It appears to me that Prediction Markets are the most overlooked and underappreciated Enterprise 2.0 technology. The underlying idea is that there is a class of problems that can be best solved by collecting information from disparate sources. Creating a marketplace for this activity provides incentive for people to gather and share. These are a bit more sophisticated than idea-sharing forums with rating features. But Prediction markets have demonstrated real value when applied properly.
If you are interested in learning more about this idea, read Infotopia by Cass Sunstein (there are other books on this topic, but I liked this one). The author provides many examples demonstrating when crowdsourcing works and when it does not. One simple example inspired from the book may prove the point well:
Ask anyone to tell you how cold the coldest day in Florida will be next winter. Will you believe their answer? Will you be willing to bet money on it? Probably not. What if you asked a hundred people and averaged all the answers? Still no. Why? Because it’s nearly impossible to predict this kind of information. However if you add marketplace rules to the mix, you may realize that the Orange Juice Futures price on the commodities exchange market is, in some respects, doing the impossible. Sure it’s not going to tell you the coldest temperature 6 months out. But part of the analysis will include gathering as much credible information from many sources in order to make a very informed guess. The marketplace is a predictive engine fueled by crowdsourcing. It may get the temperature wrong, but it will be a close-enough prediction that people will (and do) place significant amounts of money on its accuracy.
Prediction markets can be applied to many business settings. Well documented examples are easy to find (Google, Best Buy, Presidential Elections, National Security Intelligence, etc.). So I won’t elaborate here. But I will share this event information for those of you who are in the Washington DC area and are interested in this topic.
This meeting is sponsored by Transcapitalist — a very interesting blog about technology and free markets. And by Inkling Markets, one of the leading vendors in the prediction markets marketplace. The agenda looks fascinating and the topic is really provocative and important. And it’s a nominal $5 to attend.
I don’t predict that I’ll be there. I’ll say (with some irony) that my prediction is based on the current state of the market . But if you go, let me know so I can invite you to write a guest post on this blog, so that we can all benefit from your insight too.