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© newsfutures 1
Prediction Markets: Collective Intelligence @ Work
Prediction MarketsCollective Intelligence @ Work
Emile Servan-Schreiber, PhDNewsFutures
© newsfutures 2
Prediction Markets: Collective Intelligence @ Work
Example Prediction Market
Stock Payoff = $1 if event happens, nothing otherwise
Stock Price = estimated probability of event
Barack Obama to win theDemocratic Nomination
Source: NewsFutures – March 25, 2008
© newsfutures 3
Prediction Markets: Collective Intelligence @ Work
Example Prediction Market
Stock Payoff = $1 if event happens, nothing otherwise
Stock Price = estimated probability of event
Barack Obama to win theDemocratic Nomination
Source: NewsFutures – March 25, 2008
Chancesare 81%
© newsfutures 4
Prediction Markets: Collective Intelligence @ Work
Price Prediction Validity: Sports
Source: Servan-Schreiber, et al (2004) – Electronic Markets
Predictions
210 football games
Participants
2000+ sports fans
Self-selected
Trading Period
Before the games
© newsfutures 5
Prediction Markets: Collective Intelligence @ Work
Price Prediction Validity: Business
Predictions
150 events
40 subject areas
Participants
1,500 employees
Self-selected
Trading Period
Various
Source: Google
© newsfutures 6
Prediction Markets: Collective Intelligence @ Work
Price Prediction Validity: Politics
Source: Iowa Electronic Market
Predictions
50 Elections
239 Candidates
Participants
Hundreds of political observers
Self-selected
Trading Period
Months until election day
© newsfutures 7
Prediction Markets: Collective Intelligence @ Work
Prediction Markets Outperform
o Individual Experts» Bias» No diversity
o Opinion Polls» No reward for expertise» No penalty for fools
o Official Company Forecasts» Politics» Conformity» Brittle models focused on past
© newsfutures 8
Prediction Markets: Collective Intelligence @ Work
Why does it work?
© newsfutures 9
Prediction Markets: Collective Intelligence @ Work
The Power of Diversity
o Everyone contributes biased knowledge;o Knowledge adds up;o Biases cancel each other.
Why does it work?
© newsfutures 10
Prediction Markets: Collective Intelligence @ Work
The Power of Diversity
o Everyone contributes biased knowledge;o Knowledge adds up;o Biases cancel each other.
Rewarding timely and truthful revelationof information
o It’s not enough to be right;o You must be right before others.
o Encouraging contrarian opinions.
Why does it work?
© newsfutures 11
Prediction Markets: Collective Intelligence @ Work
The Power of Diversity
o Everyone contributes biased knowledge;o Knowledge adds up;o Biases cancel each other.
Rewarding timely and truthful revelationof information
o It’s not enough to be right;o You must be right before others.
o Encouraging contrarian opinions.
Why does it work?« A true Englishman doesn’t joke when he
is talking about so serious a thing as a wager. » – Phileas Fogg
Using more brain power
o Betting calls on specific risk/reward areaso Putting the brain in a diffent state
© newsfutures 12
Prediction Markets: Collective Intelligence @ Work
The Power of Diversity
o Everyone contributes biased knowledge;o Knowledge adds up;o Biases cancel each other.
Rewarding timely and truthful revelationof information
o It’s not enough to be right;o You must be right before others.
o Encouraging contrarian opinions.
« A true Englishman doesn’t joke when he is talking about so serious a thing as a wager. » – Phileas Fogg
Using more brain power
o Betting calls on specific risk/reward areaso Putting the brain in a diffent state
« A true Englishman doesn’t joke when he is talking about so serious a thing as a wager. »
-- Phileas Fogg :: Around the World in 80 days
Why does it work?
© newsfutures 13
Prediction Markets: Collective Intelligence @ Work
“You Can Bet on Idea Markets”
“Smarter than the CEO”
“The End of Management”
“All seeing, all knowing”
“The Future of Futurology”
“Wisdom of the Crowd”
“Market Magic”
“Guide to Prediction Market”
“Co-creating an organization future”
“How to decide? Create a market!”
“The Future Divined by the Crowd”
“Workers, Place Your Bets”
“Betting to Improve the Odds”
“A new business research tool”
«The most heeded futurists these days are not individuals, but prediction markets, where the informed guesswork of many is consolidated into hard probability.»
© newsfutures 14
Prediction Markets: Collective Intelligence @ Work
2002 2003 2004 2005 2006 200720012000
More and more leading companiesare recognizing the valueof prediction markets
© newsfutures 15
Prediction Markets: Collective Intelligence @ Work
Main Business Applications
Forecasting Sales Selecting New Ideas
Measuring Risks Monitoring Project Delivery
Decision Markets
© newsfutures 16
Prediction Markets: Collective Intelligence @ Work
• Prediction markets aggregate the insights of many.
Take Aways
© newsfutures 17
Prediction Markets: Collective Intelligence @ Work
• Prediction markets aggregate the insights of many.
• Prediction markets beat the alternatives.
Take Aways
© newsfutures 18
Prediction Markets: Collective Intelligence @ Work
• Prediction markets aggregate the insights of many.
• Prediction markets beat the alternatives.
• Prediction markets are increasingly used by business and government decision makers.
Take Aways
© newsfutures 19
Prediction Markets: Collective Intelligence @ Work
The End
© newsfutures 20
Prediction Markets: Collective Intelligence @ Work
Why do people participate?
Rewards : prizes, cash, …
Recognition : by bosses and peers
Relevance : interest, job fit
Relationships : interactions, community
RRRR
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