Can Prediction Markets Test Public Policy?

Prediction markets are hot again.  With the Presidential election next week and the relative accuracy of prediction markets about the election in 2008, I decided to finish this article that I first started in March 2009, but put aside for various reasons.

What is a prediction market?  James Surowiecki, the author of the book, “The Wisdom of Crowds” explains:

The premise is that under the right circumstances, the collective judgment of a large group of people will generally provide a better picture of what the future might look like than anything one expert or even a small group of experts will come up with. [Prediction markets] work much like a futures market, in which the price of a contract reflects the collective day-to-day judgment either on a straight numberfor instance, what level sales will reach over a certain periodor a probabilityfor example, the likelihood, measured as a percentage, that a product will hit a certain milestone by a certain date.

[F]or a crowd to be smart, it needs to satisfy certain criteria. It needs to be diverse, so that people are bringing different pieces of information to the table. It needs to be decentralized, so that no one at the top is dictating the crowds answer. It needs to summarize peoples opinions into one collective verdict. And the people in the crowd need to be independent, so that they pay attention mostly to their own information and dont worry about what everyone around them thinks.

These markets have been around for a few years and have a good, if not perfect, track record.  Various studies have found prediction markets to be better than experts or public opinion polling.

But my focus is not on predicting who wins the White House or the SuperBowl or the number of coins in a large bottle.  Rather there is a use of prediction markets for government leaders testing the likelihood that a particular public policy will achieve success, especially if the policy is intended to change the behavior of people.

Often it is difficult to assess how the public will react to a proposed policy will people actually sign up for program X; will people recycle; etc.  I’m suggesting that prediction markets be used to estimate the reaction ahead of time.

Implicit in the diversity of views that Surowiecki notes is that enough people need to care about the policy.  The reason they care may be to win money, in some cases, but thats not the only reason.  They might care because the market deals with something that affects their lives.

And, the nice thing about this is that if only a few people care about a policy that also tells you something about the policy or, at least, whether youll get into deep trouble proposing it.

You can learn from prediction markets and they may be more effective predictors of policy success than traditional tools.

So far I can tell this has not really been tried yet in the way I’m describing.  The closest was in 2003, when DARPA created a Policy Analysis Market to be “a market in the future of the Middle East”.  That market looked, to critics, like a betting parlor on political assassinations by terrorists and was withdrawn.

In a more futuristic vision, Robin D. Hanson, an economist at George Mason University and a fan of alternative institutions, writes about futarchy, “a form of government enhanced by prediction markets. Voters would decide broad goals of national welfare, but betting in speculative markets would determine the policy steps to achieve those goals.”

I’m not proposing anything so revolutionary as he is.  Instead, let’s try to use prediction markets on a more experimental basis.

More background on prediction markets can be found in:

  • Wikipedia

http://en.wikipedia.org/wiki/Prediction_market and

http://en.wikipedia.org/wiki/Policy_Analysis_Market

  • When the Crowd Isnt Wise

http://www.nytimes.com/2012/07/08/sunday-review/when-the-crowd-isnt-wise.html

  • Interpreting the Predictions of Prediction Markets

http://scholar.google.com/scholar_url?hl=en&q=http://citeseerx.ist.psu.edu/viewdoc/download%3Fdoi%3D10.1.1.159.7574%26rep%3Drep1%26type%3Dpdf&sa=X&scisig=AAGBfm3lg0YqMPEHYfN6LogKNPFcL1GZww&oi=scholarr

© 2012 Norman Jacknis

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1001 Uses For Broadband?

A couple of years ago, I met with several top officials in a major state government at the peak application time for Federal broadband funds that were part of the stimulus program.  Although the Governor was committed to ensuring that 95%+ of the homes in his state would have broadband and his staff all agreed to this goal, many of them couldn’t really say why this would be a good thing.

So, in a moment of frustration in the meeting, I spent maybe twenty minutes rattling off dozens of possible things people could do if broadband were a statewide reality.  That frustration led me to start a list called “1001 Uses For Broadband” – partly, in homage to the ending of the classic late 1980s thriller “F/X” and SuperGlue.

Fast forward to last week, where I met with the OneMaryland network and Howard County officials for another broadband brainstorming session.  Using stimulus money, they’ve created one of the more interesting broadband projects, partly due to a very innovative executive, Ken Ulman. 

To get the discussion going, I put together a presentation based on the 1001 uses approach.  I’ll be sharing these ideas on this blog over the next few months, organized by category.

I hope that you and others add to the list. It really won’t be hard.  The key is to think about what broadband can do for a community, county, city, state or nation. 

The way to frame the question is: what can people do that has been hindered by travel or other significant costs? 

Next: How Can Broadband Get People Healthier?

© 2012 Norman Jacknis

[http://njacknis.tumblr.com/post/34237834202/a-1001-uses-for-broadband]

Are We Encouraging The Wrong Kind Of Entrepreneurship?

One of the most interesting centers for new ideas about economic growth is the Startup Genome project.  (See http://www.startupgenome.com and http://blog.startupcompass.co )  This is one of the few places that moves beyond breathless, anecdotal stories to real analysis of the factors in the success and failure of startups.

