group_two:project

Prediction Markets

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

Basic theory: Condorcet 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!

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

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 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

Provide incentives (dt.: Anreize) for truthful revelation (dt.: Offenbarung, Aufdeckung)
Provide incentives for research and information discovery
Provide an algorithm for aggregating diverse opinions