Prediction Markets Can Increase Transparency, Engagement & Answer Tough Questions

In today’s conversation Robin Hanson talks about activating and engaging internal stakeholders, while increasing transparency around tough and complex issues.

Prediction markets can increase trust, engagement, and elicit honest “answers” to tough questions. Dr. Hanson often uses the term prediction market, but they are also known by the term futures market, or a betting market.

Key feature: You can ask an exact question to a complex problem and the market will find the answer

To put prediction markets to work you need a question that will (in the future), have a clear answer. You also need folks who think they know the answer and are willing to “bet” they are right. Winners get a financial windfall and often the satisfaction (and peer recognition) that they are right!

Click here for a transcript of this conversation

Some implementations of these markets use play money, and only internal or external reputations are at stake. However, when used internally some companies give stakes to everyone involved, and at the end of the market the winners take home their winnings.

If we assume the answers are accurate, is this type of market it worth the price? “I think it depends on the value of the questions you are asking” Harry Hawk

Public prediction markets can operate under the authority of commodities exchanges. In the early 90’s I was an early trader on the IOWA Electronic Market which is famous for it’s US Presidential market and has been running since the late 80’s. Robin notes in the US it is illegal to operate a commodities (e.g., futures) market in onions, or in movies. Clearly onions are a gateway produce.

The “betting” nature of these markets is engaging and that is why these types of markets, and leader boards and other meta-data around them are truly engaging with stakeholders. Of course, betting and following these markets could eat into the time folks would otherwise spend working; probably time everyone is already wasting on social media.

Robin notes the cost of the time spent is the real cost of these markets, “don’t be chintzy with the stakes.”

Markets can operate on an ongoing basis or can have fixed periods ending just before an election or before quarterly results are announced. You might want a market to answer questions like the share price at the enhowed of the quarter, earnings, etc. You could even ask how good a department head, or even how trustworthy a CEO is; which i’m willing to bet few CEOs would be willing to entertain.

Someone has “betting” odds on the Tesla Model 3

Honesty (or at least honest answers) is one of the core attributes of prediction markets. While that may keep some companies from embracing this idea, I think it has a role to play in crisis management. A company that has had its reputation tarnished like EF Hutton many years ago, or Wells Fargo today — they could address this crisis of confidence by transparently operating (in public) a prediction market. The more tough-minded the questions (I think) the more powerful a message the market would send. In a crisis there can be damages to the relationships with internal and external stakeholders and uniquely such a market could help heal both.

Another application is in predicting product ship dates, or quality or both. For example a car company like Tesla which is known for creating amazing cars is also known to miss shipping dates and for