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The (un)wisdom of prediction markets

We are just on the verge of launching a first prediction market in my area at work. I have been infected with the idea of swarm intelligence by reading Wisdom of the crowds. The premise seems great: many people are smarter than the smartes. The promise is: this tacit knowledge can be made visible through a stock-market mechanism. So I researched a bit and found that companies use this for different purposes: Google predicts the launch date of new products; Microsoft the numer of bugs in a software; HP looks at sales volumes and GE judges innovative idea. These are all nice, but the more I deal with it, the more I hear the question: so what?

My standard reply is something around: gathering people, sharing the process, making intangible knowledge transparent, bringing focus to a topic. What draws me to prediction markets is the potential as an organizational tool. It involves the grassroots people who are doing the work and makes decisions transparent and accountable. If the market works correctly and suppliers are judged by their customers, then it could even involve something like an internal supplier-customer-rating that might work better than silo-focused MBOs. Anyway, that is a bit further away. Still, I wonder myself: so what?

What happens if your market shows that the product won’t launch on time? Who has a benefit from that knowledge? I realize that many people don’t even want to know. Not that they don’t want to face the truth – the know already – but they are not comfortable with having it black on white and for other to see. Also: what happens if the market predicts a no-show for a product? Is there any mechanism for judging the reason or suggestion alternatives? That would certainly be nice: use swarm intelligence to suggest improvements and have the market collectively judge the best ones.

Similiar thing with bugs in a software. Nice to know that this might be not up to standards, but even nicer to have a market that predicts (and pre-selects) the most promising levers for chaning it. Sales volums is similar, just as innovation.

It seems to me that the prediction market suffers from a criteria it has to be matched against. The value of the stocks being traded is tied directly to the criteria being defined. The markets don’t allow collective problem-solving, impact estimation or decision-influencing. It reflects what people think about the future. Currently, I haven’t see a way that it enables an organization to shape the future with collective intelligence. With that it might really answer the question of so what. It would be a tool for improvement and collective participation. Now, that is a stock I would buy.

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Filed under: change, organization

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