IFTF's Future Now

Amateurs versus professionals

A pretty good overview of the debate over amateur versus professional media creation at Knowledge@Wharton.

Of course, in most cases the answer will be "both." The real debate will be over the details.

Technorati Tags: amateur, DIY, pro-am

The world's biggest company is Chinese

For now, anyway:

PetroChina, China's largest oil and gas producer, became the world's first trillion dollar company today after floating on the Shanghai stock market.

In scenes reminiscent of the dotcom boom, investors rushed to buy shares in the company. They floated at 16.7 yuan (107p), and almost tripled to close at 43.96 yuan, giving the group a market capitalisation of around $1 trillion (£480bn).

As well as leapfrogging ExxonMobil – whose $480bn market capitalisation had previously made it the world's biggest company – PetroChina is worth nearly twice as much as the combined value of Royal Dutch Shell and BP.

Technorati Tags: business, China

Going to a place called Lim Kok Wing / Gonna get a big bowl of beef chow mein

The Guardian covered the opening of London's newest university-- a branch of Limkokwing University, which is based in Kuala Lumpur and has campuses in Beijing, Jakarta, and Gabarone (the capital of Botswana).

It's the moment when the empire strikes back - in a good way. For generations, Malaysians have been educated by the old colonial power - either coming to UK universities and colleges or following British-style degree courses at home.

This month, the first Malaysian university to return the favour opened its doors in London's Piccadilly. The grand Victorian edifice on one of the capital's most expensive streets shows that Limkokwing University is determined to make a splash.

There are lots of European and American universities, educational corporations, consultants, etc. involved in joint ventures with Asian universities, or setting up foreign branch campuses. But this is no longer entirely a one-way process.

It may have been inevitable that Limkokwing would move into the European market, given the already-global character of its main campus:

The 6,000 students at Limkokwing University of Creative Technology in Kuala Lumpur come from 150 countries, mostly from the developing world, but increasingly from Europe, where governments like those of Denmark and Germany are keen to expose young people to the culture and business of Asia.

So the strategy of creating branch campuses is part brand extension, part growth opportunity, and part attempt to expand opportunities for global study-- something that schools like this see as particularly important.

All this is neat, in the way that counterintuitive trends can be. But what really sticks with me is something Lim says near the end of the article:

British higher education goes back hundreds of years and Malaysian universities can never match the strong traditions in academic scholarship built up by the British.

However, as a developing country, Malaysia is better able to understand the needs of other developing nations. It is therefore in a better position to deliver British education to the developing world.

In future, British education will be delivered in China and Malaysia and wherever. I don't think that can be stopped and I think it is a good thing for the UK.

"British education" as a model of education, not as something that happens in (or emanates from) a specific geographical location, and can thus be treated as a monopoly. This is disruptive thinking. Or as Kris Olds and Susan Robertson comment,

So a Malaysian university, providing a Malaysian education in London, and a British education in Botswana (to students from over 100 countries)…the global higher ed landscape is indeed changing…

Technorati Tags: business, education, higher education, Malaysia, UK, university

The Experience of Prediction Markets

I had been co-administering the prediction market for the Open Ex program at IFTF and pulled together a summary for people interested in Prediction Markets.  The IFTF market used InklingMarkets.com as a platform.

These ideas are pulled predominantly from the experience of running the market, rather than participating in the market.

Overview Observations

(1) Don't buy-and-hold. Prediction markets are less enticing the further into the future the event might be.  This is (obviously) because of staleness and the degree of uncertainty as a function of time, but also because a long-term market will hold someone's money trapped for a long time if they're "buy and hold." In other words, given no transaction costs for trading in and out, it's a poor strategy to buy and hold.

(2) Think ahead about how to prove something HASN'T happened. As a market administrator, you have to be very careful when constructing a market to clearly state winning conditions AND, in some cases, sources for establishing winning conditions. If you need to determine that an event has happened, since it's impossible to determine it *hasn't* happened I'd suggest requiring that the event needs to be reported in a limited number of specified, searchable venues. This might be a list of news sources, or even as specific as keyword search engine. Another route would be requiring that the players report on an event happening as proof that it occurred ( i.e. let them participate as news miner-researchers).

