© newsfutures 1 Prediction Markets: Collective Work Prediction Markets Collective Work Emile Servan-Schreiber, PhD NewsFutures

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

© newsfutures 3 Prediction Markets: Collective Work Example Prediction Market Stock Payoff = $1 if event happens, nothing otherwise Stock Price = estimated probability of event Barack Obama to win the Democratic Nomination Source: NewsFutures – March 25, 2008 Chances are 81%

© newsfutures 4 Prediction Markets: Collective Work Price Prediction Validity: Sports Source: Servan-Schreiber, et al (2004) – Electronic Markets Predictions  210 football games Participants  sports fans  Self-selected Trading Period  Before the games

© newsfutures 5 Prediction Markets: Collective 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 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 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 Work Why does it work?

© newsfutures 9 Prediction Markets: Collective 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 Work The Power of Diversity o Everyone contributes biased knowledge; o Knowledge adds up; o Biases cancel each other. Rewarding timely and truthful revelation of 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 Work The Power of Diversity o Everyone contributes biased knowledge; o Knowledge adds up; o Biases cancel each other. Rewarding timely and truthful revelation of 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 areas o Putting the brain in a diffent state

© newsfutures 12 Prediction Markets: Collective Work The Power of Diversity o Everyone contributes biased knowledge; o Knowledge adds up; o Biases cancel each other. Rewarding timely and truthful revelation of 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 areas o 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 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 Work More and more leading companies are recognizing the value of prediction markets

© newsfutures 15 Prediction Markets: Collective Work Main Business Applications Forecasting Sales Selecting New Ideas Measuring Risks Monitoring Project Delivery Decision Markets

© newsfutures 16 Prediction Markets: Collective Work Prediction markets aggregate the insights of many. Take Aways

© newsfutures 17 Prediction Markets: Collective Work Prediction markets aggregate the insights of many. Prediction markets beat the alternatives. Take Aways

© newsfutures 18 Prediction Markets: Collective 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 Work The End

© newsfutures 20 Prediction Markets: Collective Work Why do people participate? Rewards : prizes, cash, … Recognition : by bosses and peers Relevance : interest, job fit Relationships : interactions, community R R R R