Wisdom of the Crowd
Asking for Predictions
WHY ASK THE CROWD TO MAKE A PREDICTION?
One thing the crowd has proven to be good at is making predictions.
Prediction markets are like a play stock market. As in a stock market, people make investments, or bets, about whether the price of a stock will rise or fall.
But instead of buying stocks in a company, they are betting on whether future events will happen, or not.
It’s really quite simple. Click here if you want to try making a prediction of your own.
When all of these bets are taken together, the output of the market is a forecast in terms of a probability: there is an X% chance of event Y happening.
HOW DO ORGANIZATIONS USE PREDICTION MARKETS?
Risk Assessment & Governance
PREDICTION MARKETS 101
Each stock has a current price between $0 and $100 per share, which corresponds to the probability that it will be the correct answer. So if the price of “Yes” is $28/share, that means the market thinks there is a 28% chance that “Yes” will be the correct answer. Similar to a real stock market, the price of that stock increases as demand increases. So if many traders believe the project will finish on time, they will buy shares of “Yes,” causing its price (and therefore probability) to increase.
Once the “correctness” of an answer becomes known, the market is resolved. So if Project X finishes on time, then “Yes” would be resolved as the correct answer. At that time, traders receive $100 for any shares of “Yes” that they own. So if I purchased 10 shares of “Yes” at $28/share, then I’m paid $1000, netting me a profit of $720.