Jed Christiansen was kind enough to reply to my post: If prediction markets are so good at forecasting, why aren’t they being used much more widely?
#1. (Public or enterprise) traders mainly bring to the exchange some bits of information they acquired from some official or semi-official sources. The enterprise traders bring in the information they got from second hand, mainly. Few of them are in direct contact with the facts in question, or know the big picture. They also bring their bias, granted.
#2. Enterprise prediction markets are not the only thing “completely different to anything they’ve ever encountered [before]“. If you think of it, the Internet was “completely different”, too. Yet, the companies have all established an Internet presence and are all trying to market thru the Web. If EPMs have not yet been adopted, it is because a) their advocates have greatly exaggerated their benefits b) their advocates have not been specific enough as to when and where exactly EPMs can make a difference.
#3. If the EPMs “do the same thing differently” (I concur), then their advocates should go on the record as to why and when using traders is so beneficial to the forecasting process.
#4. When people hear about the wisdom of crowds in the media, in articles about prediction markets, it is in relation to that damn alleged added accuracy. I didn’t invent that.
#5. Surely. But do those 16 traders remain active after the novelty has worn off?
Thanks for the reply, Chris. I think this is an interesting discussion. In reply to your points above:
#1- I think that individual traders do have direct connection with the facts, but only a small subset of the relevant facts. It’s like the old parable about the blind men describing the elephant: each knows a part very well, but aggregating the information is tough. But I absolutely believe that a majority of users will have some direct connection with the relevant markets.
#2- The Internet was completely different, but it affected various businesses differently. For your local plumber, it’s essentially just a new marketing channel. But for a company like Blockbuster (competing with Netflix) it completely upended their business model. But I would argue that we still have many years of changes ahead as businesses and their business models react to how the Internet has changed their business. Just like PM’s, it takes some time for companies to understand what a new technology is doing and how to react.
#2b/3- Completely agree with you here. Part of the reason I’ve been talking about this recently is to try and encourage this!
#5- It depends. I like the way Emile describes it with the 3 R’s: Relevance, Rewards, and Recognition. A company needs to get the right balance of all three.
More/better incentives = More/better accuracy.
Daniel, if you give out a Ferrari to each of the traders, surely, you will get results. At what cost?