Tuesday, April 26, 2011

Prediction markets

Prediction markets are only effective if a lot of people participate.  What are the best ways to encourage more traders and trading within internal company prediction markets?

As Cowgill suggested, we should combine financial rewards (cash, gift certificates etc.) with other incentives: social rewards, processes, infrastructure, and even perception.

Social rewards play a key role here since usually play money is used instead of real money and financial incentives are very decent. For these reasons, we should not make it anonymous. Everyone should know other players so that they have incentives to play better and more seriously. People are as competitive and caring their "faces" in games as in work and life situations. 

For processes, a market and its outcomes should be selected so that most, if not all, people are interested in the market and have some uncertainty about the outcomes. This would attract more people like Dolores Haze, who stated "It didn't tell me anything I didn't know; it just confirmed my intuition."

Infrastructure can be very broad but some specific examples are: 1) make the user interface very simple and at the same time attractive and 2) provide various tools and data for each market and its outcomes to help users get started and do further research.

Perception of prediction market participation is also important. Some people may be concerned that if they participate very actively, their co-workers may think they are not doing their "real" jobs. Therefore, specify the maximum time they can spend at work for this activity and then use their non-work time. This can discourage some people from participating but then help many more people participate actively and confidently.

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