thesimexchange.com: Economics 2.0

A few months ago, I was strolling my usual jaunt down the endless gauntlet of tubes that we call the Internet, I came across a mainstream press story referring to thesimexchange.com. In the article, it impressed upon readers the expectation of success of a particular title I won't mention merely because I've forgotten completely. Perhaps more interesting is that the article used the basis of thesimexchange.com's predictions to support its thesis.

Thesimeexchange.com's entire premise is deeply rooted in what is a commonly accepted wisdom about the so-called Web 2.0: the wisdom of crowds (willing or unwilling). It uses common economic stock market principals to make meaningful (and shockingly accurate) predictions about sales and review scores by allowing gamer-nerds to participate in a fantasy stock market. However, it's not just a fantasy- it's a well planned and organized effort by its creator Brian Shiau to create a simulation that has true implications and use in the real world.

Here's a bit about how it got started from Thesimeexchange.com's About Us page:

The simExchange website was launched on August 29, 2006. Brian (Shiau)'s interest in prediction markets arose from trading on prediction markets in the Presidential Election of 2004, which resulted in his exploration of event-based trading in his Senior Thesis at Princeton University.

Brian currently develops and operates the simExchange. As an associate at Emerald International, Brian structures finance solutions for infrastructure projects in emerging markets. Previously, he worked at Susquehanna International Group (SIG) on the buy-side emerging markets fixed-income trading desk. Brian earned his A.B. in Economics and Certificate in Finance at Princeton University in 2005.

Sure, its just a game you might say, but this data is truly useful to a sales manager, CEO, or even a developer who should be polishing the beta rather than trading futures in his/her own game. I foresee a day where 'the wisdom of many' will be able to have a direct impact on publisher marketing, distribution and sales decisions much like the stock market influences every business sector there is. The only real difference between thesimexchange.com's and a regular stock exchange is that no real money is involved- so what you get is a bunch of subject matter experts from all walks of life arriving at a balanced consensus as to a game's value- all before the game has even hit the shelves.

So, How does it work?

The site is completely user driven. I was rated ~2400th by the time I began to vote with my virtual money (I'm mostly idle now, currently ranked 188th). The top 500 users of the site are generally well informed, extremely active and competitive, making huge gains on a daily basis while contributing heavily to the forums and information database. That said there's a lot here for the self-described noobie day-trader. Even if you don't quite understand all of the elements of stock trading at first (I sure didn't!), with a little hard work and patience an informed person can move up the ranks quickly. Or for the self-described uninformed/indifferent, you can choose to use it as a news or product research source only, meaning you don't ever have to participate in any trading to gain value from 'the wisdom of the crowd'.

One can trade short or long futures, as well as short or long stocks and influence the hive at will, utilizing a democratic bidding moderation system to keep the peanut-gallery in check. Stocks are nominated by your peers for IPO and voted on. Once a stock IPO is offered, two special periods of price determination go into effect, before the final IPO price is found. This is the debut price on the exchange, and skies the limit from there (or at least that's what you hope playing the risky IPO game).

Ultimately, wealth is created on the simexchange as a stock gains or loses DKP (1 DKP = 10,000 global-lifetime/stock period sales units). The game features a basic stock market for strict buying and selling and an advanced mode, where like a real stock market you may bid freely within market rules and set the your bid/ask price. Limted-in-scope graphs, widely-selected news items, screenshots, videos and plenty of op-ed are at your disposal. The decision is yours... To buy or to sell? That, is the question!

If contributing content is your bag, be forewarned: Intellectual flatulence will make you poorer, while insight and unique information will put a little extra 'dough' in your account to spend on more stock. Users are free to contribute good (and bad) opinions and links from around the web and attach them to a game's stock page to be bid up or down based on quality. These are far from open forums or the warzone. Luckily, sound opinions tend to rise to the top and influence other traders while malformed opinions continue to be heard, but are subdued and/or still discussed. This balance provides a casual observer with an informed random sample when compared to your standard digg.com or stumbleupon.com hive-mind, by effectively countering popular hype with the innate 'anti-hype' of a sufficiently diverse stock market.

