Prediction Markets are Wisdom of Crowds in action

Amazing results in lots of applications:

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!

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?

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

Prediction Markets in Theory and Practice

HSX - Hollywood Stock Exchange

Ideafutures Project Page

Foresight Exchange