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Challenges of Bringing Information Markets to the Organization

Challenges of Bringing Information Markets to the Organization

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Challenges of Bringing Information Markets to the Organization

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  1. Challenges of BringingInformation Markets to the Organization

  2. Outline • Foresight Exchange (FX) Software Overview • General Industry Experience • Specific Challenges • Case Study: Siemens • Overcoming the Challenges

  3. Foresight Exchange (FX) Overview • First web-based Idea Futures market (1994) • V2.0 running continuously since 1996 • http://www.ideosphere.com • Many science/technology claims • Public access; play money • Small footprint: customer can install in-house • User interface somewhat lacking…

  4. Foresight Exchange Overview (Cont.)

  5. Industry Experience Overview • Approximately dozen organization have tried FX to forecast: • Project completion dates • Sales figures • Natural disasters/humanitarian crises • Sports wagering (briefly!) • Most efforts seem to follow general script…

  6. General Industry Experience (2) • General script: • Someone in organization gets excited by prediction markets • …champions concept in-house • FX software installed and set up • …markets often languish

  7. Types of Challenges Encountered • Technical • How do I use the software? • Conceptual • How do these markets work? • Credibility • Do these markets really work?

  8. Technical Issues • Software installation (minor) • Integration with in-house systems • Ease of Use (less minor) • Trading syntax confusing • Navigation Issues • Symptomatic of deeper problem…

  9. Conceptual Issues (1) • Trading mechanics • “FALSE” (negative) shares confusing • Relationship between TRUE and FALSE shares • Initial market price also confusing • Short selling in general poorly understood • Placing orders on the book • Reveals too much information?

  10. Conceptual Issues (2) • Claim wording ambiguities • Bounded price range sometimes insufficient • What information does market provide? • Does $0.80 really mean 80%? • What does the spread indicate?

  11. Credibility Issues (1) • Are these things a good idea? • Uneasy with market metaphor • Do these things really work? • Better than conventional methods?

  12. Credibility Issues (2) • Adverse effect on employees • Don’t employees have real tasks to do? • Trading competition unhealthy? • Adverse effect on company • Project X team is short-selling project X claim… • Adverse effect on management • Market distributes power

  13. Case Study: Siemens AG • Two advocates • 1 in-house, 1 academic (Gerhard Ortner) • Asked to use software in late 1996 • Trial license agreement soon nailed down • Markets didn’t start for another 6 months

  14. Case Study (2) • Management initially very skeptical • “I don’t get it.” • FX co-creator joined the discussion • Flew to Europe, enlightened manager • Market started in May, 1997 • Predict completion of customer project • Ran for a few months, but then…

  15. Case Study (3) • Random Act of Customer Intervened… • Customer paying for project pulled out • New market started • Same idea, different project • Better outcome • Accurately predicted 2-3 week completion delay

  16. Case Study (Summary) • Experiment ultimately successful • Required much oversight • 3 people needed to convince management • Considerable effort during experiment itself • Unclear if prediction markets still in use

  17. Overcoming the Challenges (1) • Organizational commitment critical • Advocate(s) need management buy-in • Must see markets as more than “game” • Mitigate technical/conceptual issues • Intuitive user interface can help • Hide trading complexities

  18. Overcoming the Challenges (2) • Address fundamental concerns • Do these markets really add value? • Are perceived disadvantages real? • Some of these are open questions

  19. Conclusions • Concept is compelling • Not in the mainstream (yet) • Face implementation, conceptual challenges • Can be successfully applied