As noticed by our good Doctor Professor Michael Giberson (of Knowledge Problem fame):

1. The appropriateness of the “prediction market” label to an information aggregation mechanism — 39 comments
2. The best way to rank the best ideas coming from the rank — 11 comments and going

And both discussions feature the “Keynesian beauty contest“ argument. The argument is frown by some prediction market people at some other prediction market people, who take it as a grave insult. So, if you like Keynes, and if you like real action, come in and join the fray. We are having fun.

The officials would be able to count the number of similar suggestions and in that way they would approximate aggregation. It’s just not as automatic as what Emile imagines.

[Read Emile's comments here.]

NewsFutures suggests that the SAVE Award approach just scratches the surface of the possible benefits of crowdsourcing innovation. (Noted earlier in this post at Midas Oracle.) Here is their diagnosis and recommendation:

What’s wrong with this process?

There is no aggregation of the collective wisdom. The crowd is called on only to submit ideas, not to help evaluate them, which is the critical step in the delicate wisdom of crowd recipe. Instead, a bunch of political appointees in the OMB will decide which ideas get on the short list that the President will see. Needless to say, we would not dare propose such a simplistic process to our enterprise clients looking to harvest and select innovative ideas from their employees.

Here’s how it should be done: After everyone has proposed their ideas, ask everyone to bet (not vote) on which idea the President will ultimately select – or alternatively, on which ideas will be short-listed by the OMB officials. The crowd’s betting will quickly and efficiently produce a ranking of the best-to-worst ideas, and the result will be less arbitrary than what you can expect form a close-knit group of bureaucrats. Now, it doesn’t mean that the OMB officials cannot have the ultimate say on what ends up on the short list that goes to the Oval Office, but their choice is at least informed by the crowd’s aggregate choice.

Let’s ask NewsFutures’s question again: “What’s wrong with this process?”

Since the crowd is being asked to bet on which idea(s) will be chosen, not which ideas would actually produce the best productivity improvement, the betting will not “quickly and efficiently produce a ranking of the best-to-worst ideas.” Instead, it will produce a ranking of which items the bettors believe are more likely to be selected by the OMB and President.

If the short list was actually determined by the betting rather than independently selected by the OMB, the process takes on elements of a Keynesian beauty contest. No longer would bettors be betting on which ideas would be best, nor which idea among all submissions is most likely to be chosen by the President. Instead, the winning bettors would be those that best predicted which idea would be chosen from among those ideas most heavily favored by other bettors.

Rather than aggregating collective intelligence to identify the best idea, the process instead becomes one in which, in Keynes’ words, “we devote our intelligences to anticipating what average opinion expects the average opinion to be.” Perhaps a prediction market or other mechanism for collecting the “wisdom of the crowd” could improve the SAVE Award process, but a Keynesian beauty contest seems the wrong way to go.

[The post was originally published in slightly different form at Knowledge Problem.]