Prediction markets are too easy to game, so let’s play games instead

Prediction markets provide a nice, idealized way to use market mechanisms to predict the future. They are a slightly idealized version of an office betting pool and allow small scale bets (real or virtual) on future events. Unlike a real futures market, where you can get guarantees of future performance on things like delivery of gasoline or frozen orange juice, there's no way that betting on some prospective GOP hopeful will lift your candidate to office.

Market manipulation is the bane of most prediction markets. Consider Intrade, a prediction market in which GOP hopefuls are listed. The media will report that a newcomer is trading well, but won't necessarily note that the frontrunner's place is based on less than $500 worth of daily trades. If someone were to want to bump their favorite over the top for at least a little while it would only take pocket money from a proper hidden campaign pocket to game the system in your favor.

Gaming the system is a problem in systems that pretend to be markets, and where some ideal form of market is lionized as a way to gain enlightenment from the invisible hand of Adam Smith. Turning the system into a game to be one sullies the economist's ideals of a rational allocation of resources based on infinite economic rigor.

Why fight people's tendencies to want to subvert the intent of the system builder? The new hot trend in online environments is gamification, where gaming the system becomes the whole goal of the system. Unlike markets, which try to come to truth with some single-valued score of value, games have the opportunity to bring the world into a lovely multi-valued focus, with different people winning each at their own version of the game. The introduction of badges, short term competitions, lots of ways to score points and other fun side games overwhelms the narrow trading interests in market-based predicitons. 

The future of prediction markets lives inside complex predictive games. The game design has to take into account not only the rapid conclusions that you can draw when you have an efficient market for opinions, but also the continuous efforts you have to keep up to maintain people's attention on a topic for any length of time. The good games reward active participation; the challenge becomes how to draw conclusions from the work of engaged gamers working inside your system.

Thanks to Brian Kerr for the idea. Games are on my mind because of the work of the Ann Arbor District Library and Eli Neiburger to build games into the summer reading program at the library. I tried to predict library use with a prediction market in 2007, and attendance at lunch in 2009, using Inkling Markets. The game of choice at the Workantile Exchange is a version of bingo; when I bring my kid to work an alert player may win. The Intrade GOP market shows the book of available trades; at this writing, purchasing about 300 shares of Mitt Romney would push the price up 8% at a cost of less than $1200. Empire Avenue turns social media friendships into a giant game, with badges and prizes.

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