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

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

Example Prediction Market Barack Obama to win the Democratic Nomination Source: NewsFutures – March 25, 2008 Chances are 81% Stock Payoff = $1 if event happens, nothing otherwise Stock Price = estimated probability of event

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

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

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

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

Why does it work?

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

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 before others. Encouraging contrarian opinions.

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 before others. 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

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 before others. 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

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

More and more leading companies are recognizing the value of prediction markets Note : pour des raisons de confidentialité, certaines de nos sociétés clientes ne figurent pas dans les références 2000 2001 2002 2003 2004 2005 2006 2007

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

Take Aways Prediction markets aggregate the insights of many.

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

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.

The End

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