Monday, Feb 6, 2006
Good
afternoon again Ladies and Gentlemen. For
those of you who I have not already met my name is John
Delaney and I am the chief executive officer of Trade Exchange Network,
parent company of Tradesports
and Intrade
among other sites. It
is a real pleasure to be at this gathering and meet with
many old friends and new. I have learned a great deal already and the
day is still young. Mike
Knesevitch
our Director of Communications whom I believe
most of you already know from his attendance at the West Coast
Prediction Market Conference in December 2005 is also here today. This
time has been allocated to us to talk about our platform
and organization but we expect that you are already very familiar with
Intrade and Tradesports. We would rather, with your indulgence, talk
about something else. What we would like to talk about are Risks to OUR
Industry and how WE can use Prediction Markets among other things to
consider and minimize those risks.
Within the constraints of the time if you have any questions
we would love to hear them at the end. Let
me start with a prediction
of my own. Our industry is about to
experience a period of massive
growth. Growth in the region of 500%+ year on year will be achieved
I
believe. Exactly when that will happen, I will not predict, but it will
happen! This
growth probability is just one of the reasons why I am
absolutely thrilled to be involved in this industry of ours. However
against the reward that this growth can offer to us all the industry
related risks are all the more concerning. Over
the last few weeks I have communicated with friends of
our Exchange some of who are here and others such as Justin Wolfers,
and Robin Hanson, (we all wish him a speedy recovery) on what they saw
as some of the most significant risks to our industry.
While many potential risks exist we see the most significant
being... Lets
discuss these risks briefly Lack of Mainstream Validation:
We all believe in the
predictive power of our markets but I believe the USE of the predictive
information needs to be validated more strongly. Until this happens I
believe our industry is at risk of not achieving all that it can. The
closure of the DARPA
sponsored project
which Robin Hanson
was involved in would have been a validation, possibly a great
validation. Had the project lived the US Department of Defence would
had directly validated prediction markets. That would have
been
very supportive of
our industry.
Anecdotally we spoke to Newsweek
just after the closure of
the PAM project and I recall the journalist in question could not
understand why we were so disappointed as a result of the closure.
Other potential risks stem from the possibility of a material
negative shock or shocks. PR Shock: For
example lets assume that our political markets that
showed strong predictive power for the 2004 US political presidential
did not do a good predictive job for the 2006 mid-terms. We would and
should fully expect that it would be newsworthy how
?poor? the markets predicted the outcome. Of course
we do not predict that this will happen but it is possible and
therefore a risk.
Similarly lets say a corporate entity announced that the
much-hyped prediction markets had caused it to misallocate significant
resources to a project and therefore the company would not meet
earnings estimates. Fragmentation and Illiquidity:
Where public markets are concerned fragmentation and
illiquidity is far from optimal. Fragmented and illiquid markets
deliver a bad customer experience. They enter orders and their orders
are not taken or see no resting orders. There is some correlation
between liquidity and the level of involvement and the predictive power
of a market. It was great to hear that Chris Hibbert was concerned with
same fragmentation and illiquidity issues and suggested co-operation
and standardization may help.
However against that concern relating to illiquidity and
fragmentation is the concern about dominance. Our industry at its early
stage of development is unlikely to be served well by a single dominant
player. Lets say a single platform were to ?own?
the entire space innovation as just one example may be compromised. Fatigue with Prediction Markets:
The final thematic risk is a slow
development of a belief that prediction markets are just a fad. The
longer our industry is around without additional significant mainstream
validation the greater this risk becomes. Now
lets move on from our 4 identified risk themes, lack of
sufficient validation, a major shock or shocks, illiquidity /
fragmentation and lack of interest in ?The Prediction Markets
Fad? to some things we can do as a crowd to help. OK,
so they are some of the risks, of course there are more
now lets consider the responses that we can and should take. Lack of Validation:
What can we do to validate the markets
and show the way to others. Well I think there is a lot we can and
should do. And I think we should do it now without delay. Negative Events:
Lets assume there is a negative event it
will happen. Sometimes people read a market that is 90 bid that it
will absolutely happen. Statistically this market will not be
predictive 10% of the time. Many people do not understand this. So,
lets anticipate the negative event or events and prepare
for them now and not go scrambling to respond if there is a problem. Fragmentation: Lets
co-operate and co-ordinate where we can
and minimize fragmentation. For example co-ordination relating the
specification of contracts that are ubiquitous would be beneficial and
enhance general understanding of the public. OK,
so they are just some of the generic and thematic
responses we can and should consider. However I would like to make a
firmer and specific request that we should consider and then execute
on. Lets
develop on the great work of these meetings and go the
next step by creating an
industry association. Our association should
be very transparent and for everyone interested in prediction markets
and not just operators. It should represent the industry in the widest
sense. Our
industry association can do all the traditional things
associated with an industry association such as lobbying, representing
and sponsoring. But it can also so many unique things.
First it can launch a
world?s first industry
prediction market. Let the prediction market have its own
prediction
market. ?The Prediction Market Industry Prediction
Exchange?. And lets do it now. It was great to hear Thomas
Malone (MIT) and Bo Cowgill (Google) suggest we co-operate.
Ladies and Gentlemen: there is Windom [in] Crowds but there
is also Strength in Numbers.
Furthermore our prediction market association, and I talk
about it as it is already in existence, can have a multi platform
(TradeSports / News Futures, Iowa, etc) database of results
and how
various trading categories did. This publicly accessible information
can protect against an aberration (markets that do an unexpectedly poor
job of predicting) if it were to happen or possibly limit PR related
damage if it did.
Finally our industry association can do the standard things
that all such associations can do. For example sponsor research, act as
a forum for the extended community and lots besides. Lets make this happen!
OK
lets try a little experiment. www.predictionx.com
is a URL we registered recently to run
this little experiment. Our experiment lists 6 or 7 industry relevant
contracts such as: On
the back of my business card you will fine a unique login
and password. I ask you all to login and contribute your opinion to the
collective wisdom. The results will be clear for all to see and should
convince those who need convincing that risks exist. We can use this
platform to list additional claims / contracts of course. In
conclusion, we are in a
fantastic young industry with
massive potential. However there are risks. Risks that we
all face both
individually and collectively. We address our individual risks
internally but the collective risks should be addressed in a
co-ordinated manner. We
at Trade Exchange
Network are very keen to work with you
all to address these risks and will be proactively
reaching out to
relevant parties in the near future. Thank you. It
will be a pleasure to hear your questions now!