Research Virtual Currency Case Study Prediction Markets David

Research Virtual Currency Case Study: Prediction Markets David M. Pennock Yahoo! Research

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

Research

Research

Research worse. . . i would not pay it would make things worse. . . I would not pay Not many people would buy it. . . less answers. . . I would die immediately. Nobody will pay. . . Keep. . . the Internet free

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

Research

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

Research Things People Do “For Free” • • Provide information WIRED MAGAZINE: ISSUE 16. 03 Write software Label images Answer questions

Research Things People Do “For Free” • • Provide information WIRED MAGAZINE: ISSUE 16. 03 Write software Label images Answer questions • Provide predictions

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

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

Research The Wisdom of Crowds Backed in dollars • 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 Stock options market Las Vegas, Betfair Futures market Weather derivatives Insurance company Weatherbill. com

Research The Wisdom of Crowds With Money Without

Research The Widsom of Crowds Backed in “Points” • • • HSX. com Newsfutures. com Inkling. Markets. com Foresight Exchange Casual. Observer. net FTPredict. com Yahoo!/O’Reilly Tech Buzz Pro. Trade. com Storage. Markets. com The. Sim. Exchange. com The. WSX. com • Alexadex, Celebdaq, Cenimar, Bet. Bubble, Betocracy, Crowd. IQ, Media. Mammon, Owise, Public. Gyan, RIMDEX, Smarkets, Trendio, Two. Crowds • http: //www. chrisfmasse. com/3/3/markets/#Play-Money_Prediction_Markets

Research The Wisdom of Crowds With Money Without IEM: 237 Candidates HSX: 489 Movies

Research The Wisdom of Crowds With Money Without

Research Real markets vs. market games HSX FX, F 1 P 6 probabilistic forecasts forecast source F 1 P 6 linear scoring F 1 P 6 F 1 -style scoring betting odds F 1 P 6 flat scoring F 1 P 6 winner scoring avg log score -1. 84 -1. 82 -1. 86 -2. 03 -2. 32

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

Research

Research Does money matter? Play vs real, head to head Statistically: TS ~ NF NF >> Avg TS > Avg

Research 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 forecasts • HSX predictions >= expert predictions • Combining sources can help

Research A Problem w/ Virtual Currency Printing Money Alice 1000 Betty 1000 Carol 1000

Research A Problem w/ Virtual Currency Printing Money Alice 5000 Betty 1000 Carol 1000

Research Yootles A Social Currency Alice 0 Betty 0 Carol 0

Research Yootles A Social Currency I owe you 5 Alice -5 Betty 0 Carol 5

Research Yootles A Social Currency I owe you 5 credit: 5 Alice -5 credit: 10 Betty 0 Carol 5

Research Yootles A Social Currency I owe you 5 credit: 5 Alice -5 credit: 10 Betty 0 Carol 5

Research Yootles A Social Currency I owe you 5 credit: 5 Alice 3995 credit: 10 Betty 0 Carol 5

Research Yootles A Social Currency • For tracking gratitude among friends • A yootle says “thanks, I owe you one”

Research New Prediction Game

Research 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