Prediction Markets and Public Policy: New ways to harness the wisdom of crowds – (PDF file) – by Matt Burgess
Victoria University and the Institute for the Study of Competition and Regulation recently launched iPredict.co.nz, New Zealand’s first real money prediction market. Prediction markets, also known as ideas futures, are like share markets, but the stock that is traded is special: it pays a one-time dividend of a dollar if and only if a defined event comes true. The price this stock trades for is the prediction e.g. $0.60 = 60% probability.
A prediction markets is a forecasting and policy-analysis tool that works by harnessing the wisdom of the crowd trading on them. Since their invention in 1988, prediction markets have outperformed other forecasting mechanisms, including traditional polling in predicting election outcomes. More recently, large organisations have had their employees trade on internal prediction markets to learn, among other things, whether projects will be completed on time, the accuracy of official forecasts, whether budgets will be met, and the commercial prospects for products still on the drawing board.
This seminar will describe how prediction markets work, provide data showing their forecasting efficacy in a range of situations, set out the theoretical case for their success, and discuss the various ways in which they may be deployed, including policy development and analysis.
Matt Burgess is the Chief Executive of iPredict.
