Monday, March 9, 2009

Prediction markets: why aren't they used more?

While prediction markets have a distinguished history, and are currently used in some interesting applications, the Economist magazine writes: Prediction markets: An uncertain future, A novel way of generating forecasts has yet to take off.

"NOT SO long ago, prediction markets were being tipped as a fantastic new way to forecast everything from the completion date of a vital project to a firm’s annual sales. But although they have spread beyond early-adopting companies in the technology industry, they have still not become mainstream management tools. Even fervent advocates admit much remains to be done to convince sceptical managers of their value. “It’s still a pretty evangelical business,” says Leslie Fine of CrowdCast, one of the firms that provide trading platforms for companies keen to pool the collective wisdom of their employees."

The Economist has some hypotheses about the difficulties so far:
"A big hurdle facing managers using prediction markets is getting enough people to keep trading after the novelty has worn off. "...
"Another reason prediction markets flop is that employees cannot see how the results are used, so they lose interest. "...
"Bosses may also be wary of relying on the judgments of non-experts."

At Crowdcast (formerly Xpree) they have a market design hypothesis. They blog in response to the Economist article:
"we believe prediction markets are not yet mainstream because the current solutions rely on mechanisms designed for the stock market, not for the enterprise."

(N.B. A blog that follows prediction markets is Midas Oracle .ORG )

1 comment:

Jed Christiansen said...

Interesting post. I've written about this very problem recently, and have come to the conclusion that it's likely because prediction markets approach the problem of forecasting from a completely different perspective than any other forecasting technology or technique.

My posts are here:

(and the followup based on comments)