Accession Number : ADA530118


Title :   When More is Better: Design Principles for Prediction Markets in Defense Acquisition Cost Forecasting


Descriptive Note : Conference paper


Corporate Author : MASSACHUSETTS INST OF TECH CAMBRIDGE


Personal Author(s) : Aggarwal, Taroon ; Valerdi, Ricardo ; Potoski, Matthew


Full Text : https://apps.dtic.mil/dtic/tr/fulltext/u2/a530118.pdf


Report Date : May 2010


Pagination or Media Count : 59


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.


Descriptors :   *COST EFFECTIVENESS , *PREDICTIONS , *DEFENSE SYSTEMS , POLITICAL NEGOTIATIONS , SCHEDULING , FORECASTING , SYMPOSIA , ALGORITHMS


Subject Categories : Economics and Cost Analysis
      Defense Systems


Distribution Statement : APPROVED FOR PUBLIC RELEASE