFORMATION AGGREGATION MECHANISMS: CONCEPT, DESIGN AND IMPLEMENTATION FOR A SALES FORECASTING PROBLEM, by Charles R. Plott of CalTech and Kay-Yut Chen of Hewlett Packard Laboratories, describes how they set up a prediction market for sales forecasts at HP with the following results:

·        In 6 out of 8 events for which official forecasts were available the market predictions were closer to the actual outcome than the official forecast.

·        The probability…

Corporate Prediction Markets, Part 2

Here’s the second part of my notes from the paper, INFORMATION AGGREGATION MECHANISMS: CONCEPT, DESIGN AND IMPLEMENTATION FOR A SALES FORECASTING PROBLEM, by Charles R. Plott of CalTech and Kay-Yut Chen of Hewlett Packard Laboratories,which describes how they set up a prediction market for sales forecasts at HP.

Advantages of Prediction Market Over Other Forecasting Methods

·        The methodology is flexible. It can be used to aggregate any type of information possessed by different people. It involves a natural methodology for quantifying subjective, qualitative, information and giving weights to the opinion of…

Background on Prediction Markets

Art Hutchinson pointed me to his blog, Mapping Strategy, and the collection of articles he’s been writing about prediction markets since last September. Here are my notes:”The strong consensus - supported by a compelling body of academic research - is that these mechanisms deliver uncannily accurate forecasts across a wide range of topics, time horizons, and approaches to participation. Even more interesting is that they appear to do so at a fraction of the cost of conventional techniques for generating business foresight, (e.g., trend extrapolation, market research, polls, expert opinion…