Challenges of Bringing Information Markets to the Organization

Outline Foresight Exchange (FX) Software Overview General Industry Experience Specific Challenges Case Study: Siemens Overcoming the Challenges

Foresight Exchange (FX) Overview First web-based Idea Futures market (1994) V2.0 running continuously since 1996 – – Many science/technology claims – Public access; play money Small footprint: customer can install in-house User interface somewhat lacking…

Foresight Exchange Overview (Cont.)

Industry Experience Overview Approximately dozen organization have tried FX to forecast: – Project completion dates – Sales figures – Natural disasters/humanitarian crises – Sports wagering (briefly!) Most efforts seem to follow general script…

General Industry Experience (2) General script: – Someone in organization gets excited by prediction markets – …champions concept in-house – FX software installed and set up – …markets often languish

Types of Challenges Encountered Technical – How do I use the software? Conceptual – How do these markets work? Credibility – Do these markets really work?

Technical Issues Software installation (minor) – Integration with in-house systems Ease of Use (less minor) – Trading syntax confusing – Navigation Issues – Symptomatic of deeper problem…

Conceptual Issues (1) Trading mechanics – “FALSE” (negative) shares confusing Relationship between TRUE and FALSE shares – Initial market price also confusing Short selling in general poorly understood Placing orders on the book – Reveals too much information?

Conceptual Issues (2) Claim wording ambiguities Bounded price range sometimes insufficient What information does market provide? – Does $0.80 really mean 80%? – What does the spread indicate?

Credibility Issues (1) Are these things a good idea? – Uneasy with market metaphor Do these things really work? – Better than conventional methods?

Credibility Issues (2) Adverse effect on employees – Don’t employees have real tasks to do? – Trading competition unhealthy? Adverse effect on company – Project X team is short-selling project X claim… Adverse effect on management – Market distributes power

Case Study: Siemens AG Two advocates – 1 in-house, 1 academic (Gerhard Ortner) Asked to use software in late 1996 Trial license agreement soon nailed down Markets didn’t start for another 6 months

Case Study (2) Management initially very skeptical – “I don’t get it.” FX co-creator joined the discussion – Flew to Europe, enlightened manager Market started in May, 1997 – Predict completion of customer project – Ran for a few months, but then…

Case Study (3) Random Act of Customer Intervened… – Customer paying for project pulled out New market started – Same idea, different project Better outcome – Accurately predicted 2-3 week completion delay

Case Study (Summary) Experiment ultimately successful Required much oversight – 3 people needed to convince management – Considerable effort during experiment itself Unclear if prediction markets still in use

Overcoming the Challenges (1) Organizational commitment critical – Advocate(s) need management buy-in – Must see markets as more than “game” Mitigate technical/conceptual issues – Intuitive user interface can help – Hide trading complexities

Overcoming the Challenges (2) Address fundamental concerns – Do these markets really add value? – Are perceived disadvantages real? Some of these are open questions

Conclusions Concept is compelling Not in the mainstream (yet) Face implementation, conceptual challenges Can be successfully applied