===== Prediction Markets =====

==== General Information ====

  * Prediction Markets are Wisdom of Crowds in action
  * Amazing results in lots of applications:
    * Wikipedia
    * Social Bookmarking
    * → Internet in general

==== What we learned so far ====
  * Basic theory: Condorcet Jury Theorem
  * [[http://en.wikipedia.org/wiki/Condorcet's_jury_theorem|Wikipedia]]: „where the average chance of a member of a voting group making a correct decision is greater than fifty percent the chance of the group as a whole making the correct decision will increase with the addition of more members to the group“
  * self selected traders volunteer to put their knowledge into a prediction
  * Certain value (real or play money) is connected to personal prediction
  * One classic approach: ask a group of experts and take the average
  * Manipulation? Have a look at the general stock exchange or even Wikipedia!

==== Types of Prediction Markets ====
  - winner-takes-it-all
    * defining one specified event
    * pays off a specified amount if the event occurs
  - index
    * pays off for every single percentage point
  - spread
    * pays off even if the percentage is higher than expectation

==== Requirements ====
  * Design issue => how do buyers and sellers meet and exchange?
  * Contracts must be defined very clearly (Event occurred just because of a fusion with other contracts)
  * Play or real money?
    * by creating a „game feeling“ people are encouraged as well, although just play money is at stake 
    * Play money: only good betters can be successful in the market (equality and fair competition!)
  * //Why do people participate in [[http://en.wikipedia.org/wiki/Massively_multiplayer_online_role-playing_game|MMORPG]], browsergames in general?//
  * Motivation of the traders is very important (e.g. real money showed: even thin markets (20-60 people) have very good results)
  * Only work well if there is enough useful intelligence
  * When public information is selective, inaccurate or misleading => PM won't work

==== Power of Prediction Markets / Conclusion ====
  * Provide incentives (dt.: Anreize) for truthful revelation (dt.: Offenbarung, Aufdeckung)
  * Provide incentives for research and information discovery
  * Provide an algorithm for aggregating diverse opinions

==== Links: ====
  * [[http://ftp.iza.org/dp1991.pdf|Prediction Markets
in Theory and Practice]]
  * [[http://www.hsx.com|HSX - Hollywood Stock Exchange]]
  * [[http://ideafutures.sourceforge.net/|Ideafutures Project Page]]
  * [[http://www.ideosphere.com/|Foresight Exchange]]