# Derren Brown’s lottery win = A split camera trick disguised as “wisdom of crowds”

On 9 September 2009, [British illusionist] Derren Brown conducted a live TV broadcast in which he suggested that he had successfully predicted the winning National Lottery numbers prior to them being drawn. During the broadcast a number of blank lottery balls were displayed on a glass stand in clear view of the camera, and after the lottery draw had been made, the balls were rotated to reveal the winning numbers. It was claimed by Derren Brown that the only other people in the studio were two camera operators, to avoid legal issues, and that the stunt had been authorised by Camelot, the National Lottery operators.

Great Britain is buzzing like crazy about the stunt.

He claimed it was based on an old trick which tells how a crowd of people at a country fair accurately estimated the weight of an ox when their guesses were all averaged out. He gathered a panel of 24 people who wrote down their predictions after studying the last year’s worth of numbers. Then they added up all the guesses for each ball and divided it by 24 to get the average guess. On the first go they only got one number right, on the second attempt they managed three and on the third they guessed four. By the time of last week’s draw they had honed their technique to get six correct guesses, and these were the numbers shown on the Wednesday night programme. [Derren] Brown claims that the predictions were correct because of the “wisdom of the crowd” theory which suggests that a large group of people making average guesses will come up with the correct figure as an average of all their attempts. He also suggested that if the people were motivated by money, it may not work.

Well, we know a lot about the “wisdom of crowds“, here, as Midas Oracle specializes in collective intelligence. The idea of the “wisdom of crowds” is to aggregate bits of information that are dispersed in a population of independently minded individuals. The result of that information aggregation is a predictive power slightly superior (on average, over the long term) to what one single individual can produce —even a gifted one. However, the “wisdom of crowds” is not powerful enough to predict the future with 100% certainty. For that, you would have to reverse the psychological arrow of time —so as to remember the future as opposed to the past. Physicists tell us this is impossible in our universe. Hence, Derren Brown used a trick [WATCH THE 3RD VIDEO BELOW] —and concealed it with some blahblah about the “wisdom of crowds”.

“Check the ball on the right after Derren Brown says ‘23′. Notice it mysteriously jumps up and is slightly higher than the other 5 balls. (apologies for the camera wobble but my camera is on a tripod, the wobble is from the camera on the show which is programmed to wobble so you can’t see the switch of the balls). So no magic, NLP, psychology or mind-tricks. Just good old fashioned camera trickery.

For the tip, thanks to Emile Servan-Schreiber of NewsFutures —we’re impatient to see the new version of their software / prediction market website.

UPDATE:

His next event: Trying to beat the casino.

Another video

Another video

# Derren Browns lottery win = A split camera trick disguised as wisdom of crowds

On 9 September 2009, [British illusionist] Derren Brown conducted a live TV broadcast in which he suggested that he had successfully predicted the winning National Lottery numbers prior to them being drawn. During the broadcast a number of blank lottery balls were displayed on a glass stand in clear view of the camera, and after the lottery draw had been made, the balls were rotated to reveal the winning numbers. It was claimed by Derren Brown that the only other people in the studio were two camera operators, to avoid legal issues, and that the stunt had been authorised by Camelot, the National Lottery operators.

Great Britain is buzzing like crazy about the stunt.

He claimed it was based on an old trick which tells how a crowd of people at a country fair accurately estimated the weight of an ox when their guesses were all averaged out. He gathered a panel of 24 people who wrote down their predictions after studying the last year&#8217-s worth of numbers. Then they added up all the guesses for each ball and divided it by 24 to get the average guess. On the first go they only got one number right, on the second attempt they managed three and on the third they guessed four. By the time of last week&#8217-s draw they had honed their technique to get six correct guesses, and these were the numbers shown on the Wednesday night programme. [Derren] Brown claims that the predictions were correct because of the &#8220-wisdom of the crowd&#8221- theory which suggests that a large group of people making average guesses will come up with the correct figure as an average of all their attempts. He also suggested that if the people were motivated by money, it may not work.

