Posts Tagged ‘Prediction Markets’

The TPS Report hits the road

May 1, 2013
Conférence supply chain

Random Supply Chain Conference. Conférence supply chain (Photo credit: Pierre Metivier)


Well, I wouldn’t say we ‘hit the road’ exactly…unless by hitting the road, you mean that we pressed the little green button on Skype.


Anyway, friend of the blog, Dustin Mattison made a mistake invited me to discuss how prediction markets could be used in the supply chain, commodity modeling, and solving problems through data analysis among other topics.


Did I have anything intelligent to say? You’ll just have to click over to the Future of Supply Chains Blog to find out.




Links and brief notes

June 6, 2012
Michael Scott (The Office)

Michael Scott is painful, yet funny. (The Office) (Photo credit: Wikipedia)

  • I would probably not have found “The Office” funny coming out of the Army. I do find it hilarious now as I have been awakened to the fact that Michael Scott is very real.
  • A prediction market from PredictWise has Romney gaining ground on Obama. I take no public position on the race, but wanted to point out that prediction markets do better than standard polls, so take note, Mr. President.
  • I’m a fan of Jeff Haden’s work. In this article, he offers his advice that is, while somewhat unique to him, probably a good indication of many bosses. However, while reading it, I couldn’t help but think about how poor interviews are as a proxy for job success.
  • People that engage in intellectual activity are thinner than those who like shopping, playing cards, going to sporting events, and socializing. TPS report is not surprised. Even better is intellectual activity plus exercise.

Prediction markets are slowly gaining traction

December 17, 2011

The world is slow to adopt new things. Certain countries – and sub-cultures within countries –

appreciate rules more than other coIowa Prediction Marketuntries.

For example, Silicon Valley has rarely met a rule that they didn’t want to eliminate or disprove.

Prediction markets, while susceptible to a black swan event, are the best way to rapidly assess the probability that an event will occur. Yahoo!, who are not exactly known for being on the frontier of the tech world, has decried that the nomination for the Republican presidential candidate is a dead heat based on the results of ‘prediction markets.’ Exactly which prediction markets is not clear from the article (although they mention PredictWise as an afterthought), which you can find here.

Whether Romney, Gingrich or Paul goes on to win the Republican nomination does not interest me a great deal. What does interest me, is that prediction markets are the headline, while traditional polls are an afterthought.

The world will get there…just don’t hold your breath.

Related articles

Leadership, Crowdsourcing, and inspiration

August 18, 2011
Gary Hamel

Image by Hammock Inc. via Flickr

Self-organizing groups have tremendous power. The Linux operating system,,, and others have proven this concept to work. Not to mention the power of the crowd to predict, which a certain internet hack has been yammering on about for quite a while now.

The hierarchical model, and leadership involving high degrees of control and manipulation that goes with it will most likely always be around – humans, after all, seem to have this hard-coded from thousands of years of evolution. But this patient, thankfully, is wasting away.

For more on this, check out Gary Hamel and Charlene Li discussing Li’s new book on leadership here.

We think self-organization works because it taps into people’s drive’s and motivation rather than always relying on the carrot and the stick. Hamel and Li posit that new technologies, specifically social media, have facilitated the democratization of decision-making. There are also some great analogies involving the Soviet Union and recent events in Egypt.

People’s ability to collaborate in a non-hierarchical way will always face barriers, but was always bubbling below the surface. Whether it is social media or something else that is facilitating its current rise, we can’t be sure. The important thing is the rise itself.

The return of the dillettante – yeah, baby!

July 26, 2011
Cover of "Crowdsourcing: Why the Power of...

Cover via Amazon

It’s about time. Taylor’s been dead for almost 100 years, but we’re still struggling to get rid of him. Crowdsourcing may well add another nail.

What is crowdsourcing? Glad you asked – and thanks to those who voted in the recent poll. Crowdsourcing taps into the power of all you braniacs out there without bothering to go through the HR hassle of actually hiring people. I can see Bob Nutting getting all giggly at the very thought.

There will be plenty more to come on the topic, but I want to focus in on one aspect – the rise of amateurism. Or to put it another way – the return of the dilettante.  Jeff Howe in Crowdsourcing: How the Power of the Crowd is Driving the Future of Business goes through a very brief – and most likely a bit revisionist and oversimplified – history of education.

His theory is that people are now overqualified for many of the jobs we are doing. The PhD in chemistry is working as a quality supervisor. The PhD in classical Greek literature is a stock broker on Wall Street. The star MBA’er with a passion for Tolstoy is working in procurement (I couldn’t resist). What was a passing interest picked up during our eye-opening educational period has turned into a full-blown passion as boring adults.

