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Prediction Markets — Value among the Crowd

By Philip Delves Broughton, Financial Times, Wednesday 24 April 2013

The idea behind prediction markets for companies is that the accumulation of informed opinion will be more accurate than the best guesses of ex­ec­utives. They have been billed as a way to tap communities of employees, consumers and experts to generate in­sights into issues affecting businesses and their operations, from product delivery schedules to marketing and quarterly sales.

But the prediction market revolution in business is taking longer than expected. The recent shutdown of Intrade, the Dublin-based prediction market, under scrutiny from the US Commodities Futures Trading Commission, revealed many of the challenges.

Donald Thompson, emeritus marketing professor at York University in Toronto, says: “There’s a culture . . . that the CEO is the smartest guy in the room. To change that and say everyone in the company has information that could make better decisions, including the receptionists, is a major culture change.

“No one wants to tell the CEO that maybe all of us are smarter than any of us. The other major issue is, who’s going to be embarrassed by the questions we ask? If you’re going to ask important questions, you’re going to challenge certain decision makers. You need a culture that allows this.”

Equally, trained forecasters do not want what they see as a gimmicky computer game re­placing their traditional tools. But, says Prof Thompson, the hostility is diminishing. The success of prediction markets in well populated fields such as politics and movies is increasing confidence in them.

Within 10 years, he bel­ieves, they will have replaced surveys. That would bring a new transparency to forecasting and allow un­heralded experts to emerge to challenge conventional wisdom.

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