(3) Teach Game Strategy to Boost Confidence. There are two main flaws associated with trading. The first is given in this example:  If I believe that Obama's going to win the election, but I think it's about 60% likely and the market's trading at 95%, then I should SELL to bring the percentage in closer to my prediction. However if I sell and the market closes with Obama winning - as I expected him to do - I would lose my trade.  So the market force here actually pushes the market to an extreme price - 95%: the only people who buy at that price would think that 95% is an okay price.  People who believe he'd win but aren't quite so certain, do not sell because they'd be betting against their actual prediction.

The game strategy that would fix this would be to SELL at 95, but make sure that you cover your sell before the market closes regardless of the price.

Alternatively if you were constructing a prediction market software application, you could enable bids to be put in directly for any prediction, but the odds would be different depending on the existing distribution of the predictions. (This would be more of a betting market than a prediction market.)

The second flaw is the assumption that people will be unmoved by mob assessment.  Obviously the predictive value has been shown repeatedly in liquid markets with a lot of information and consensus building done outside the market (e.g. with elections, sporting events, etc.).  However I would imagine in a small market without information, participants might second-guess themselves. This could be a good thing if there is also a way to engage conversation; it could be a bad thing if accurate voices belong to people who lack self-confidence, such as people who rely on their intuition but who function in a strongly analytical environment.

There is an argument to the contrary, that in order for the market to be accurate there needs to be arbitrage players who are acting in uninformed ways and for reasons like entertainment, etc.



Recommendations for Market-Makers


(1) Players MUST trade into and out of the stocks frequently in order to ensure the markets are valid, rather than tending to show only the extremists' views.  This should be formally incentivized. One way would be that the winner is the person with the highest *weighted* score, where the weight is related to the number of trades placed.  (Some serious thought would have to go into that.) Players must also be explicitly taught how to sell an overpriced stock and cover before market close.

(2) Beware insider trading.  There should be conversations outside of the markets regarding the relevant news so that players can feel that they have some basic understanding of the issues. When I set up markets in the game I tried to consistently refer to at least one major news story so that players could get some context to begin with.  If there were more time available, a daily email news feed on all open market topics would be a great help if the markets aren't limited to highly visible news (e.g. the French Presidential Election).

(3) New players probably don't understand how quickly scores can change. Because trades are settled for $0 or $100 (to reflect the 0 or 100% probabilistic outcomes) it's not like real-life stock trading; if you Buy for 51 and you're correct, you make 49 on each share.  You can nearly double your balance in one successsful trade. (Or lose it.)  The leaderboard should be emailed frequently, and top winnings on each *trade* should be publicized .  "Fortunes" are made and lost quickly - this needs to be emphasized.  "The game isn't over until it's over."



Further Thoughts

I'm very interested in how to best capture the meta-market. 

(1) Options Markets. In financial markets, options are a way of pricing the expected future value of a security.  An options market with a rule excluding people from engaging in both the options market and the underlying stock market simultaneously might enable a long term forecast in a short-term timeframe.

For example:  Who will win the Nobel Prize in 2008? might have an associated options market: Will "other" in "Who will win the Nobel Prize in 2008?" be under 25% by midnight, Oct 31, 2007?

(2) Contingency Markets. I'm also interested in contingent markets for this purpose.  A "contingent market" might be a pair of related markets:  One market states that a thing happens, and you're paid the price of something if it does happen and refunded otherwise;  one market states it doesn't happen and  you're paid the price of the same thing if it doesn't happen and refunded otherwise.  The difference in the prices is the markets' expectations of the thing happening on the price of the item.

An example:  What will be the Net Revenues of a company if the CEO is fired? and What will be the Net Revenues of the same company if the CEO isn't fired?  The difference in the pricing will show you the expectation of the CEO leaving on the Net Revenues.

In this way you could have a contingent market, stop it when the action is either taken or not (a definitive short-term action) and then return to benchmark at the end of the period of time -- let's say one year -- what has occurred.  (Presumably everyone who has participated will have use of the funds in the interim and the settlement will really be an adjustment a year later.)

I for one welcome our new computer overlords

The National Academies' Center for Education has been working on a study of the future of computers and work. By 2030, they ask, what kinds of capabilities will computers have; how well will those capabilities prepare them to do jobs currently done by humans; and what proportion of the workforce might be displaced or rendered unemployable?

The results are rather scary. After looking at trends in machine vision, speech, reasoning, and movement, and estimating how important these are for doing various kinds of work, the author estimates that displacement rates could be over 80% in some fields-- sales, administrative support, food preparation, and personal care. These are also the sectors that employ the largest number of people. The safest fields for humans? Law (6%), medicine (10%), science (10%), and engineering (11%)-- fields which currently employ the smallest number of people.