So where’s the outlet for all this? Well, filling the inter-Google with bloggy nonsense for one. Creating YouTube clips of dancing monkeys for another. And solving science problems that (in your best presumptuous voice) leading corporate scientists can’t solve for a third. Weren’t expecting that one, were ya?

The Power of the crowd trumps the expert every time, as I found out through my own personal experience. The other main upshot of all this? The dull dude down the hall that has spent his whole life putting cover sheets on TPS reports and calling himself a stationary expert is no longer in demand.

If you don’t believe Jeff Howe (or me), ask MIT. They studied InnoCentive – a company that organizes the wise crowd for major corporations – and found that scientists solved scientific problems with more success when they had less relevant experience rather than more.

Its all about problem solving and not getting sucked into silo-style group-think. Tough problem? Don’t ask the expert/dull dude. Ask the crowd.

Interview with the founder of TPS planet

May 10, 2011

Prediction markets, hierarchies, culture and online learning were all covered during the session. A friend of TPS planet, Dustin Mattison, was brave kind enough to stick a mic in front of my noggin and let me go to town. Check it out here.

It was a good time, and I didn’t say anything completely ridiculous. Oh well, there’s always next time.

The Cathedral and the Bazaar – Life (and business) lessons

April 8, 2011

Today, I am inspired. It could be the sunlight, or just a random chemical reaction in the brain, but for whatever reason, I have above average energy. It could also have something to do with what I have begun to read…a blog (?) on the internet called “The Cathedral and the Bazaar.” Check it out here, but hurry back!

Eric steven Raymond

Go ahead, try to tell me you wouldn't hire this guy to build you software.

I am only halfway through it, but needed to share with you some of the authors insights from his experience with software programming. Often, in the business world, I see people and institutions hang on to their aging knowledge and believe that there are some people – i.e. a small amount of “qualified” people – that hold the keys to business success. (Apparently, the good ideas of qualified people are superior to good ideas of unqualified people). If only everyone else could have their knowledge and they could effectively spread that knowledge to the great unwashed of the business world. Boom…utopia achieved.

Reality suggests that upstarts sometimes succeed, and the people who “know” how to run a business fail. Big companies get stale, lose money, and die a slow death replaced by those run by people who don’t know what they are talking about. How can that be?

The man with three first names – Eric Steven Raymond – was one of those careful planning people…until just before he became great. He was an early pioneer of email software (fetchmail for the techies out there – all three of you) that successfully developed the software using the bazaar approach rather than the cathedral approach.

What’s the difference? Cathedral builders carefully plan the design. A small group locks themselves away and carefully engineers all the details. And the bazaar? A system emerges from relationships between a bunch of rowdy, passionate people – some geniuses, some far from. Out of the chaos comes a functioning marketplace. I’ll avoid extending the metaphor any further (although can’t say I wasn’t tempted), but you get the idea.

So why does this work? Causality is something tricky that I refuse to make snap judgements on. I can’t say precisely why, but I know it does. It’s the same principle upon which prediction markets are based. It’s the same reason why ant colonies don’t need a take-charge “leader” to tell them to change course and head toward where the food is. It emerges from a series of behavioral adaptations based on what works.

What say you, Mr. Raymond? “You often don’t really understand the problem until after the first time you implement a solution.” Yep, what else? “Every good work of software starts by scratching a developer’s personal itch.” Yep, tap into people’s passion as a leader and you’ll get great results. Any other advice? “Linus Torvalds’s style of development—release early and often, delegate everything you can, be open to the point of promiscuity—came as a surprise. No quiet, reverent cathedral-building here—rather, the Linux community seemed to resemble a great babbling bazaar of differing agendas and approaches (aptly symbolized by the Linux archive sites, who’d take submissions from anyone) out of which a coherent and stable system could seemingly emerge only by a succession of miracles.”

That is so well-said that I have absolutely nothing to add.

Demand driven or predictive bliss…or both?

March 9, 2011

On Lora Cecere’s blog, she articulates the concept of becoming demand-driven as an organization. One specific point was the following: “In supply-based organization, the supply chain is incented based on cost reduction, procurement is incented based on the lowest purchased cost, distribution/logistics is rewarded for on-time shipments with the lowest costs, sales is rewarded for sell-in of volume into the channel, and marketing is rewarded for market share.  These incentives cannot be aligned to maximize value.” I could not agree more.

Ok…a bit of stream of consciousness coming, so hold on for the ride. The quote above made me think of the way resources are allocated to the numerous change projects that are proposed everyday. After all, you won’t get noticed if you just stick with the status quo. Some organizations have systems in place to determine who gets R&D, quality and marketing’s time, but it often results in those with the most informal power, politics, or sponsor who is highest on the organizational depth chart who backs a project that determines the winner. Or, the R&D folks are just bombarded with stuff, so they choose how they spend their limited time based on whatever happens to be motivating them that particular month or which projects best fits with their incentives this year. What is the result? Many failed projects for every one good one, with the exact ratio depending on the consultant that you talk to.

