Turning The Economist into an economy
The first in a series on the ideas we received
Wikis. Blogs. Social networks. When we started gathering ideas two weeks ago, I expected we would get a lot of submissions related to the concept of user-generated content (and we did, as the tag cloud next to our idea submission form shows – a subject for a future post). Yet there were also a dozen entries in an area where I did not think we would receive much input: prediction, information or decision markets.
For those not familiar with the concept: these are speculative markets set up to make predictions on the outcome of a particular event. The most popular example is the US presidential election. People can bet on one candidate by buying a “contract”, essentially a promise of the seller to pay, say, a dollar if the candidate wins and nothing if he or she loses.
Those certain of the candidate’s victory should be willing to pay up to a dollar for this contract (they’ll pocket one dollar minus the price they paid). Those confident of a loss should want to sell such a contract, expecting to be able to keep the money they got for it (and not having to pay the one dollar to the buyer). Given enough buyers and sellers, this market should establish a price for the contract – which represents the probability of the candidate’s victory.
Although this may sound somewhat complicated, such markets have been around for over a decade – and have rather a good track record. The Iowa Electronic Market, for instance, which was launched in the late 1980s, predicted a narrow win for George Bush in 2004 (see chart above). Wikipedia lists some 30 websites offering prediction markets in one form or another. Their main differentiator is whether they use real cash (Intrade, HedgeStreet and WeatherBill) or play money (Foresight Exchange, inkling markets and NewsFutures). Whatever the currency, most predict a democrat to end up in the White House in 2008. Here is a chart of the relevant market on NewsFutures (the figure to the right is the current probability of a democrat winning):
Most contributors in this area would like The Economist to launch an online service allowing subscribers to participate and even create such prediction markets. “The Economist has a perfect userbase for running policy analysis markets. Every article should have a sidebar with the relevant market(s) displayed”, suggests Mike Linksvayer. And Scott Harper writes: “Implement online decision markets for Economist subscribers. Open at least one every month with a 12-24 month maturity. Each will relate to a featured article and let subscribers compete with peers in a running points total.”
Some added a special twist to the concept. Rafe Furst wants us to develop a system for “truth claim markets”, which amounts to using markets not to predict future outcomes, but to evaluate current truths – a tall order. Nathan Miller proposes “an index for worldwide memes, ideas, and trends that rates their popularity and value much like a stock index”. And Randall Burns suggests using prediction markets to identify individuals with good prediction skills and tap them as a resource for The Economist.
Perhaps the most intriguing ideas are those suggesting The Economist should create its own private currency, which subscribers could use to make bets on prediction or other markets. Simon Stuart, for instance, suggests that every Economist subscriber receive one thousand Economist dollars per year to trade. This triggered another thought within the Red Stripe Team: Why not let subscribers earn some money (by contributing to a wiki, for instance) and spend it (by donating it to a charity of their choice)? Now there’s an idea: turning the Economist into a real economy.
(In addition to those mentioned in this post, we would like to thank all those who have contributed suggestions related to prediction markets.)
March 23rd, 2007 at 11:51 am
Hi Stuart,
Hey a Web 2.0 conversation. Let’s meet up for a beer definitely. I can honestly say that our projects won’t overlap in the slightest…
Mat
March 23rd, 2007 at 11:51 am
Ooh. Moderation, eh….
March 26th, 2007 at 10:30 pm
You wrote, “… prediction, information or decision markets.” However, the correct terminology is “prognosis market” (aka “prognostic market” aka “P2P betting futures”). We need to be very careful about using terms carefully and consistently.
March 27th, 2007 at 5:22 am
I think Yahoo Buzz Game is already doing Nathan Miller’s suggestion:
http://buzz.research.yahoo.com/bk/market/index.html
April 12th, 2007 at 11:13 pm
Good stuff especially with the pedigree of the Economist’s readership. Though make sure its secure. Cunning so and so’s aware of such a readership may be willing to do whatever it takes to game the system, knowing that Economist readers often being worthwhile folks may take the results of such Economists reader markets into consideration thus creating self fufilling prophecies etc.
April 13th, 2007 at 6:49 am
It’s Songkran day here in Thailand and outside kids are throwing water. Thanks for asking me to make comments. Can I make a full reply on all subjects after the 20th as I’m now on holiday?
But just a quick one on the prediction market. I doubt this market would attract people who matter. I mean someone like Warren Buffett would never waste his time going inside. Added the professional gamblers and hedge-fund operators, what would then be its use? Better leave it as an intellectual pursuit and something done in small circles.
However, I saw you mention “the Economist should create its own currency”. For the past weeks I’ve been thinking about how to adopt and deploy your Big Mac currency as standard currency in the Economistplace.com online marketplace.
Briefly it’s this: at first you would have all transactions done in U.S. currency and at the same price of one US dollar. Yes, every item on sale there would cost only one dollar. Which in case of a newspaper it will be one dollar whether it is in newsprint or digital form.
Of course this would bring complaints about currency-exchange inequity. So after a long while you would announce you would solve the problem by switching the transacting currency from US dollar to Big Mac.
Issuing and distributing own currency for worldwide online use will be a big, big business. So far I have got its name already which is BMC and its symbol a small, rough sketch of a hamburger. Done properly this currency can be the standard currency of the online world.
I will write you again in about 10 days.
Regards,
K Kumragse
April 13th, 2007 at 9:17 pm
I think the idea of a truth market is fantastic.
I think it would be a great way to “call out” politicians, journalists or anyone making claims in public.
I speak from a personal experience that could have received some justice with such a system. We had a politician make a public statement against our company (in a press release) as an attempt to get publicity. I am highly confident he did not believe the statement had any truth to it or at least made the statement with complete lack of knowledge of the situation. But he received a great deal of press as a result of his statement. It was later proved to be false, but he was able to get out of the entire situation achieving his primary goal - positive publicity without any recourse.
A politician with a large number of truth claims valued close to zero in the market would likely be a telling sign.
It would also be interesting to see what politicians actually make statements that could become truth claims. Those without many truth claims are likely to be the type of candidate that speaks a great deal without proposing goals for his/her term and without taking a definitive side on an issue.
April 14th, 2007 at 3:00 am
Great to see you guys included Prediction Markets among your short list. Of course I’ll be hoping it gets chosen, your publisher has a fantastic user base for it.
Also, abit belated but better late than never, well done to the Economist Group for creating Project Red Stripe and the team, keep up the great work! I wish I was in London still so I could take you all for a pint.
I’ll be following your projects closely…
Kind regards
Brad Inggs
Eventis Capital
Predition Market Intelligence