Futures Markets, Forecast

How does it work?

• Product Sales Forecast example: Participants forecast sales of product A for month X, sending their bid by ZMAIL before a final bid date D. The Release Time is set after D, as defined by management. Since all ZMails are timestamped, submissions after date D can be easily detected and discarded. After the Release Time passes, the ZMails can be read to reveal the forecasts. Participants can request a return receipt confirmation that their forecast was decrypted and opened for reading, assuring everyone that no bid is lost. Management can analyze the results to create and refine a model for forecasting monthly sales for product A, including variance, based on the participants' bids. Participants can take part in several bids, providing sales forecast many months in advance. When the actual sales result of product A is known for month X, the forecasts are matched to the sales result. Rewarding the winners is facilitated because all participants can be reached back.

What is Futures Markets and Forecast?

Markets do a remarkably good job of collecting information from thousands of participants and turning it into a kind of collective wisdom--reflected in prices. Several publications, including Fortune, have recently focused on the use of markets for forecasting.

Forecasting helps with modeling risks that could be, somehow, planned. Forecasting can also help with modeling costs induced by external causes (e.g. strikes) and on strategies under the existence of other competitors. Forecasts may be extremely important while preparing bids in auctions; for resource allocation before and while a project is executed; for reserving insurance costs; and, of course, for setting price.

Commodity futures markets already forecast the price of wheat and corn better than the best individual analyst can. Orange juice futures have been shown to be more accurate predictors of Florida weather than conventional forecasts. Futures exchanges set up explicitly to make forecasts rather than to hedge financial risk may be used to improve the way companies and governments make forecasts and decisions.

For example, the Iowa Electronic Markets began trading real-money futures contracts on the outcomes of political elections and have since added other topics, most notably futures on the Federal Reserve's interest rate decisions. In a study published a few years ago, Forsythe and his colleagues found that over 12 years--a period covering 41 elections in 13 countries--the Iowa Electronic Markets consistently outperformed opinion polls in forecasting election outcomes.

Other information markets have also delivered promising results. The play-money Hollywood Stock Exchange has a good track record in picking Oscar nominees, while Tradesports.com, a real-money Irish website, gained notoriety by offering futures contracts that accurately predicted when Saddam Hussein would be ousted. Cal Tech's Prof. Plott helped Hewlett-Packard establish an internal market in the mid-1990s that let salesmen speculate on the monthly sales of printers and computers. In every case, the markets' predictions were more accurate than HP's official forecasts.

References: google the title of this page, "Futures Markets, Forecast".

ZMAIL benefits: When a futures bid is sent by ZMAIL, it will be used exactly when desired by the sender. ZMAIL timestamps every email that is sent and, when ordered by the sender with a command to set release and expiration times, defines a "not-before" and a "not-after" lifetime for the decryption key for that email.

The sender can also request a return receipt confirmation that the bid was opened for reading, which is only possible after decryption. Anonymous futures trading is possible by the use of pseudonyms, if acceptable by the Futures Market organizer. With ZMAIL, emails cannot be traced to the user's mail server (ZMails are sent using ZMAIL's server), preserving sender routing privacy, if desired.

With ZMAIL, you can use the release time to send your bid at the last possible moment (even with futures markets that do not use ZMAIL). This prevents others from reacting to your strategy before it is too late. Trying to rely on trust or a third-party for this service (as in proxy bidding), may fail due to collusion and internal attacks. Trying to do this by sending the email yourself at that last moment, even if automatically done by your email software, may fail depending on your ISP, your connection speed, and your computer. Rewarding the winners, using ZMAIL with encryption for privacy and security, is facilitated because all senders can be reached back. Each ZMAIL sender must have a verified and operating mailbox when registering for ZMAIL.

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