Its leader, Max Marmer, published an interesting blog on the Harvard Business Review site a couple of weeks ago.  It was entitled the Danger of Celebritizing Entrepreneurship (http://blogs.hbr.org/cs/2012/10/the_danger_of_celebritizing_en.html).  Like Peter Theil (see my earlier blog post at http://njacknis.tumblr.com/post/28980374812/what-kills-innovation), he is concerned about the trivialization of the entrepreneurial process and the celebration of business ideas that are just not that significant.  In turn, this causes a decline in the number of truly important ideas.

More recently, he has moved the discussion to the convergence of business entrepreneurship and social innovation.  

See  Transformational Entrepreneurship: Where Technology Meets Societal Impact ( http://blog.startupcompass.co/transformational-entrepreneurship-where-techn-11064and  Reversing the Decline in Transformational Ideas  (  http://blog.startupcompass.co/reversing-the-decline-in-transformational-ide )  from earlier this year.

This is useful reading both for entrepreneurs and those public officials whose economic growth strategy is focused on entrepreneurship – which should be one of the key foundations of that strategy in our new economy.

© 2012 Norman Jacknis

[http://njacknis.tumblr.com/post/33845838567/are-we-encouraging-the-wrong-kind-of-entrepreneurship]

Interactive Books™: How can you be right and still be wrong?

There was an interesting article in the New York Times Sunday Magazine about the history of electric cars (http://www.nytimes.com/2012/10/07/magazine/why-your-car-isnt-electric.html ).  While the specific focus was the electric car, the general theme of the article was the interplay of markets, infrastructure and technology in the deployment of new products.  

It brought to mind one of my own entrepreneurial experiences, this one with a technology product that was – and apparently still is – too much ahead of its time.  More than twenty years ago, it was clear that eventually books would become digital.  And, even in the early days of the Internet and before the World Wide Web, it was also clear that people could easily become overwhelmed by the amount of information at their fingertips.

With the artificial intelligence boom (yes there was one once) still sort of alive and practical uses of expert systems (even if they weren’t call that) coming into existence, I co-founded Interactive Books™.  The company would be dedicated to converting the knowledge found in non-fiction books into expert systems that would make that knowledge quickly and easily available.  (Glossing over a lot of technical detail, expert systems not only provide appropriate knowledge given a set of circumstances, but can also explain why it asks for information and how those questions lead to the answers it provides.)

We did ship our first interactive book, one of many we hoped to provide, but talk about the absence of a supportive ecosystem.  Almost all publishers, who also worried about digital books, looked on the company “as the enemy” in the words of one executive.  It also didn’t help that technology was not as widely deployed among the general public as it is now or that we had to also invent our own windowing system 😉 Ah, the mistakes of a young entrepreneur.

The funny thing is that the concept makes increasing sense.  I get too much information, and too little knowledge, each time I ask a question of Google and get back 2,000,000 search results, none of which quite answers my question or helps me understand something that I need to understand.  We now have all this stuff to read and no possible way to read it all.  Even if we could, we’d end up not necessarily mastering the knowledge we hoped to. 

To a degree, Wikipedia helps by having others condense knowledge.  But it’s still a lot of reading and not necessarily to the point.

So wouldn’t it be wonderful to have truly Interactive Books™?  Yes, but even though the ecosystem is better now, it is not sufficient, so it is likely still too early to bring such a thing to market.  But we’re still ready at the first sign of light!

And that’s how you can be right about a product, and still be wrong about a business.

© 2012 Norman Jacknis

[http://njacknis.tumblr.com/post/33314225764/interactive-books-tm-how-can-you-be-right-and-still-be]


A Fundamental Decision Making Flaw in Public Officials?

Are our public leaders flawed because they were selected as public leaders? 

The answer would seem to be yes, according a paper by four academic researchers on organizational behavior, which I came across recently (although it was published last November).  Its title and subtitle make the point: “The Decision-Making Flaw in Powerful People: Overflowing with confidence, many leaders turn away from good advice.

Some of their key findings:

“this paper finds a link between having a sense of power and having a propensity to give short shrift to a crucial part of the decision-making process: listening to advice. Power increases confidence, the paper’s authors say, which can lead to an excessive belief in one’s own judgment and ultimately to flawed decisions. …

"In addition to confirming the previous experiments’ finding that more powerful people were less likely to take advice and were more likely to have high confidence in their answers, this final experiment showed that high-power participants were less accurate in their answers than low-power participants. …

"For one thing, organizations could formally include advice gathering at the earliest stages of the decision-making process, before powerful individuals have a chance to form their own opinions. Encouraging leaders to refrain from commenting on decisions publicly could also keep them from feeling wedded to a particular point of view.”

Whether or not you might find this research conforms to your own experience, the last point – gathering in lots of information before the public leaders decide – is certainly not an unrealistic suggestion to improve decision making in many cases.  Today, the Internet and the collaborative discussion tools it offers can make this happen fairly easily. 

© 2012 Norman Jacknis

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