So just like competing incentives that don’t help the organization as a whole, the internal fight for resources is quite unproductive as well. Most of us have just become used to this way of doing things, but what if there was a way to tap the collective wisdom to understand which projects stood the best chance of success. There is…and some blogger internet hack happened to write an article about it. Prediction markets. Reduce the politics, internal maneuvering, and make your decisions based on the knowledge that your people possess. The only issue is determining whether a project is a success…that, admittedly, could get ugly. However, I believe there is a solution if we take things case by case. The pay-off will be a higher success rate and a more motivated workforce as well.

What do Google, BestBuy and guessing the number of jellybeans in a jar have in common?

October 21, 2010

Yes, it is a cliched blog title, but you’re the one reading this…

The answer to the question posed in the title: They have all benefited from the use of prediction markets. For an explanation of what a prediction market is, read the previous post. This post has to do with potential uses for prediction markets. Google uses the wisdom of the crowd to direct you to the right page – the one that best fits your search criteria, has the richest content, and has a lot of other links pointing at it. Jeff Severts used prediction markets with success in predicting gift card sales at BestBuy to 99.5% accuracy when traditional forecasting methods were off by 5%. And, most importantly, Stanley Gyoshev and Gordon Murray achieved astonishing success in using prediction markets to guess the number of jelly beans in a jar!

Now, as useful as the jelly bean example may be, I believe there are some more practical uses in the Google and BestBuy vein. In many organizations with whom I work, I hear procurement people say that the forecasted volumes that they give to their suppliers are either too high or too low. Some companies tend to overestimate in order to secure better deals, and some underestimate, conscious that gaining a reputation for not delivering on promises hurts current and future supplier relationships. However, most of the time, inaccurate forecasts come about honestly – the forecasting techniques currently employed just don’t get the job done. You never know when an end product will experience a spike in popularity, or a rapid decline.

On the other hand, the knowledge of whether an end product is likely to spike or decline does exist…in the minds of all the people who produce, manage, market and buy the end product. Not only do these people have that knowledge, they also know about the level of emphasis the next marketing campaign will put on the product, whether there is likely to be a push from the retailer (or other touch point with the consumer), whether the product is likely to be a good fit with the target segment of consumers, and hundreds of other variables that affect purchase volumes. How, you ask, could people know all that stuff?! Well, no individual (and certainly not the Director of Marketing) knows all of those things, but collectively, those associated with the purchase of that input product or service do. Prediction markets facilitate the rapid aggregation of that knowledge by allowing those with inside information to profit from it. As the group grows larger, the individual errors caused by incomplete information and personal biases are removed.

Forecast accuracy can greatly improve supply chain efficiency, supplier relationships, etc., and prediction markets are a potentially effective way to achieve that objective.

Prediction markets – wise crowds?

October 21, 2010

Nassim Nicholas Taleb may hate me for this post, but oh well, I’m going to go ahead with it anyway…

Prediction markets are a little-used, little understood tool used for – you guessed it – making predictions about things. At present, it is still on the fringes of use in business despite its growing body of evidence. James Surowiecki stoked the fires in his book The Wisdom of Crowds. The idea is that a “crowd,” or group of people, collectively know more than any one individual can know, no matter how intelligent that one individual is. By aggregating our knowledge, we can be better informed than even the most experienced, learned, intelligent expert.

Even the aforementioned Taleb, who would hate (and the guy has very strong opinions on these types of things) the idea of prediction markets (more on that in subsequent posts), does caution against ‘chasing the expert,’ so there may be some common ground there.  Surowiecki and authors such as J.S. Armstrong point to the logical reasoning (with data to support) that suggests that averaging the opinions of experts is better than trying to choose the expert that is going to be right. The reasoning of these sound thinkers, combined with my own experience, is why I believe so greatly in the collaboration that exists among colleagues in workshop settings, or through the use of other collaboration tools.

The idea behind prediction markets is simple. By averaging the estimations (or guesses when I’m not writing academically) of individuals, we can achieve fascinating results. There is more to it than that, but I won’t bore all of you with the details. My own paper on the subject (see prediction markets link to the right), allowed me to predict, with 99.7% accuracy, admissions to a hospital for a given week. Jeff Severts has used these at BestBuy, and Google uses it to determine which websites provide the best content for your search criteria. I believe prediction markets have uses in the procurement sphere, which is the topic of an upcoming post.

%d bloggers like this: