cccd9fdb_brary_of_Economics_and_Liberty__ast_Highlights_HIDE_HIGHLIGHTS
[Time] 12:39
Prediction markets, variation on statistical averages. Try to get a bunch of people to make a bet about whether question businesses are really interested in (will product be available? will office open? will venture be profitable?). Bet can be virtual (just about reputation and honor) or can be for real money (offshore markets, gambling), or can be chance to enter a lottery (get a shirt as token reward). Voluntary participation, some incentive to get it right. Microsoft, Hewlett-Packard, Ely Lily. Google's virtual market experience is that the prices are probabilities, accurately so. Why this apparently magical result? People only choose to participate unless they are more than 50% confident they will get it right. "Economic incentive plus the dynamic quality of the prediction market... provides a kind of built-in safeguard against the risk of a systematic bias or pervasive error." Were Kentucky Derby and Supreme Court survey answers publicized ex post (as an incentive to get it right)? Google--did it compare statistical average to prediction market results? No. How many participants? Even thin markets are pretty accurate. Logically, prediction markets outperform surveys because of voluntary aspect because there is an economic incentive to get it right. No financial cost for wrong prediction. Google is successfully trying to avoid gambling laws. Trade sports are high-incentive; Google virtual market is low-incentive; but analysis suggests that both work well. Puzzle. Maybe reputation is an incentive. Surveys can do just fine even if there are lots of random guessers.
Sunstein on Infotopia, Information and Decision-Making | EconTalk | Library of Economics and Liberty