Well, we know a lot about the &#8220-wisdom of crowds&#8220-, here, as Midas Oracle specializes in collective intelligence. The idea of the &#8220-wisdom of crowds&#8221- is to aggregate bits of information that are dispersed in a population of independently minded individuals. The result of that information aggregation is a predictive power slightly superior (on average, over the long term) to what one single individual can produce &#8212-even a gifted one. However, the &#8220-wisdom of crowds&#8221- is not powerful enough to predict the future with 100% certainty. For that, you would have to reverse the psychological arrow of time &#8212-so as to remember the future as opposed to the past. Physicists tell us this is impossible in our universe. Hence, Derren Brown used a trick [WATCH THE 3RD VIDEO BELOW] &#8212-and concealed it with some blahblah about the &#8220-wisdom of crowds&#8221-.

&#8220-Check the ball on the right after Derren Brown says &#8216-23&#8242-. Notice it mysteriously jumps up and is slightly higher than the other 5 balls. (apologies for the camera wobble but my camera is on a tripod, the wobble is from the camera on the show which is programmed to wobble so you can&#8217-t see the switch of the balls). So no magic, NLP, psychology or mind-tricks. Just good old fashioned camera trickery. &#8221-

For the tip, thanks to Emile Servan-Schreiber of NewsFutures &#8212-we&#8217-re impatient to see the new version of their software / prediction market website.

UPDATE:

His next event: Trying to beat the casino.

Another video

Another video

# Do businesses need enterprise prediction markets?

Competitive advantage can be obtained either by differentiation or by low cost. Enterprise prediction markets certainly don&#8217-t foster the innovation process, and they are surely not the cheapest forecasting tool. EPMs require special software, the hiring of consultant(s), the participation of all, and a budget for the prizes. EPMs are costly, and they take time to deliver. As of today, I can&#8217-t see why any sane CEO should be implementing EPMs as a decision-making support. At the contrary, I would say that any sane CEO should fire any employee who tried to sneak in internal prediction markets, and should dismember any existing corporate prediction exchange. Right now.

It has been suggested that EPMs have helped Best Buy getting it right on the ‘HD-DVD versus Blu-Ray’ issue. It&#8217-s a boatload of bullsh*t. I know a lot about technology intelligence. It should be done by a smart and curious operator. There is no need of enterprise prediction markets to do this task. The tools you need consist of a bunch of IT news aggregators and a good search engine. Consider this:

The Inevitable Move Of iTunes To The Cloud

In the &#8216-cloud&#8217- piece above, there are facts and there are speculations. You&#8217-ve got much more technology intelligence reading the &#8216-cloud&#8217- piece above than you would get from a crude, plain and simple prediction market. Gimme a break with EPMs. Make no sense at all.

Contrast EPMs (which are costly) with public prediction markets (a la InTrade or BetFair), where probabilistic predictions are offered for free. That makes all the difference for the reason that the added accuracy brought by prediction markets is very small. Market-generated odds are handed out for free to journalists &#8212-still, few of them take the bait. The market-powered crystal ball is worth peanuts.

The reason CEOs are paid millions is that only a small percent of the population of business administration managers has the ability to cut through the non-sense and the balls to cut the cost of the non-sense. It is a rare skill. I am calling on CEOs to end EPMs. Right now.

# The Singularity University looks at prediction markets and collective intelligence.

In its ten tracks Singularity University (SU) tries to cover as much as possible of a vast amount of material. The specifics are steered by the track chairs, with a lot of input from both the students, the teaching fellows, and also sometimes from the outside. The Futures Studies &amp- Forecasting track does indeed cover prediction markets, and yes, if not a proper market, tasks, ideas, and group activities are often evaluated using group raking tools within SU.

David

David Orban
NASA Ames, Bldg 17 Moffett Field, CA 94035, USA
http://www.singularityu.org/david

# CrowdCast = market mechanism = binary spreads with a market maker

Leslie Fine (CrowdCast Chief Scientist) to me:

Actually, our mechanism is a market, it&#8217-s just not a stock market. We use an automated market maker to efficiently price every bet, adjust crowd beliefs, and price an interim sell. In essence, participants trade binary spreads with the market maker.

Because our new version was not yet market-ready, I did not enter the markets vs. non-markets debate when you were having it some months ago. However, among other reasons, we avoid collective forecasting because it is too similar to collaborative forecasting, which is key in supply chain. Honestly, when all is said and done, our clients care not what the mechanism is. They care that we can efficiently gather team intelligence and translate it into actionable business intelligence. That is our mission.

