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
are 81%
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 before others.
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 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

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 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

13. «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”

14. 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

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