Prediction Markets
Leverage the wisdom of the crowd
What are Prediction Markets?
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The Wisdom of the Crowd
Prediction markets leverage the wisdom of the crowd, by aggregating information that is dispersed among individuals. They are innovative trading platforms where individuals can place bets on the outcomes of future events.
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How They Work
A ‘Yes’ share is created that pays $1 if an event occurs and $0 otherwise. For example, will Trump be the next US President? A ‘No’ share is created that pays $1 if the event does not occur and $0 otherwise. Participants buy and sell these shares, according to their personal beliefs and private information. The equilibrium price is the predicted probability that the event will occur.
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Value of the Market
As the price of the shares moves up and down, it reveals to everyone the private information of the participants who trade, prompting them to update their beliefs and trade again. This feedback loop can make prediction markets more accurate than polls and professional forecasters.
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Public or Private Markets
Prediction markets can be public, where anyone can participate, or private. For example, Google and Ford create private markets, where their participants are their employees.
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Advantages of Private Prediction Markets
Provides timely information and enables a manager to act quickly
Privacy (data on trades and prices are not public)
The design of the market is tailored to the firm’s needs
Circumvents the hierarchical structure of a firm as information from all employees is aggregated
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Examples of Questions
Will our sales surpass $X in the next quarter?
For a given product or service, will feature A be more popular than feature B with our customers?
Will our firm reach a specific milestone by a certain date?
Will the total market for a product grow more than X% year on year?
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Members
Our team consists of two professors, two post-doc researchers and one programmer
£1M
Research funding
The project is funded by two research grants, from the UK and France
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Companies
We are currently running prediction markets with two companies
What we do
01
Problem
Prediction markets do not always work well. Participants may suffer from behavioural biases, they may have ambiguous beliefs, or they may exhibit herding behaviour. When a prediction market fails, it provides a wrong probability on the occurrence of an event and it can mislead decision makers.
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Solution
Using economic theory and experiments, we have developed diagnostic tests which aim at estimating whether the prediction market will be successful. This will allow decision makers within a firm to quantify how confident they should be about the probability generated by the prediction market.
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Research Team
Our research team has secured two large grants, worth almost £1 million, aimed at designing prediction markets that provide more accurate forecasts.
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Efficacy of Diagnostic Tests
We are currently running private prediction markets with firms and organisations, where we test the efficacy of our diagnostic tests.
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Collaboration
We are actively looking for new firms and organisations in order to collaborate.
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Contact Us
If you are interested, we will be happy to talk.
The main difference from other platforms is that we run diagnostic tests before the market begins, in order to test for behavioural biases and ambiguous beliefs and estimate whether the group’s prediction will be accurate.
Let’s Discuss
How Prediction Markets can help your organisation
Education and Information
Blog
Frequently Asked Questions
Is it free to run a prediction market?
Yes, at the moment we do not charge anything for helping a firm or organisation to run a prediction market on our servers.
What do you get from this?
We want to use the anonymised data, from the prediction markets, for research purposes. The identity of the participating firms and organisations will never be made public without their consent. The same is true about the questions that are asked in a market and the results.
Are markets public and visible?
No, the prediction markets we conduct are private and only accessible by the participating employees of the firm or organisation.
Are data and the identity of participants safe?
We have taken all necessary precautions so that the trading data cannot be leaked or compromised. Participants can use usernames so that their identity is never revealed, not even to us.
Will you share best practices on how to run prediction markets?
One of our aims is to educate firms and organisations (especially SMEs) on how to conduct prediction markets on their own. To that end, we will conduct workshops and conferences with academics and participating firms, in order to educate and share best practices.
The project is funded by the Economic and Social Research Council (ES/V004425/1) and the Agence Nationale de la Recherche (ANR-21-CE26-0001).