Issue 5 October 2008
Prediction Markets: Are they a good bet?
by Will Riddell
Prediction markets that use the basic principles of a stock exchange are
emerging as a viable tool within organisations for planning and decision
making. The collective knowledge and opinions of groups of customers or
staff, when effectively harnessed, can prove to be a reliable predictor of the
future to replace or supplement traditional tools and technologies employed
by strategic planners and forecasters.
swarM Theory A key aspect of swarm theory is that there is no leader
In the animal and insect world the term “Swarm Theory” or command centre and yet the actions of each
has been used to describe the collective intelligence individual contribute to the survival and effectiveness
that determines how, for instance, bees make a of the group.
decision on moving to a new home, ants decide who
will do what jobs on a given day and herds of caribou Where does this intelligence come from? How do the
or shoals of herring move as one to avoid a predator. simple actions of individuals add up to the complex
behaviour of the group? None of these individual
creatures grasp the big picture but each contributes
to the group’s success.
Peter Miller from National Geographic ties swarm
theory to the use of collaboration for group
intelligence
1
. He believes that collective processes
such as prediction markets can result in improved
accuracy in predictions and effective search
strategies. He quotes Thomas Malone of MIT’s
Centre for Collective Intelligence: “No single person
knows everything that’s needed to deal with the
problems we face as a society, such as health care
or climate change, but collectively we know far more
than we’ve been able to tap so far.”
18 | Perspectives on the future
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