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Prediction Markets: Harnessing Collective Intelligence for Accurate Insights

Learn how prediction markets, such as NewsFutures, are revolutionizing decision-making by aggregating insights from diverse participants. Discover how prediction markets outperform individual experts and other forecasting methods in various domains like sports, business, and politics.

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Prediction Markets: Harnessing Collective Intelligence for Accurate Insights

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  1. Prediction Markets Collective Intelligence @ Work Emile Servan-Schreiber, PhD NewsFutures

  2. Example Prediction Market Barack Obama to win the Democratic Nomination Source: NewsFutures – March 25, 2008 Stock Payoff = $1 if event happens, nothing otherwise Stock Price = estimated probability of event

  3. Example Prediction Market Barack Obama to win the Democratic Nomination Source: NewsFutures – March 25, 2008 Chances are81% Stock Payoff = $1 if event happens, nothing otherwise Stock Price = estimated probability of event

  4. Price Prediction Validity: Sports Predictions • 210 football games Participants • 2000+ sports fans • Self-selected Trading Period • Before the games Source: Servan-Schreiber, et al (2004) – Electronic Markets

  5. Price Prediction Validity: Business Predictions • 150 events • 40 subject areas Participants • 1,500 employees • Self-selected Trading Period • Various Source: Google

  6. Price Prediction Validity: Politics Predictions • 50 Elections • 239 Candidates Participants • Hundreds of political observers • Self-selected Trading Period • Months until election day Source: Iowa Electronic Market

  7. Prediction Markets Outperform • Individual Experts • Bias • No diversity • Opinion Polls • No reward for expertise • No penalty for fools • Official Company Forecasts • Politics • Conformity • Brittle models focused on past

  8. Why does it work?

  9. Why does it work? The Power of Diversity • Everyone contributes biased knowledge; • Knowledge adds up; • Biases cancel each other.

  10. Why does it work? The Power of Diversity • Everyone contributes biased knowledge; • Knowledge adds up; • Biases cancel each other. Rewarding timely and truthful revelation of information • It’s not enough to be right; • You must be right beforeothers. • Encouraging contrarian opinions.

  11. Why does it work? The Power of Diversity • Everyone contributes biased knowledge; • Knowledge adds up; • Biases cancel each other. Rewarding timely and truthful revelation of information • It’s not enough to be right; • You must be right beforeothers. • 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 • Betting calls on specific risk/reward areas • Putting the brain in a diffent state

  12. Why does it work? The Power of Diversity • Everyone contributes biased knowledge; • Knowledge adds up; • Biases cancel each other. Rewarding timely and truthful revelation of information • It’s not enough to be right; • You must be right beforeothers. • 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 • Betting calls on specific risk/reward areas • 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

  13. «The most heeded futurists these days are not individuals, but prediction markets, where the informed guesswork of many is consolidated into hard probability.» “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”

  14. More and more leading companiesare recognizing the valueof prediction markets 2000 2001 2002 2003 2004 2005 2006 2007

  15. Main Business Applications Forecasting Sales Selecting New Ideas Measuring Risks Monitoring Project Delivery Decision Markets

  16. Take Aways • Prediction markets aggregate the insights of many.

  17. Take Aways • Prediction markets aggregate the insights of many. • Prediction markets beat the alternatives.

  18. Take Aways • Prediction markets aggregate the insights of many. • Prediction markets beat the alternatives. • Prediction markets are increasingly used by business and government decision makers.

  19. The End

  20. Rewards : prizes, cash, … Recognition : by bosses and peers Relevance : interest, job fit Relationships : interactions, community R R R R Why do people participate?

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