CrowdCast website

# Flawed New Hampshire polls = Non-accurate New Hampshire prediction markets

The most comprehensive analysis ever conducted of presidential primary polls:

&#8220-a handful of methodological missteps and miscalculations combined to undermine the accuracy of predictions about presidential primary winners in New Hampshire and three other states.&#8221-

Via Mister the Great Research Scientist David Pennock &#8211-who is an indispensable element of the field of prediction markets.

As I blogged many times, prediction markets react to polls&#8230- See the addendum below&#8230- – [UPDATE: See also Jed’s comment.] – Prediction markets should not be hyped as crystal balls, but simply as an objective and continuous way to aggregate expectations. So, if you think of it, their social utility is much smaller than what the advocates of the &#8220-idea futures&#8221-, &#8220-wisdom of crowds&#8221- or &#8220-collective intelligence&#8221- concepts told us. Much, much, much, much smaller&#8230- They all make the mistake to put accuracy forward. (By the way, somewhat related to that issue, please go reading the dialog between Robin Hanson and Emile Servan-Schreiber.)

What you&#8217-re doing is collecting bits and pieces of information and aggregating it so we can watch it and understand what people know. People picked this up and called it the &#8220-wisdom of crowds&#8221- and other things, but a lot of that is just hype.

New Hampshire – The Democrats

The Hillary Clinton event derivative was expired to 100.

New Hampshire – The Republicans

The John McCain event derivative was expired to 100.

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# The truth about (enterprise) prediction markets

Paul Hewitt:

[…] In virtually every case, the prediction market forecast is closer to the official HP forecast than it is to the actual outcome. Perhaps these markets are better at forecasting the forecast than they are at forecasting the outcome! Looking further into the results, while most of the predictions have a smaller error than the HP official forecasts, the differences are, in most cases, quite small. For example, in Event 3, the HP forecast error was 59.549% vs. 53.333% for the prediction market. They’re both really poor forecasts. To the decision-maker, the difference between these forecasts is not material.

There were eight markets that had HP official forecasts. In four of these (50%), the forecast error was greater than 25%. Even though, only three of the prediction market forecast errors were greater than 25%, this can hardly be a ringing endorsement for the accuracy of prediction markets (at least in this study). […]

To the despair of the Nashville imbecile, Paul&#8217-s analysis is quite similar to mine (circa February 14, 2009):

The prediction market technology is not a disruptive technology, and the social utility of the prediction markets is marginal. Number one, the aggregated information has value only for the totally uninformed people (a group that comprises those who overly obsess with prediction markets and have a narrow cultural universe). Number two, the added accuracy (if any) is minute, and, anyway, doesn’t fill up the gap between expectations and omniscience (which is how people judge forecasters). In our view, the social utility of the prediction markets lays in efficiency, not in accuracy. In complicated situations, the prediction markets integrate expectations (informed by facts and expertise) much faster than the mass media do. Their accuracy/efficiency is their uniqueness. It is their velocity that we should put to work.

Prediction markets are not a disruptive technology, but merely another means of forecasting.

Go reading Paul&#8217-s analysis in full.

I would like to add 2 things to Paul&#8217-s conclusion:

1. We have been lied to about the real value of the prediction markets. Part of the &#8220-field of prediction markets&#8221- (which is a terminology that encompasses more people and organizations than just the prediction market industry) is made up of liars who live by the hype and will die by the hype.
2. Prediction markets have value in specific cases where it could be demonstrated that an information aggregation mechanism is the appropriate method that should be put at work in those cases (and not in others). Neither the Ivory Tower economic canaries nor the self-described prediction market &#8220-practitioners&#8221- have done this job.

# Enterprise prediction markets: Usability innovation is the answer.

This past week, The Economist wrote on the yet-unfulfilled promise of prediction markets. At CrowdCast (ex-Xpree), we believe prediction markets are not yet mainstream because the current solutions are built on mechanisms designed for the stock market, not for the enterprise.

