Cashing in on Online Prediction Markets

garzpacho writes "BusinessWeek takes a look at the use of prediction markets to forecast business success. These markets have been taking the form of games online--the Hollywood Stock Exchange, for example, allows players to bet on the success of movies. Hollywood is currently one of the largest consumers of prediction market data, in part because movies' broad appeal leads to a large number of players, but also because the markets have been surprisingly accurate--92% in picking Oscar winners over the last three years. Because of this success, other industries are taking a look; pharmaceutical and tech storage businesses are currently working to set up their own markets."

Comments

Well, duh (re: Hollywood)

[truthsearch]

The Oscars are a popularity contest, so of course a prediction market will be accurate. Plus everyone knows if you throw in a mentally challanged main character or uglify a hot actress you're 10 times more likely to win the Oscar.

Re:Well, duh (re: Hollywood)

[TubeSteak]

The Oscars are a popularity contest, so of course a prediction market will be accurate.

I find myself agreeing with that sentiment.

From TFA: "The Hollywood Stock Exchange gives traders just enough information to be able to play the market."

You don't have to worry about risk to predict the success of a movie.

To do predictions for something like pharmaceuticals, you need vastly more technical information... something that pharma companys are loathe to part with (results of unreleased clinical trials for example).

Otherwise, you're just guessing at the risks involved.

Google

[Anonymous Coward]

When Google went IPO, I wanted to join in but had no idea what price it was going to emerge at and didn't want to overbid. Then I found out an exotic derivative was being marketed, betting on Google's IPO price. I watched the price of the derivative over the next few weeks; it stayed fairly stable, and I used its value to choose my price. The end result? I placed several bids at different values, and the lowest value I chose was $4/share over the final IPO price, meaning my entire order was executed (though neither I nor anyone else got the full boat).

Apply this to CS

[neonprimetime]

Maybe we should do this for Source Forge projects? Then we know which ones we shouldn't waste or time on.
Or, we could do this with Linux Distros so we know which ones we should just abandon before wasting all our efforts.

Re:Surprising?

[andrewman327]

Applying this system to business (especially pharmaceuticals) is a horrible idea. Oscars are selected in part by popularity. Of course the most popular movies will have the most votes. Predicting if Levoxyl can outsell Synthroid in the Pacific Northwest in Q1 2007 is another proposition entirely. I remember that the DoD tried something like this with terrorism but cancelled it because of public outrage.

No real money involved?

[ArcticCelt]

I understand that there is no real money involved. Do someone know a "good or recommended" web site with similar concept where you can cash on your knowledge and instinct?

I just did a search and found two but I am not sure if they are any good:

http://www.intrade.com/ where you can in many political, entertainement and world events

http://www.tradesports.com/ Mostly sports but also a bit of world events

Old field

[tansey]

This is actually a fairly old field of statistics. The story goes that a mathematician at a state fair saw there was a contest to see who could guess the weight of a pile of recently slaughtered beef. Everyone was allowed to guess at it: farmers, house wives, butchers, etc. In the end, the experts (i.e. the butchers) didn't win, and their answer was off by about 10%. However, the total of all the answers, averaged, was off by only .2 lbs.

This sparked the idea that the knowledge of the whole group can lead to better answers than the knowledge of a select group of experts. It's also been shown to be true with things like artificial intelligence and mathematical proof programs.

So it seems like hollywood and the like have just finally realized that the entire group of people can do better at predicting movie success than just some panel of marketing experts.

Re:Surprising?

[timeOday]

Applying this system to business (especially pharmaceuticals) is a horrible idea.

Uh, that's what the stock market is. I'm not saying it's accurate, but it is how resources (money) are allocated in our global economy. "Betting on futures" for a movie? It's just a little more direct than buying stock in Sony.

The article didn't mention the flu market...

[exp(pi*sqrt(163))]

...discussed here where you can buy stock in your favorite flu virus. Apparently it performs well in predicting flu outbreaks.