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The Prediction Addiction
It may seem counterintuitive to trust in the wisdom of crowds. Whether it’s a service call or surgery, common sense says to place our bets on the specialists. Surprisingly, a growing number of Fortune 500 companies and Hollywood mega-studios are ignoring the experts, turning instead to the masses to predict everything from product deadlines to estimated box-office hauls. What they’re finding is that the vox populi is often, eerily, correct.
In September of 2007, Bet2Give.com set up a simple "prediction market" — a stock market that trades in future outcomes — to wager on whether Boeing would meet its promised May ’08 delivery date for the new 787 Dreamliner airplane.
The general public was invited to play the game, buying shares that would shell out $1 if Boeing met the deadline, and pay nothing otherwise. Soon after trading began the share price plummeted, predicting a meager 25 percent chance that the plane would be delivered on time. Two weeks later, despite recent vows of hitting the target, Boeing announced that there would indeed be a delay — of six months. Analysts called the announcement "surprising." The crowd simply said, "Told you so."
Emile Servan-Schreiber, CEO of Bet2Give.com and its parent company, NewsFutures, wasn’t surprised by the result. "The markets will tend to be right most of the time," he says, "whereas individuals will tend to be wrong."
The reason for the success is surprisingly simple. "When you put many people together, everyone brings in a little bit of information and a little bit of noise." By aggregating all the opinions, the information adds up, and the noise cancels out.
NewsFutures is just one of several companies that offer prediction market software solutions, enabling clients to create an in-house oracle. Employees can help their bosses forecast the future and have fun at the same time — winning cash, points, or prizes. There is also a handful of public markets out there, both academic and commercial, that let the rest of us dabble in divination online.
Think Obama getting tapped as the Democratic nominee is an easy bet? Got a hunch that Iran will see an American troop presence? Feeling cocksure that "Brangelina" will split in ’08? Bet2Give.com lets you put your money where your mouth is, trading in political predications, world affairs, and Hollywood gossip.
It’s one of the few public markets that use real currency, but all winnings go to a charity of your choice. The broader goal of the site, Servan-Schreiber says, is to redefine how people go forward with philanthropy. "Online giving is a little boring," he says, "and online betting doesn’t always feel right. By mixing the two, I think we can get the best of both worlds."
Sure, lots of people like to geek out on poly sci during an election year, but we all know someone who can hold forth on sports any given Sunday. For them, there’s Protrade. "The original intention was to create a way for people to trade athletes just like they were stocks," says co-founder Jeffrey Ma. Since its inception four years ago, it’s become an intersection of fantasy sports and prediction markets. Users can assemble dream teams, trade individual players, and bet on games to win points that can be cashed in for prizes. Yeah, it would be nice to win the Video iPod, but how about a chance to play Horse with Steve Nash, or even challenge Ben Roethlisberger to Madden Football? It costs nothing to play, which makes the rewards even sweeter. (www.protrade.com)
Still, if you’d rather watch Friday Night Lights at home than shiver on an aluminum bleacher at an actual stadium, Hollywood Stock Exchange (HSX) might be a better bet. HSX lets you pick up stock in your favorite actors, upcoming movies, or even buy movie stock mutual funds. Well, sort of — all transactions are done in fake Hollywood dollars, and the reward is simply the sweet rush of beating the odds. (www.hsx.com)
"We don’t have elaborate prizes, or contests, or anything like that," says managing director Alex Costakis. "People love movies, and so by being part of HSX, they have a sense that they’re involved with the industry."
Movie studios like Lion’s Gate, MGM, and Warner Bros. turn to HSX for their market analysis and predictions, which can be wickedly accurate. Traders picked seven of eight Oscar winners last year, and more recently pegged Sweeney Todd to rake in $9.1 million at the box office — just shy of the actual $9.4 million.
It’s too early to tell if prediction markets will mean a pink slip for all the lone specialists out there, but there’s no denying their spooky accuracy. Imagine if we could set up micro-markets amongst our peers, trading in odds like "will I get a raise this year?" or "does this dress make me look fat?" In the meantime, can we just have fun wagering on everything else? You bet. — Paul Stuart
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