Patrick BuckleySource: http://ceur-ws.org/Vol-1148/paper10.pdf
This article outlines the usage of prediction markets to enable collaborative intelligence by first discussing the general concept of prediction markets and then diving deeper into its methodology, and concludes with a research agenda that can address certain shortcomings. The purpose of prediction markets is to find and aggregate trader (participant) information, and use that information to “make predictions about specific future events”. This method is essentially created by participants buying into one of two outcomes. Prediction markets are different from financial markets in two ways:
- Prediction markets allow participants to share information and trade contracts with each other
- “Its primary concern is the elicitation of information”
In other words, the shared information and forecast estimation are the main goals of prediction markets, not the financial gain or risk.
There are three broad divisions of operational prediction markets:
- Public prediction markets using real currency
- Public prediction markets using virtual currency
- Private prediction markets
Public prediction markets are open to the general public whereas private prediction markets have a sponsor who recruits participants from a specific group of people.
- Provide participants with incentive to share truthful information
- Provide an algorithm for automatic information communication and aggregation
- Can be conducted on a very large scale with up to hundreds or even thousands of participants
- Can operate over long periods of time
- Provides trader anonymity
- Might only attract individuals with certain personality traits (i.e. high risk tolerance individuals)
- Participants may manipulate the system by buying into an outcome that contradicts their truthful information because voting for that option may provide a better incentive
Critique:Although the strengths are talked about in great detail, the weaknesses are barely mentioned, and there are only a few. Also there could be more detail about the public and private prediction markets and how they operate. This article’s conclusion is that there needs to be more collaborative research on prediction markets in regards to intelligence and decision making.