Wednesday, April 30, 2008

Markets Rule, Even in Politics

This is a line from L. Gordon Crovitz’s opinion article in the Wall Street Journal called “Trading on the Wisdom of Crowds” from April 28th. Prediction markets have been popular posts here on talkDIG the last couple of weeks and I apologize if I am sounding like a broken record. But the topic seems to be appearing every where. I rarely read the opinion section in the WSJ, but the title caught my eye. Crovitz discusses the topic of prediction markets and the deadly accurate Iowa Electronic Market. Now, if you think prediction markets are a fairly recent phenomenon, think again. According to Crovitz, some $165 million in today’s dollars were wagered on the 1916 election where Woodrow Wilson defeated Charles Evans Hughes.

One interesting topic that Crovitz raises is the difference between using the traditional form of predicting political results, statistical polling, and using a prediction market that trades future results like stocks. There are plenty of examples that prove that a properly formed market will provide more accurate results then a statistical polling sample set.

Are you convinced yet that prediction markets can be an effective tool for your organization? Have you identified any areas, either internally or externally where a prediction market can more accurately predict an outcome?

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