[Source: Stuart W. Elliott, "Projecting the Impact of Computers on Work in 2030," p. 37, available online [PDF].]

A draft of the article is available online, and it has a lengthy description of its methods.

At first glance, it looked to me like there was an obvious flaw in the study. The high rates of replacement in "education, training, and library" suggested a systematic under-valuing of tacit knowledge or the social dimensions of work. If you assume that education is learning facts, and librarianship is finding books-- and nothing else-- then these high displacement rates would make sense, but otherwise they wouldn't. However, the relatively low replacement rates for repairmen and protective services suggests that that's not so. Any method that undervalues teachers isn't likely to also overvalue Larry the Cable Guy.

So the best places for humans in the future will be litigious, technocratic societies that spend a lot on health care. Actually, that sounds a lot like California.

Technorati Tags: computer, future, work

Quote of the day

Following up on my earlier Super Crunchers post, Peter Levin asks (actually, he did this back in June), "Does Information-mining displace decision-making?"

At what point, though (and this is the general question), does information mining actually replace decision-making? In sociology, C. Wright Mills made the argument a half-century ago, this is leads to the vacuousness of abstracted empiricism. In business decision-making, it leads to an abdication of decision-making in favor of empirical data mining. The problem here (following James March) is that the world is not just uncertain, it is ambiguous. If the world were simply uncertain, reduction of uncertainty via the aggregation of more and better information might prove just the ticket. But what happens when a decision has to be made between qualitatively different options? When more information does not provide a clear direction to go? Or when decision-making could actually increase, decrease, or change in fundamental ways the options themselves? At this point, information-mining actually becomes harmful to the extent that it replaces rather than augments real decision-making. Worse, making decisions is a skill, that needs to be flexed, and used. Understanding when and how information-mining would be useful seems to me a more important ability than even knowing how to manage the information-mining itself.

I need to go back to The Black Swan and see what Nassim Nicholas Taleb says about the role of automated trading in exacerbating financial crises. His big argument is that black swans are fewer but worse in today's more precisely-managed economies and societies: to build on Peter's observation, does he argue that efforts to generate certainty distract us from the continuing existence of ambiguity-- and perhaps even make those ambiguities bigger and more dangerous, even while we focus on the computer model?

Technorati Tags: business, economics, psychology, risk

Finance: Prosper experiences diseconomy of scale

Sam Rose blogs about Prosper's lender rebellion.

In a cogent analysis of what's going wrong, what's overlooked is that there seemed to have been a change in the business model from the founders' Yunus-like "invest in your community" philosophy -- where the lenders DID know the borrowers (loan your child's school teacher enough money to move into the district) -- to an inappropriate scale-up that compromised a sound business model designed to contain these risks.

I suggest visiting the blog not only to read the post but because at the bottom there are links to other conversations online about these topics.

Risk Management: Wind Energy

Hedgeweek reports that

US Futures Exchange (USFE) is to list wind power futures, its first renewable energy contracts, starting August 24. Seven contracts derived from NORDIX® Financial Wind Indexes will trade with monthly expiries. ...USFE's futures contracts are the first listed exchange products designed to reflect the needs of the greater renewable energy community. USFE also plans to develop a comprehensive suite of futures contracts for the benefit of renewable energy, including hydro, solar, geothermal and biomass.

Futures have an important role in managing the risks of commodity producers, because they allow them some control over future pricing. By enabling futures trading, this lowers the risk inherent in being an alternative energy producer.  A lower risk profile implies lower prices.

For those who want more, a good overview is provided at the Commodity Futures Trading Commission's online brochure "The Economic Purpose of Futures Markets," particularly if you skim down to Table 1, which ties how a commodity producer might trade Futures to protect themselves.

New Report on the Future of Small Business: Technology Trends

IFTF has been working for the last six months with Intuit mapping a wide range of trends shaping the future of small business. The latest installment of the report is now available - Technology Trends and Small Business.

The study concludes that technology will revolutionize the very nature of running a small business and identifies three emerging technology trends:

• On My Time, On My Terms – In a connected world, small business management will increasingly be "on my time" and "on my terms" for owners.
• Global, Local, Virtual – The evolution of the Web will fuel small business formation, operations and innovation.
• From "Push" to "Pull" – The small business marketing approach will shift from "push" to "pull."

