Fall+2008+Section+07-PS+Week+13

=Class Discussion For Week 13=

Lecture: Participation II
How much //does// an average bull weigh? A simple question, if you know the answer - or if you happen to be part of a crowd. Professor Paul Dwyer conducted an interesting in-class experiment to illustrate that the combined effort of a group can result in a fairly accurate guess. James Surowiecki discusses this same point in his book [|The Wisdom of Crowds] and relates an anecdote about how a crowd collectively guessed the weight of an ox. In fact, it was more accurate than the estimates given by individual cattle experts. Read a related CNN article [|here.]        I think that it is important to clarify why types of crowds make good decisions.

The //wisdom// of crowds you say? As Surowiecki explains, yes, but only under the right conditions. In order for a crowd to be smart, he says it needs to satisfy four conditions: 1. Diversity. A group with many different points of view will make better decisions than one where everyone knows the same information. Think multi-disciplinary teams building Web sites...programmers, designers, biz dev, QA folks, end users, and copywriters all contributing to the process, each has a unique view of what the final product should be. Contrast that with, say, the President of the US and his Cabinet. 2. Independence. "People's opinions are not determined by those around them." AKA, avoiding [|the circular mill problem]. 3. Decentralization. "Power does not fully reside in one central location, and many of the important decisions are made by individuals based on their own local and specific knowledge rather than by an omniscient or farseeing planner." The open source software development process is an example of effect decentralization in action. 4. Aggregation. You need some way of determining the group's answer from the individual responses of its members. The evils of design by committee are due in part to the lack of correct aggregation of information. A better way to harness a group for the purpose of designing something would be for the group's opinion to be aggregated by an individual who is skilled at incorporating differing viewpoints into a single shared vision and for everyone in the group to be aware of that process (good managers do this). Aggregation seems to be the most tricky of the four conditions to satisfy because there are so many different ways to aggregate opinion, not all of which are right for a given situation. Satisfy those four conditions and you've hopefully cancelled out some of the error involved in all decision making:

If you ask a large enough group of diverse, independent people to make a prediciton or estimate a probability, and then everage those estimates, the errors of each of them makes in coming up with an answer will cancel themselves out. Each person's guess, you might say, has two components: information and error. Subtract the error, and you're left with the information.

Now that we know there is a wisdom in crowds I would like us to remember that sometimes this can fail. For instance: (from Wikipedia)

Surowiecki stresses the need for diversity within a crowd to ensure enough variance in approach, thought process, and private information. The [|Columbia shuttle disaster], which he blames on a hierarchical [|NASA] management bureaucracy that was totally closed to the wisdom of low-level engineers. The [|US] Intelligence community failed to prevent the [|11 September 2001 attacks] partly because information held by one subdivision was not accessible by another. Surowiecki's argument is that crowds (of [|intelligence] [|analysts] in this case) work best when they choose for themselves what to work on and what information they need. (He cites the [|SARS]-virus isolation as an example in which the free flow of data enabled laboratories around the world to coordinate research without a central point of control.) The [|Office of the Director of National Intelligence] and the [|CIA] have created a [|Wikipedia] style information sharing network called [|Intellipedia] that will help the free flow of information to prevent such failures again. Where choices are visible and made in sequence, an "[|information cascade]"[|[2]] can form in which only the first few decision makers gain anything by contemplating the choices available: once past decisions have become sufficiently informative, it pays for later decision makers to simply copy those around them. This can lead to fragile social outcomes. Emotional factors, such as a feeling of belonging, can lead to [|peer pressure], [|herd instinct], and in extreme cases [|collective hysteria].
 * Too homogeneous**
 * Too centralized**
 * Too divided**
 * Too imitative**
 * Too emotional**

"The problem with the global village is all the global village idiots." -- [|Paul Ginsparg]

So just to remind us the groups can be wise but not all of the time.

Crowds can also be affected by preconceived notions, such as racisim, sexism, and agism. This can, doesn't always, impact the group think when it comes to marketing new products. For example, it is assumed by most companies that make children's movies assume that a girl can "identify" with a boy as the main character but a boy won't "identify" with a girl as the main character. This reinforces the already existing staus quo and eliminates choice.

So if we have wisdom of crowds and failure of crowds how do we see the persuasion of groups? This week at work I worked with the Employee Recognition Committee on selecting our Employee of the Year. Remembering this subject I requested the committee to humor me in the selection process and how we came to our decision. They did. Though we were not a large crowd we are a group of 15. The past practice is to go through the nominees and have people speak to whom they favor and why. I thought this may cause the votes to sway toward those who have the power of persuasion. Therefore I had the group read the nominees and then write their first and second choice down with their name. I then asked everyone, without discussion with a show of hands vote. Here you saw where some look to others and there was hesitation when lifting their hands. Lastly I open the floor for dialog as to who supports who and why. After all was said and done the original winner through secret ballot was not the winner at the end of the day. There was no right or wrong here, but it was amazing to see this human behavior in action. I thanked my test subjects... Managers and we discussed what happen and at the end of the day those who changed their vote questioned themselves and their end vote but we talked and they said they are going to have to look at other decisions they make and evaluate them more closely and Identify who has power of persuasion over them.

