Newswise — Can a crowd of people be smarter than any of the individuals in it? You would think not, but you would be wrong. You might think that the less informed or intelligent members of the crowd would bog down the experts, but in fact, the reverse is the case--little pockets of expertise can be drawn out of individuals and combined to make for predictions that are more accurate than any of the members could muster separately. Researchers have been studying the "wisdom of crowds" for over a decade now, but it's only in the last few years that such methods have been used in practice. Today, Hewlett-Packard, General Electric, Nokia, Samsung, ArcelorMittal, and Best Buy are just some of the many companies that have begun using what are called prediction markets to help them predict public reaction to new products, the future price of a commodity, or sales revenue in the next quarter.
In the past few years, the technique has really taken off, with at least a dozen startups competing for business in the field. Some offer software and services to help companies tap the wisdom of their workers or the outside world. Others create markets that allow anyone to go to a Web site to bet or even to pose a question that can be bet on. Chris F. Masse, a financial consultant in Sophia Antipolis, France, who specializes in prediction markets, says that by 2010, "10 percent of Fortune 500 companies will have gone public about their use of internal prediction markets, and probably another 10 percent will be testing some projects."
Among the leaders in the emerging field are Consensus Point, in Nashville, which counts GE and Best Buy among its clients, and Inkling, a Chicago startup that designs internal markets for companies such as computer-game manufacturer Electronic Arts, in Redwood City, Calif., which uses them to predict industry assessments of its products. There is, inevitably, an alliance that is producing open-source software for prediction markets; the collective, known as the Zocalo project, is run by software engineer Chris Hibbert and affiliated with North Carolina State University.
Many managers are reluctant to use prediction markets, for a variety of reasons, including a loss of control over the decision-making process. Nevertheless, having gained a foothold in the corporate world, their role is sure to grow larger and larger.
RSS