Using Prediction Markets To Harness Collective Wisdom For Forecasting

UsInG PredICTIon MArkeTs To HArness ColleCTIve WIsdoM For ForeCAsTInG By Aleksandar Ivanov Prediction Markets (PM) method aggregates a large amount of information from various individuals to generate a forecast … the method responds to changes in market conditions quickly … it can be used for forecasting sales of new and existing products. P P rediction Markets (PM) are a collaborative forecasting tool based on methods from Decision Theory, Collective Intelligence, and Crowdsourcing. Here, participants of PM use play-money to bet anonymously on a specific company outcome. Betting influences the outcome. The outcomes may include forecasts of existing and new products, deadlines, and new product ideas. The PM collects the opinions of all the participating employees, weighs them, and then computes a single-number forecast. In practice it is done with online PM software that is deployed in the company intranet. If the incentives of a PM are well placed, it can give excellent results. Let’s say we want to predict the sales of a certain product in the fourth quarter of 2010. In PM, the forecast is represented by the price of a virtual stock; let’s call it stock “Q4, 2010.” ...