In fact, it has been said by some traders that many of the highest ranking players amassed their virtual fortunes by selling short (selling stock you don't actually own at a high price, settling up later by buying stock at a hopefully, lower price) almost exclusively. I'm no financial-whiz but one strategy is clear: typical Internet fan-boy favoritism is a surefire way to the poor-house (diversify, diversify, diversify!) on thesimexchange.com.

How does this affect me if I don't participate?

Hey, you don't have to participate in anything! Even if you don't have any stock in the real stock market, it still manages to influence your life nearly every day. Oil futures trade simply high for a few weeks and you feel it at the pump, you try to travel less, meanwhile food at the grocer, services and airline specials suddenly aren't as cheap. It's just enough to know about it, understand it and use that knowledge to your advantage if you are motivated to do so. Similarly, thesimexchange.com might one day:

Amazon, your local EB, big-box or video-store always has enough copies waiting for you

Bad, unwanted titles will be quickly recognized and discontinued before you and the publisher's investors are ripped-off

Sales Managers are more connected with their target audience (more/less/better advertising!)

Developers, Designers, Directors and Publishers alike could sense public perception in a centralized manner, which could moderate their creative and business differences during the development process, resulting in better games

Gaming Journalists can better-sense what their audience is interested in

Data mashups mixing hot gaming properties, real-time futures indexes and surfing habits to determine the ads or content you see online, in your games

You can finally remain a step ahead of the Jones'

Or, alternatively, why buy a game when by the time I get around to playing it, at least 5 of my friends will lend me a copy to try?

I'm sure it won't be long before the sleaziest marketers find new ways to exploit this datamine in order to more easily separate, you, joe-gamer, from his or her money. If you're anything like me (a fool?), you're okay with that notion and just want to get the process over with as efficiently and painlessly as possible. Ideas like the thesimexchange.com will hopefully one day allow companies to waste less money making you happy by focusing more on releasing quality original and popular titles. That's just cool.

What are some of the current predictions?

Here is September 2007's predictions straight from thesimexchange.com, along with the whole volume of them, here. It's also great for historical analysis:

		6 months ago, it almost looked like the PSP would give the DS a run for it's money. Sony is new to the hand-held gaming segment but 38 million units sold is a healthy user base for a 'first-at-bat'.
		The tale of the tape heading into the Xmas season: Nintendo has gained a lot more mindshare with some great games and strong sellers in the last two quarters on DS. Coupled with brand recognition, the PSP seems stagnant by comparison. Even with a new-improved model in stores and a good price-point, traders seem indifferent towards the PSP at this time!

I don't know about you, but every kid I see has a DS! Every twenty/thirty something I know has, or has played a DS. No one ever talks about 'touching' a PSP...

Look at Animal Crossing. Such Promise! Such growth! Starting at 300DKP early investors have doubled their money. They would have tripled it, but prices dropped after Animal Crossing was not mentioned at the Tokyo Game Show. I for the record predict this to peak at 1000 DKP and settle at around 850 DKP (8.5 million units sold) once the game is released.

Interesting stuff indeed. I think this demonstrates how the stock prices are relative to general perception. Even an innocuous thing like a sudden influx of positive comments or a failure to show can have a short-term effect on a game's overall prediction.

You said it was pretty accurate- well how accurate?

Well the jury is out on this one. Part of the problem is companies tend to distort the truth or make misleading statements. There are a few places we can compare numbers from but here is a link to the latest accuracy report from the home-office including comparisons to a leading analyst's predictions on the same titles.

It's amazing to see thesimexchange collective exceeding industry professional Michael Pachter's (Wedbush Morgan) predictions. Thesimexchange is definitely not the most accurate source, but certainly no better than numbers directly from a company's PR representative and a far better aggregate of useful information about any recent title.

Well that about sums it up. Prediction Market simulations such as this actually have practical application, and can involve anyone, of any experience level in order to provide useful data. sign up and check it out right now!

Finally, if you're interested in other aspects of prediction markets midasoracle.com. I highly recommend it!