The stock trading metaphor works for a large, liquid stock market, but is unsuitable for enterprise forecasting. The concept of shorting and covered calls is far from intuitive for your average employee, and the stock mechanism makes it hard to ask the simplest of questions relevant for corporate forecasters. For example, buying or selling a collection of virtual stocks representing probabilities of sales falling in particular ranges is an incredibly obtuse way of asking for a single sales forecast. Finally, the stock mechanism relies on copious liquidity to ensure meaningful metrics, which is often not available with the limited crowds available in the enterprise.

However, innovation moves on and we question the assumption that prediction markets have to rely on the stock market analogy. At CrowdCast, we have been working on a new mechanism, that takes into account participant behavior and aptitude as much as market efficiency. The product we are launching in April will deliver easy, engaging, and expressive information exchanges, without the limitations of traditional notions of stock markets.

When you get the questions, incentives, and mechanism right, a prediction market can be an incredibly powerful management tool. Employees share insights anonymously and are measured and rewarded for their intelligence. Widely deployed, this has the potential to fundamentally change the nature of the organizational contract, moving from information flow based on hierarchy and silos, to enterprise-wide direct communication.

A whole new take on prediction markets- available from CrowdCast in April 2009.

Mat Fogarty

CrowdCast CEO

Cross-posted from the Xpree blog

Previously: Are collective intelligence solutions being oversold?

# The truth about prediction markets

Come to the wonderful world of collective intelligence, wisdom of crowds, and prediction markets!&#8230- The sun shines bright, the market-generated predictions are vastly superior to the polls as election predictors, and the track record of the public prediction markets stretches as far as the eye can see. There are opportunities aplenty in the field of prediction markets, and the trading technology is cheap. Every working enterprise can have its own internal prediction exchange, and inside every exchange, a set of enterprise prediction markets that correctly predicts the future of business, which their happy, all-American CEO listens to. Life is good in the magic world of prediction markets&#8230- it&#8217-s paradise on Earth.

Ha! ha! ha! ha!&#8230- That&#8217-s what they tell you, anyway&#8230- &#8212-because they are selling an image (just as Bernie Madoff did). They are selling it thru their vendor websites, vendor conferences, vendor-inspired articles in blogs, newspapers and magazines, and interviews of vendor data-fed professors in the media.

The prediction market technology is not a disruptive technology, and the social utility of the prediction markets is marginal. Number one, the aggregated information has value only for the totally uninformed people (a group that comprises those who overly obsess with prediction markets and have a narrow cultural universe). Number two, the added accuracy (if any) is minute, and, anyway, doesn&#8217-t fill up the gap between expectations and omniscience (which is how people judge forecasters). In our view, the social utility of the prediction markets lays in efficiency, not in accuracy. In complicated situations, the prediction markets integrate expectations (informed by facts and expertise) much faster than the mass media do. Their accuracy/efficiency is their uniqueness. It is their velocity that we should put to work.

A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays \$100 only if candidate X wins the election, and \$0 otherwise. When the market price of an X contract is \$60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative represents the imputed perceived likelihood of the partially uncertain future outcome (i.e., its aggregated expected probability). A 60% probability means that, in a series of events each with a 60% probability, the favored outcome is expected to occur 60 times out of 100, and the unfavored outcome is expected to occur 40 times out of 100.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism &#8212-with or without an automated market maker.

Prediction markets enable us to attain collective intelligence. Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that the traders bring when they agree on prices. The event derivative traders are informed by the primary indicators (i.e., the primary sources of information), like the polls, for instance. These informed speculators then execute their transactions based on their anticipations about the future &#8212-anticipations that will be either confirmed or infirmed.

The value of a set of prediction markets consists in the added accuracy that these prediction markets provide relative to the other meta predictive mechanisms, times the value of accuracy in improved decisions, minus the cost of maintaining these prediction markets, relative to the cost of the other meta predictive mechanisms. A highly accurate set of prediction markets has little value if some other meta predictive mechanism(s) can provide similar accuracy at a lower cost, or if very few substantial decisions are influenced by accurate predictions on its topic.

PS: I am updating a bit the content of this webpage, over time &#8212-so as to finesse the message.

# How can people and computers be connected so that collectively they act more intelligently than any individual, group, or computer has ever done before?

MIT Center for Collective Intelligence:

Collective intelligence is groups of individuals doing things collectively that seem intelligent.