It has been about three years since I started writing this blog and it has finally reached 15,000 visitors. I have to thank Chris Masse of Midas Oracle for re-posting many of my articles and providing helpful comments. Initially, I was very optimistic about the prospects for using prediction markets to improve predictions and forecasting in business. But the more I delved into the research, the less optimistic I became. My skepticism began when I researched HP’s prediction markets in an Analysis of HP’s Real Prediction Markets. Unfortunately, just about everyone in the field continues to cite the accuracy of the HP prediction markets as evidence that “prediction markets work”. They weren’t that accurate, and even if they were, they don’t prove that prediction markets work.
Now, I think there are a few applications that can benefit from using prediction markets, but the list is quite short! Specifically, prediction markets can be used very effectively in project management to predict completion dates. It would be even better if combinatorial prediction markets could be used, as I explained, here. The other application is not really a prediction market, but rather an idea pageant, using crowd sourcing to identify the best ideas among many. Pretty slim pickings, considering the hype created by James Surowiecki’s Wisdom of Crowds!
Here’s the top 15 articles from my blog, although it’s hard to be sure, because many visitors went to the home page to view an article (click to expand and see the visitor totals):
Interestingly, Prediction Market Prospects 2010 continues to draw readers, though it was written at the end of 2010. I didn’t feel the need to update it since, because very little has changed since then! The Future of Futarchy still attracts a few readers, especially when Robin Hansen teaches his students about his concept of “Futarchy”. It still holds the record for a new post that drew the most readers in one day – 223.
Why Public Prediction Markets Fail, Oscars Prediction Markets Get it Right, and The Oscars 2011 – The Good, The Bad & The Ugly all speak to major problems with relying on prediction markets. All of the prediction markets noted in these posts displayed significant errors in predicting events, which is especially troublesome when dealing with discrete outcomes. They also showed that these markets lacked the essential ingredients for success, that can be found in The Essential Prerequisite for Adopting Prediction Markets and The Forgotten Principle Behind Prediction Markets.
So, what’s new?
Well, I have been taking part in The Good Judgment Project which is attempting to accurately predict world events using a variety of methods. My group is using a quasi-prediction market. So far, I am doing quite well, but I question how the organizers are determining the accuracy of the markets.
This being an election year in the U.S., much will be written about the amazing accuracy of prediction markets to pick the election winners. Hog wash. The prediction markets are very good at aggregating poll results, and they’re really only accurate immediately before the election.
I am presently working with one group that is trying to utilize prediction markets to predict specific future outcomes. I can’t disclose much about it, but the two main problems are determining how far in advance the markets can proven to be “accurate” and figuring out a way to make money from the information. I will report on this project when it is no longer confidential.
The ideal in predicting events is to find the Holy Grail that will provide the outcome before any other method…and predict the outcome in time to act on that information. A high standard, to be sure, but one that must be met for one to get really excited about prediction markets!