  __ “New Product Blockbusters: The Magic and Science of Prediction Markets.”  __

[|Prediction markets] are speculative markets created for the purpose of making predictions. Assets are created whose final cash value is tied to a particular event (e.g., will the next US president be a Republican) or parameter (e.g., total sales next quarter). The current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter. [|Iowa Electronic Markets] [|Google Trends] [|Hollywood Stock Exchange] [|Predictive Market Industry Association] [|You Tube Best Buy Predictive Market]

While prediction markets have proven accurate many different uses, there are few sources suggesting the psychology around prediction markets. For example, did a prediction market accurately predict the success of a specific movie, or did it determine the success? With enough people involved in prediction markets, we may develop the expectation that something is successful, then (conscious or unconscious) contribute to its success. In the example of estiamting the weight of the bull, as we did in class, how do we measure what influenced our answer? The options given to us in a specific order on the board, or the answer that the person in front of us gave could all influence our individual answer and therefore the average of the group. In presidential elections, people may predict one candidate to be successful while supporting and voting for another. Prediction markets create an interesting differentiation of what we believe to be true, what we hope to be true, and what we think will actually happen.

More on prediction - Epagogix is a company that uses statistical formulas to analyze movie scripts, and to suggest changes to the script to authors that would,on the probabilities, make the movie more profitable at the box office. in the book Super Crunchers, by Ian Ayres, the author suggests that Epagogix uses the experiences of thousands of moviegoers as an indicator o f box office success. This could obviously curb artistic vision. But lets be honest, the studio bosses have been interfering for ever in the artistic process. Now at least it is done on the basis of some objective evidence - the experiences of thousands of moviegoers.

Our discussion of this cases concluded with a consensus that rather then sell credits as stocks, Cambrian House should limit the availability of the credits. We suggested a one time allocation during the initial sign up period of a user. these credits would be good for the lifetime of the user and could be distributed however the member wished. We would then offer a share of the profits for those who supported the software throughout the voting phase. We also recommend they adopt a toilet bowl rematch at the end of the year for the 12 software ideas that received the greatest number of votes but came in second or lower in any one of the months. This would be based on total votes for the idea not ranking therefor an idea that came in 3rd, 4th or lower could still have a chance so long as it has recieved adequate support for our member base. Alternatively contributors to Cambrian House could "earn" points that could then be used to purchase stock in specific projects. One possible suggestion to curtail to spamming of the website in order to earn points to use in the stock market would be to limit the points that can be used to purchase stocks or to institute a preferred stock/common stock system where points to contributing project ideas, or contributing to product development could be used to purchase preferred stock, while comments or web posts points could only be used to purchase common stock. Hopefully this would encourage higher quality participation.

Another important aspect of using the prediction market method, is that the prediction market has to be a good fit for the population that will be using it. For example, with Cambrian House developers, the way in which projects are choosen whether thru voting or prediction markets, need to work for the developers. Cambrian House should consider including their customers/developers in the decision-making process and maybe even the creation process. If the prediction market is not a good fit for the population, the market will not have the amount of activity needed for success.

Here are 2 good examples of other websites using voting that is appropriately targeted to it's audience. [|Hot or Not] is a semi-dating site that allows participants to submit photos and have them judged by other participants to determine if they are attractive. This is a very simplistic and non-statistically relavent site, but it is intended for fun and it is for high school and college aged consumers. Another fun site for sports fans is Espn.com's [|Sports Nation]. This page contains polls containing full poll results. One feature is a state by state top selection compairson. This only allows the top selection to represent a state. This would be a big deal except that it is just for sports nerds having some fun. The long winded point is that a stock market game for software developers isn't targeted correctly at why they are pulled to Cambrian in the first place. More unique options exist, especially in the line of work Cambrian is in.

According to our assessment of the current Cambrian House business model, future business requirements (i.e. successful lauch of products demanded by consumers), and the seemingly accurate decisions made by multi-individual input, the following direction is advised. It is recommended that "IDEA STOCKS" be sold openly. Such a scenario would create the environment of user input from various professional backgrounds. Thus, the Idea stream would be opened to individuals other than "Hackers", which may be more reflective of "real-world" product critique. It is felt that by following this model, Cambrian House could choose ideas that best represent the consumer market as a whole, thus provide products that hava a greater potential for success. Additionally, it was mentioned that an incentive may be offered for individuals who continue to invest in new idea's (with profits from previous successful Idea Stock purchases).
 * Group 2: The 5-Marketeers**

Our analysis of the Cambrian House idea to create an idea stock market resulted in the following recommendations: 1. Cambian House should charge an annual fee for membership. This would help foster the idea that the individuals voting have some skin in the game as well as help fund the ideas or bring investors a better ROI. 2. Members would be allotted a set number of points to use during a vote to pick their top 3 ideas. This would make member value their votes. 3. Ideas receiving the most votes would be placed in top three in their respective order. 4. Top three ideas would be produced. 5. Members who voted on top three ideas would have a chance at profit sharing based on the number of points they gave that idea. __Markstrat – words of wisdom, praise, criticism, whatever you like.__
 * Group 4: Mavericks ;)**

The Markstrat simulation is complete. On of my key learnings was "Ensure that the characteristics of the marketed product are in alingment with the desires of the targeted consumer segment"

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