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DSS News
D. J. Power, Editor
August 3, 2003 -- Vol. 4, No. 16
A Bi-Weekly Publication of DSSResources.COM
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Check the article by Chris Lang "Professional and
Collaborative Decision-Support" at DSSResources.COM
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Featured:
* Ask Dan -- Are decision markets a useful decision support tool?
* DSS News Releases
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Ask Dan!
by Dan Power
Are decision markets a useful decision support tool?
YES, decision markets are useful for appropriate prediction tasks. Some
Ask Dan! columns are more time sensitive than others. This topic is
"hot". On Thursday, July 31, 2003 I received an email from Chris Lang
with the subject heading "Please Help!" I also received an email from
Tippie News, Henry B. Tippie College of Business, University of Iowa.
Both emails dealt with the controversy in this week's news about what
have been called information aggregating markets, electronic markets,
policy analysis markets, and decision markets.
Chris wrote "You've seen the headlines, 'Pentagon Prepares a Futures
Market on Terror Attacks' and 'Pentagon Kills Terror Futures Market',
and hopefully you were amazed that world-class economists could propose
anything sounding so idiotic. Hopefully you were so amazed that you got
suspicious that perhaps the whole story was not being told. That would
have been a good instinct." I agree with you Chris. The headlines are
sensational and certainly don't tell the entire story about the
appropriate use of this decision support tool.
On Thursday, July 31, the Washington Post published an editorial titled
"The Furor Over 'Terrorism Futures'" by Justin Wolfers and Eric
Zitzewitz, assistant professors of economics at Stanford Graduate School
of Business. Wolfers and Zitzewitz wrote "The idea was simple: By
creating a market in which people can buy and sell contracts that pay
$100 if certain political events occur in the Middle East, we can infer
from the price of such securities the probability of these outcomes. By
explicitly pricing such risks, we can better understand them and better
respond to them."
The University of Iowa's Tippie College of Business, where the Iowa
Electronic Markets (IEM) was developed, has been a leader in Web-based
futures trading. "The IEM provides the framework for trading experiments
on topics ranging from political contests to Hollywood Box Office
receipts. The IEM actually has had better election forecasting results
than many political pollsters." The web has made artificial markets
possible. I've heard Joyce Berg, a professor in The University of Iowa's
Tippie College of Business, make a public presentation about the Iowa
Electronic Markets and there are always sceptics about how it can
produce such outstanding results. Let's see what was proposed and what
works with decision markets.
The Wall Street Journal (July 29, 2003) reported "Sen. Byron Dorgan (D.,
N.D.) is seeking, along with colleagues, to thwart a Pentagon effort to
secure $8 million to expand the project; the Pentagon already has spent
about $750,000 to cover start-up costs. The effort is loosely based on
the Iowa Electronic Markets, a futures exchange run by The University of
Iowa Tippie College of Business, that anticipates U.S. election results
and Federal Reserve decisions."
The San Francisco Chronicle (July 30, 2003) reported "Facing a hailstorm
of criticism from Democrats and Republicans, the Bush administration
abruptly pulled the plug Tuesday on a proposed Pentagon research project
to allow investors to make bets on the probabilities of terrorist
attacks, assassinations and coups in the Middle East. The program --
called the Policy Analysis Market - was the brainchild of the Pentagon's
Defense Advanced Research Projects Agency, or DARPA. Supporters of the
proposal, including a number of prominent economists, argue that
'decision markets' such as the one proposed by the Pentagon can be very
useful in using the collective knowledge of investors -- as expressed in
their betting on prices -- to predict outcomes."
An article in the New Scientist (July 30, 2003) states "In an
extraordinary day in Washington on Tuesday, a government-backed futures
market aimed at predicting terrorist attacks and other events was both
revealed and then cancelled. Using futures markets to predict future
events is not new. US presidential elections have been analyzed by the
Iowa Electronic Markets (IEM) since 1986. It claims to be twice as
accurate as pundits. Thomas Rietz, a director of the IEM, is doubtful
speculators would really have provided helpful intelligence. When
betting on presidential elections, he says, people can use their network
of friends, family and workmates to form an opinion - that would not be
the case for terrorist activity."
I agree with Tom Rietz. Issues on terror attacks probably can not be
predicted accurately using decision markets. If we want to tap into the
"collective wisdom" through a futures market, we need to have the
web-based decision market accessed by knowledgeable users and we need to
ask appropriate questions that people will be motivated to "bet on". We
definitely need to conduct more research on the use of decision markets
as decision support tools. Private companies have used decision markets
to develop demand forecasts and we may be able to structure an
electronic decision market to predict collective behaviors related to
policy issues. I don't like to see science politicized, but the proposed
DARPA project was poorly conceived and outrageously expensive. The
proposal reviewers at DARPA made a mistake. The Iowa Electronic Markets
have received much less funding and done ground breaking research in
this area. Perhaps DARPA can move the $8 million to other decision
market and DSS research projects that are not so controversial. This
type of research needs to continue.
If you have any comments, questions, or feedback on this article, please
feel free to email me at power@dssresources.com .
References
Iowa Electronic Markets, http://www.biz.uiowa.edu/iem
Tippie News (Special IEM Edition), Wednesday, 30 July 2003, contact
tippie-news@uiowa.edu.
Wolfers, J. and E. Zitzewitz, "The Furor Over 'Terrorism Futures',"
Washington Post, Thursday, July 31, 2003, page A19,
URL http://www.washingtonpost.com/wp-dyn/articles/A5696-2003Jul30.html .
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DSS News Releases - July 21 to July 30, 2003
07/30/2003 Ascential Software to host forum "Delivering Results in the
Real-Time Enterprise" at TDWI world conference in Boston.
07/29/2003 Crystal Decisions to provide Baylor Health Care System
enterprise reporting technology.
07/29/2003 Ameriana Bank and Trust implements Decision Support Inc.'s
DQmart(R) technology for more integrated system operations.
07/28/2003 GEO-INTEL 2003: Geospatial Intelligence & Information for the
Nation -- to be held October 14-17, 2003 at the New Orleans Marriott in
New Orleans, LA.
07/28/2003 Healthcare professionals make Comshare(R) software the clear
choice to help meet greater industry demands.
07/25/2003 Investing Systems Network offers software that forces
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07/25/2003 Oracle deals collaboration customers a better hand.
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Enterprise BI Series 7 dashboard to decision-makers.
07/23/2003 Hyperion to acquire Brio Software.
07/23/2003 Criterion announces alliance with Toshiba for wireless Tablet
PC and mobile server software application for Real Estate professionals.
07/22/2003 Schenectady International, Inc. to use Planalytics GasBuyer
for natural gas purchasing decisions.
07/22/2003 Vantage Point installs SmartCare(TM) data warehouse and
analysis software in major California healthcare system.
07/21/2003 Study reveals enterprises suffer huge productivity losses due
to ineffective expertise management and knowledge sharing.
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