Prediction Markets: Leveraging Internal Knowledge to Beat Industry Prediction Experts

Markets are notorious for bubbles and bursts. Other research has found that crowds of lay-people can replace even leading experts to predict everything from product sales to the next big diplomatic event. In this project, we leverage both threads of research to see how prediction markets can be used to predict business and technological innovations, and use them as a model to fix financial bubbles. For example, a prediction market was rolled out inside of Intel and the experiment was very successful, and led to better predictions than the official Intel forecast 75 percent of the time. Prediction markets also led to as much as a 25 percent reduction in mean squared error over the prediction of official experts at Google, Ford, and Koch industries.