Archive for the ‘Market research’ Category

Virtual Stock Markets - Proving the Powerlaw?

Donnerstag, Dezember 22nd, 2005

Social relations between individuals can be complex systems. How the structure of social networks impacts the behaviour of a system has been researched recently. These are i.e. power grids, neural networks, the World Wide Web or stock markets. Although different in the underlying interaction dynamics or micro-physics, all these networks have shown a tendency to self-organize in structures that share common features. In particular, the number of connections, for each element, or node, of the network follow a power law distribution. Networks that fulfill this property are referred to as scale-free (SF) networks M. Bartolozzi, D. B. Leinweber1, A. W. Thomas. (2005).

I would like to draw your attention to 2 projects which are using the power law in a direct and indirect way. First, there is the use of virtual stock markets to improve market research. Second, a recent project concerning blogs and virtual stock markets (VSMs) tries to proove the existence of powerlaw.

VSMs aven been applied in the form of a political stock market to predict the outcome of US presidential election in 1988 at the University of Iowa. The results of these studies demonstrate that the predictions outperform opinion polls in terms of forecast accuracy. Furthermore, the results of political stock markets show that VSMs can perform well even if their participants are not a representative sample. The reason is that VSMs elicit the participants’ assessments of the market outcome and a rational participant should not trade according to individual preferences, but according to the prediction of the market outcome based on the overall preferences of market participants. Thus, the decision is based on the most common features an individual anticipates in the market (powerlaw). More virtual stock market research is in this area is currently underway by an international research team (Martin Spann (U Passau), Gerrit van Bruggen (EU Rotterdam), Ely Dahan (UCLA) and Gary Lilien (U Penn)). Although it is more focused on business and market research some outcomes might be useful in other research areas.

BlogShares is the exploration of an emerging social network. Blogs are valued by their incoming links from other blogs. A blog is defined as a company and links become the main source of value in the VSM. Players speculate on thousands of blogs by buying and selling shares or rather the shifts of attention within the network. Blogshares claims to have proven the powerlaw which is in this case that 20% of the blogs contain 80% of all incoming links.