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Virtual Currency Case Study: Prediction Markets

Virtual Currency Case Study: Prediction Markets. David M. Pennock Yahoo! Research. Virtual Currency. What actions can be motivated with virtual currency? To what degree of competence? Case study: Prediction markets Epilogue: Designing a better virtual currency.

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Virtual Currency Case Study: Prediction Markets

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  1. Virtual CurrencyCase Study: Prediction Markets David M. Pennock Yahoo! Research

  2. Virtual Currency • What actions can be motivated with virtual currency? • To what degree of competence? • Case study: Prediction markets • Epilogue: Designing a better virtual currency

  3. it would make thingsworse...I would not pay worse... i would not pay I would die immediately.Nobody will pay... Not many people wouldbuy it... less answers... Keep... the Internet free

  4. it would make thingsworse...I would not pay worse... i would not pay I would die immediately.Nobody will pay... Not many people wouldbuy it... less answers... Keep... the Internet free Better (if done right)

  5. Things People Do “For Free” • Provide information • Write software • Label images • Answer questions

  6. WIRED MAGAZINE: ISSUE 16.03 Things People Do “For Free” • Provide information • Write software • Label images • Answer questions

  7. WIRED MAGAZINE: ISSUE 16.03 Things People Do “For Free” • Provide information • Write software • Label images • Answer questions • Provide predictions

  8. Ask The Crowd • Choose what you’d like to predict: • Let people bet on iti.e., Buy or sell share of Bird Flu Outbreak US 2008?(Y/N) I am entitled to: Bird FluUS ’08 Bird FluUS ’08 $1 if $0 if

  9. http://intrade.com Screen capture 2008/03/17

  10. What you can say/learn% chance that Hillary wins GOP wins Texas YHOO stock > 30 Duke wins tourney Oil prices fall Heat index rises Hurricane hits Florida Rains at place/time Where IEM, Intrade.com Intrade.com Stock options market Las Vegas, Betfair Futures market Weather derivatives Insurance company Weatherbill.com The Wisdom of CrowdsBacked in dollars

  11. The Wisdom of CrowdsWith Money Without

  12. The Widsom of CrowdsBacked in “Points” • HSX.com • Newsfutures.com • InklingMarkets.com • Foresight Exchange • CasualObserver.net • FTPredict.com • Yahoo!/O’Reilly Tech Buzz • ProTrade.com • StorageMarkets.com • TheSimExchange.com • TheWSX.com • Alexadex, Celebdaq, Cenimar, BetBubble, Betocracy, CrowdIQ, MediaMammon,Owise, PublicGyan, RIMDEX, Smarkets, Trendio, TwoCrowds • http://www.chrisfmasse.com/3/3/markets/#Play-Money_Prediction_Markets

  13. IEM: 237 Candidates HSX: 489 Movies The Wisdom of CrowdsWith Money Without

  14. The Wisdom of CrowdsWith Money Without

  15. probabilisticforecasts Real markets vs. market games HSX FX, F1P6 forecast source avg log score F1P6 linear scoring -1.84 F1P6 F1-style scoring -1.82 betting odds -1.86 F1P6 flat scoring -2.03 F1P6 winner scoring -2.32

  16. Experiment 2003 NFL Season ProbabilitySports.com Online football forecasting competition Contestants assess probabilities for each game Quadratic scoring rule ~2,000 “experts”, plus: NewsFutures (play $) Tradesports (real $) Used “last trade” prices Results: Play money and real money performed similarly 6th and 8th respectively Markets beat most of the ~2,000 contestants Average of experts came 39th (caveat) Does money matter? Play vs real, head to head Electronic Markets, Emile Servan-Schreiber, Justin Wolfers, David Pennock and Brian Galebach

  17. Does money matter? Play vs real, head to head Statistically:TS ~ NFNF >> Avg TS > Avg

  18. Discussion • Are incentives for virtual currency strong enough? • Yes (to a degree) • Conjecture: Enough to get what people already know; not enough to motivate independent research • Reduced incentive for information discovery possibly balanced by better interpersonal weighting • Statistical validations show HSX, FX, NF are reliable sources for forecasts • HSX predictions >= expert predictions • Combining sources can help

  19. A Problem w/ Virtual CurrencyPrinting Money Alice1000 Betty1000 Carol1000

  20. A Problem w/ Virtual CurrencyPrinting Money Alice5000 Betty1000 Carol1000

  21. YootlesA Social Currency Alice0 Betty0 Carol0

  22. YootlesA Social Currency I owe you 5 Alice-5 Betty0 Carol5

  23. YootlesA Social Currency I owe you 5 credit: 5 credit: 10 Alice-5 Betty0 Carol5

  24. YootlesA Social Currency I owe you 5 I owe you 5 credit: 5 credit: 10 Alice-5 Betty0 Carol5

  25. YootlesA Social Currency I owe you 5 I owe you 5 credit: 5 credit: 10 Alice3995 Betty0 Carol5

  26. YootlesA Social Currency • For tracking gratitude among friends • A yootle says “thanks, I owe you one”

  27. New Prediction Game

  28. Talk Bibliography • A. Ghosh, M. Mahdian, D. Reeves, D. Pennock, R. Fugger (2007). Mechanism design on trust networks, Workshop on Internet and Network Economics • E. Servan-Schreiber, J. Wolfers, D.M. Pennock, B. Galebach (2004). Does money matter?, Electronic Markets • D.M. Pennock, S. Lawrence, C.L. Giles, F.Å. Nielsen (2001). The real power of artificial markets. Science, 291(5506), pp. 987-988 • D.M. Pennock, S. Lawrence, F.Å. Nielsen, C. Lee Giles (2001). Extracting collective probabilistic forecasts from web games, Conference on Knowledge Discovery and Data Mining, pp. 174-183

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