When More is Better : Design Principles for Prediction Markets in Defense Acquisition Cost Forecasting
Authors
Aggarwal, Taroon
Valerdi, Ricardo
Potoski, Matthew
Subjects
Prediction Markets
Advisors
Date of Issue
2010-04-30
Date
30-Apr-10
Publisher
Monterey, California. Naval Postgraduate School
Language
Abstract
This paper discusses the applicability of prediction markets in Defense Acquisition projects, specifically in estimating their cost and schedule. Several temporal and political factors can sometimes limit the effectiveness of traditional methods of project tracking and cost estimation, which may be overcome by using prediction markets. A prediction market provides an environment for traders to buy and sell contracts whose values are tied to uncertain future events. Efficient prediction markets have been shown to outperform available polls and other forecasting mechanisms. There are various prediction markets based on different models and algorithms. Our focus is not to analyze these models, but to identify the design principles of implementing a proven prediction market model in a defense acquisition project. Some pilot studies have been carried out that provide insight into the behavior of the market participants. We found increased involvement of participants and greater interest in the projects to be major benefits. The areas that need to be considered in the design and implementation of markets are related to the participants (like, which traders to include); the information to be collected, or the stocks; the marketplace to be used; and the incentive structure to keep the participants motivated to trade.
Type
Report
Description
Proceedings Paper (for Acquisition Research Program)
Series/Report No
Acquisition Research Symposium
Department
Acquisition Management
Other Research Faculty
Organization
Acquisition Management (AM)
Acquisition Research Program (ARP)
Identifiers
NPS Report Number
NPS-AM-10-050
Sponsors
Naval Postgraduate School Acquisition Research Program
Funder
Format
Citation
Distribution Statement
Approved for public release; distribution is unlimited.
Rights
This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.