We've launched a parallel blog to discuss and extend the trends described in the report over at Small Biz Labs. IFTF Affiliate Steve King, lead author of the report, is leading the conversation. I will be posting some stories about small businesses in my network that are pioneering these trends - the first in 2 weeks will tell the story of a one-man boutique beverage startup in New York City, Q Tonic.

The first phase of the report was released in January 2007 and covered demographic trends and the future of small business. The third and final section of the report will be available in a few months, and will cover the impact of trends in industrial structure and economic decentralization on small business.

Telepresence: it's the details?

In the first years after its founding in 1968, one of the biggest projects the Institute for the Future undertook was a study of online collaboration systems, and their impact on organizational behavior. The dream of the electronic system that's as good as a real meeting refuses to die; but unlike some futuristic technologies (I'm talking to you, personal jet pack), this one seems to be getting closer to reality, as this weekend's New York Times article on the latest high-end telepresence systems suggests.

High-end videoconferencing — the magical ability to be two places at once — has had a bumpy past, plagued by jerky gestures, out-of-sync lips and sound and cumbersome equipment. Few executives liked what they saw, including unflattering pictures of themselves, and most thought the business tool was not worth the price.

But now, thanks to new technology, videoconferencing is delivering on its promise as an alternative to traditional business travel. The high-definition TV images are sharp. Broadband fiber-optic cable has replaced tired telephone lines. And the equipment is often installed in studios that are handsome and appropriately corporate....

Two things are notable about this upsurge in telepresence.

First, the video, audio, and connections are all unquestionably getting better. But what's really interesting to me about these systems, and what makes them more successful, are the low-tech details that HP, Cisco and other companies use to fill in the gaps between video and reality.

Cisco’s virtual meeting room includes an IP (Internet Protocol) phone, three broadcast-quality cameras, three ultrasensitive mikes, three 60-inch plasma screens, a crescent-shaped table that seats six and soft back-lighting.

“The table is maple to complement faces,” said a Cisco spokeswoman, Jacqueline Pigliucci. The studios are painted in identical colors, to give the impression that the people on the screen are in the same room.

The couple people I've talked to who've used these systems say that the room design is what really makes the illusion work. Another is that the service on these high-end systems is very good: as one consultant quoted in the New York Times article says, "Walk in a Halo room, and everything is ready to run." (No one ever has to reboot a real conference room.) Of course, seamlessness comes at a cost: about $18,000 a month, to be precise.

In other words, it's not just that the technology is getting better in the conventional, specs-are-getting-more-impressive kind of way: the experience of using these systems is changing for the better because their designers are paying more attention to deployment and maintenance. Nothing breaks the illusion of seamlessness like having to reboot the computer the video conference was supposed to run on.

The second notable thing is who's really using these systems.

It might be just an artifact of a very small sample size, but the heaviest users I've heard of are groups who already have standing meetings, not people who are using these systems to substitute for first-time meetings with prospective clients. The technology isn't bringing together people who have never met before, but is strengthening an connection between colleagues. As Business Week reported earlier this year,

A typical user is private equity star Blackstone Group. Several times a week, CEO Stephen A. Schwarzman gathers senior managing partners around a polished conference table in the firm's New York headquarters on Park Avenue for a five-way video call.... Blackstone has 40 video rooms stationed around the world. One executive is so enthralled with the system that he keeps the conference connection running in his office all day long. "We're big proponents of videoconferencing because of the way it enhances the quality of meetings," says Harry D. Moseley, Blackstone's chief information officer.

Financial and consulting firms have been particularly avid purchasers. Deloitte & Touche USA is installing a dozen $250,000 video suites made by Polycom so that various business units can collaborate on outsourcing ideas or interview job candidates from India. AIC Ventures, a real estate investment company, has three video rooms: one in its home base of Austin, Tex., another in Dallas, and one in Chicago. They are used for everything from reviewing new Web page designs to celebrating the close of a big deal with a (now crystal-clear) ring of a tabletop gong.

This is a bit like the experience we've had at the Institute with Google Docs: that collaboration tool has its uses for asynchronous collaboration among geographically-dispersed authors, but the best uses come when authors are in the same room, and able to talk about the document in real time.

Despite this, at least one telepresence consulting company argues that this isn't the future: "effective inter-company business," they maintain, "will be propelling this industry forward in the coming years (remember where you heard it first!).... The future of telepresence will be about connecting with vendors, customers, and joint venture partners... to lower the shared costs of business relationships."

Technorati Tags: collaboration, displays, office, video, work