Inkling Markets Using Prediction Markets Nathan Kontnyy Inkling

About our company

» Founded in 2005, based in Chicago, IL

» Notable clients across a wide array of industries: Chevron, Capital One, CNN, Procter & Gamble, Sears, Cisco, Johnson & Johnson, U.S. D Department t t off Energy, E U.S. U S Intelligence I t lli C Community, it M McKinsey Ki &C Co., The World Bank, Wells Fargo, Ford Motor Company, RFMD, Koch Industries, CSX

» Recognized in 2008 by Gartner and Forrester as a “hot” company

» Prediction market platform, Inkling Markets, has processed over 2.5 , questions q million trades in over 16,000

FACT: It is illegal to predict the future in Yamhill, Oregon O

Contents

What is a prediction market? So what? Examples Challenges

What are prediction markets?

We can look to a popular television show to explain what prediction markets are: In “Who Wants to be a Millionaire,” when contestants get stuck, they have three lifelines: » 50/50 Eliminate two of the four answers

» Phone a friend Call whoever you want to get help

» Ask the audience (93% accurate) Use the highest percentage answer from the audience

A prediction market is like “asking asking the audience.” audience.

What are prediction markets?

An Example: How does senior management determine if a competitor’s new product represents a serious threat? Ask a group of employees:

At the opening p g of the market, all positions start at the same price, with the total equaling $100.

What are prediction markets?

The stock price equals the probability of that answer being correct.

In this example, as people learn more about the product, they think there is a 32% p probability y that the market share will be between 2% and 5% at year end.

Why?

» Why I got into this business in the first place

» Thrashing

» All your status reports are green

Seth Godin

Software Project Survival Guide – Steve McConnell

One of the most widely documented effects in social psychology is the preference of most p p people p to see themselves in a self-enhancing fashion … On the O th job, j b approximately i t l 90% off managers and workers rate their performances as superior to their peers. - (Meindl and Ehrlich, 1987)

Accuracy

Inkling

Perfect

Frequ uency off Occuren nce (%)

100 90 80 70 60 50 5 40 30 20 10 0 5

15

25

35

45

55

6 65

75

8 85

Stock Price (Predicted Probability)

95

Where companies are using them

Project Risk Early Warning

Product Lifecycle Management Insights

Strategic and Financial Forecasting Insights

Consumer Services

Case Study: Consumer Products and Goods

Business Problems: » Over-optimism O i i

in i fforecasts and d cost-saving i iinitiatives ii i leading to unrealistic decision making on projects

Types of Questions Asked: » Will

the product design packaging prototype make it to production?

» Will

[team] be able to resolve the [issue] by the end of Q1?

Case Study: Consumer Products and Goods

» The

crowd knew in May that it was unlikely “X” packaging would drop from project scope scope. The official decision to drop it was made in July.

»5

out of the 7 $$ winners were employees low in the command hierarchy. hierarchy No one would have officially asked their opinion before.

» Top

3 losers were project stakeholders that were p lling for the inno pulling innovative ati e packaging packaging.

Case Study: Telecommunications

Business Problems: »New

products being released with significant quality issues »“Organizations often exploit this far beyond its useful limits by treating g these individual commitments as a form of insurance policy on achieving the estimate while the estimation process then turns into a contract negotiation.“ Types of Questions Asked: »Will

‘x’ bug appear in product testing?

»How

many critical bugs will be outstanding on ‘y’ date?

»When

will competing product ‘z’ be released?

Case Study: Telecommunications

» “Markets

force project leaders to create measures of quality (bug counts and trends) trends).“

» “Sharing “S

these metrics with the staff ff on a regular basis through the markets reinforces the true shared ownership ownership.“

» “Greatly

reduced workload in project management accounting. The tracking and reporting is easily a tomated ” automated.”

Case Study: Top 3 Big Box Retail

Business Problems: » “Our Our organization is comprised of many individuals, individuals often widely dispersed, each with access to small, idiosyncratic bits of relevant information.” » “C “Customer t facing f i associates i t hold h ld significant i ifi t insights i i ht b butt h have th the fewest access points to decision makers.” Types yp of Questions Asked: » What percentage of total home appliances sales will come from [product category] in January 2009? » What will be the increase or decrease in sales of [product category] for January ’09 in comparison to ’08? » Which of the regional mangers will have the highest increase in sales in May 2009? 20

Case Study: Top 3 Big Box Retail

» “Sales

in January 2009 indeed beat the traditional f forecast t by b $2m $2 vs. JJanuary 2008 2008.““

» “Nothing

to sell but old games. The department is embarrassing…”

» “With With

customers receiving their income taxes taxes. Their first purchases might be electronics or to replace their appliances.”

Challenges

» “Any

market that is proposed requires a very public high integrity and regularly maintained public, metric that has a clear audit trail.”

» “Getting

meaningful attention from senior leaders.”

» “Keeping

the organization’s attention…Driving awareness: viral - e.g. word of mouth, company blogs, message boards, etc.”

Additional Information

Product web site: http://inklingmarkets com http://inklingmarkets.com Contact information: [email protected]

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