I’ve recently started reading a rather popular book called The Wisdom of Crowds by James Surowiecki. The basic premise of the book is that collective intelligence of a crowd is usually much higher than people realize and can be quite accurate. For example did you know that on the show “Who wants to be a millionaire?” the crowd was correct 91% of the time? That seems awfully high based on my intuition. Obviously, there are certain requirements that the group must meet such as diversity, indepedence and a form of decentralization. Really interesting stuff. I’ll post a formal review once I finish the book.
Anyway, this leads me to Prediction Markets. Prediction markets let people bet and form a marketplace around their predictions. I’m talking about the traditional prediction markets that essentially model the financial markets (buy and sell, prices). It is important to note that there are many other forms of prediction markets (e.g. Google). For legal reasons, most of them do not use real money, but some do.
Here are a few examples of prediction markets.
- Iowa Electronic Markets (IEM) – real money market, numerous fields including political elections
- Hollywood Stock Exchange – celebrity and entertainment
- Trade Sports – sports
- News Futures – news
The trick is get people engaged to contribute in the market you are creating. I personally don’t like the traditional prediction market model. It’s boring and much to similar to the stock market. Plus when real money is not involved people just don’t have the incentive to keep coming back (even though some actually do). We have only scratched the surface with prediction markets. There so much we could do here.
I find this field fascinating and do have a bunch of ideas for projects. Anyone interested in a social networking / prediction market ROR project?
