Via Emile Servan-Schreiber of NewsFutures (who is of course cited in this article 
) …
Ask The Market – Companies are leading the way in the use of prediction markets. The public sector may soon follow. – (PDF – PR) – by Region Focus’ Vanessa Sumo – 2007-07-20
The power of prediction markets to successfully aggregate and summarize information relies a great deal on giving participants monetary incentives to truthfully reveal their beliefs, in making people “put their money where their mouth is.†This reward entices people to come forward and trade, to toss their bets and information in the ring. The more confident a trader is in his beliefs, the bigger his bet, thus giving more weight to what he knows. Because he will be rewarded for being correct, a trader will have the incentive to constantly watch the markets and to jump on any opportunity when prices fall out of line with their predictions. He will also be motivated to continually seek information to improve upon his bets and therefore the market’s forecasts. [...]
The pharmaceuticals industry has also been keen on prediction markets because choosing a new drug to place its money on can be very risky. “The problem of a pharmaceutical company is that it has many ideas that it could bet on, but it needs to bet on the right one early on, otherwise it could be wasting billions of
dollars on the wrong course,†Servan-Schreiber says. [...]But no system of forecasting is error free, and so the relevant question is how the errors of this mechanism compare to the errors of other forecasting mechanisms. So far, prediction markets have done at least as well as the alternatives. [...]
Excellent article. Go read it and print it. (It would have been better if she had interviewed Chris Masse. Ha. ha. ha. )
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