ABSTRACT

Citing recent successes in forecasting elections, movies, products, and other outcomes, prediction market advocates call for widespread use of market-based methods for government and corporate decision making. Though theoretical and empirical evidence suggests that markets do often outperform alternative mechanisms, less attention has been paid to the magnitude of improvement. Here we compare the performance of prediction markets to conventional methods of prediction, namely polls and statistical models. Examining thousands of sporting and movie events, we find that the relative advantage of prediction markets is surprisingly small, as measured by squared error, calibration, and discrimination. Moreover, these domains also exhibit remarkably steep diminishing returns to information, with nearly all the predictive power captured by only two or three parameters. As policy makers consider adoption of prediction markets, costs should be weighed against potentially modest benefits.

Prediction Without Markets

Network Singularity Commentary

Kudos to the researchers, PM Cluster and community sponsor, David Pennock., et al, for Prediction Without Markets. These findings are very encouraging for enterprise prediction markets and collective intelligence.

If the PM, collective intelligence, WoC, collaborative forecasting, etc., innovators are even at parity with traditional enterprise predictive techniques, then it is a major breakthrough.

Recall, all enterprise innovations meet with reactionarism. (Not that this paper is reactionary, per se.) It is an expected and confident sign/stage in the lifecycle.

A far greater concern would be if there was no push-back to a new technique or technology!

See:

http://networksingularity.com/2009/09/22/enterprise-reactionaries.aspx

What happens in the adoption lifecycle is the independent variable, people, adapt and evolve in the context of the new method and context. This is where the authentic enterprise advantages and advancements in productivity, speed, innovation and growth emerge and abide.

Organizations are networked markets. Anything outside these networks is fast becoming irrelevant.

Innovative social media like PMs, collective intelligence, WoC and collaborative forecasting will fundamentally alter the enterprise landscape with confidence. In particular, for PM/CI social media, there are significant cost savings and speed advantages over traditional methods. These advantages, in concert with even modest prediction market improvements in accuracy, makes innovative market-methods a serious plank in Enterprise 2.0.