There are few things quite so thrilling and/or anxiety-inducing as placing a bet. That’s why, for the benefit prediction traders around the world, we recently compiled a score of relevant quotes from some of the greatest minds. Some will inspire you to bold action, some will help you think twice before committing to a particular opinion, all offer a measure of comfort in the face of an unpredictable future.

Enjoy, and be sure to vote for your favorite quote!

Isaac Newton Albert Einstein Muhammad Ali Jim Morrison Yoda John Paul II Charles Darwin Donald Trump Winston Churchill Napoleon Bonaparte John Lennon Leonardo da Vinci Bruce Lee Mahatma Gandhi Benjamin Franklin Ronald Reagan Julius Cesar Abraham Lincoln Sigmund Freud Arnold Schwarzenegger

President Obama and OMB director Peter Orzag launch the SAVE Award idea competition

Americans across the country know that the best ideas often come from workers – not just management. — Barack Obama

Given that “the Crowd” in its infinite wisdom elected him to the coolest job in the World, it’s no surprise that POTUS believes in the wisdom of crowds. But seriously, the White House is putting it’s money where the President’s mouth is by kicking off today the “SAVE Award“, a competition among all Federal workers to produce the best idea for saving Government money and improving bureaucratic efficiency.

While the intention is wonderful – it echoes the wishes of more and more chief executives in the Private Sector to “hear the voices of those on the front lines” – the implementation is, in our view, overly simplistic. Here’s how it works: Everyone submits their ideas through a secure website, then a special committee of high-ranking OMB officials reviews them and submits a short list to the President who handpicks the winning idea.

What’s wrong with this process?

There is no aggregation of the collective wisdom. The crowd is called on only to submit ideas, not to help evaluate them, which is the critical step in the delicate wisdom of crowd recipe. Instead, a bunch of political appointees in the OMB will review all the ideas and decide which will go on the short list that the President will see. Needless to say, we would not dare propose such a simplistic and cumbersome process to our enterprise clients looking to harvest and select innovative ideas from their employees.

Here’s how it should be done: After everyone has proposed their ideas, ask everyone to bet (not vote) on which idea the President will ultimately select – or alternatively, on which ideas will be short-listed by the OMB officials. The crowd’s betting will quickly and efficiently produce a ranking of the best-to-worst ideas, and the result will be less arbitrary than what you can expect from a close-knit group of bureaucrats. Now, it doesn’t mean that the OMB officials cannot have the ultimate say on what ends up on the short list that goes to the Oval Office, but their choice is at least informed by the crowd’s aggregate selection.

We’re glad to see that the Government is looking for ways to save money, but the next time the Administration tries to leverage the wisdom of crowds, it should not be afraid to consult with some collective intelligence specialists first. So as not to add to the Federal Deficit, some of us might even help out for free.

IEhM Home Page

With everyone hunting for realistic predictions about the swine flu pandemic, there’s no better place to look than the brand new Iowa Electronic Health Market (IEhM), brought to you by the people who have run the famous Iowa Electronic Political Market for more than 20 years.

The IEhM connects health care experts across the globe to predict the outbreak and spread of various diseases. It currently offers markets on Influenza, Swine Flu, and Syphilis. Each trader is given $100 worth of educational grant to stake on his or her predictions. The operation is funded by grants from government agencies and private foundations.

On both technical and humanistic fronts, the IEhM pushes the envelope. It is certainly the most socially valuable prediction market in existence. NewsFutures is very proud to play a bit part in this great endeavor, having provided the University of Iowa with the prediction market platform with which the IEhM has been developed (with extensive customization by the very talented IEhM development team).

Emile is presenting a paper today at the Annual Meeting of the International Studies Association in New York, as part of a panel discussion on “the role of normative and performative predictive ideas” in International Relations, chaired by Ariel Colonomos of CERI-CNRS.

Emile’s paper overviews how prediction markets might benefit forecasting in international relations. You can download it here in pdf.

These videos were filmed at an international workshop on “Principles and Mechanisms of Collective Wisdom” organized by the eminent philosopher Jon Elster at the Collège de France in Paris on May 22, 2008.

PART 1: EVIDENCE OF PREDICTION MARKET ACCURACY

PART 2: WHY PREDICTION MARKETS ARE ACCURATE

There followed a challenging Q&A session which is covered in the five next videos (one question and answer each).

Q&A 1: Aren’t political prediction markets just following the polls?

Q&A 2: Why did prediction markets fail to predict the lack of weapons of mass destruction in Irak?

Q&A 3: Would market predictions still be accurate if everyone believed them?

Q&A 4: Is Democracy ready for prediction markets?

Q&A 5: How can trading prices translate into probabilities if individual traders don’t trade accordingly?

In addition to Emile’s lecture on prediction markets, the workshop featured a rich variety of social science perspectives on the issue of collective intelligence, and all these lectures are viewable (in English) in high-quality streaming video. For the audience of this blog, I especially recommend the brilliant lecture by Scott Page on the power of diversity.

We often get requests for data from our political markets, so here they are, free to download. Our way of celebrating this Thanksgiving, and the rebirth of America’s moral leadership. Enjoy!

Click on an image to download the data in Excel format.

2008 election: trading history of the {Democrat to be elected President} contract from February 2007 to election day (November 4, 2008).

2004 election: trading history of the {Bush to be reelected President} contract from mid-July 2003 to election day (November 2, 2004).

Today’s great news is Paul Krugman’s Nobel Prize. Although he received the award for his work on international trade and economic geography, it is hard to escape the idea that the Nobel committee may also have been influenced by Krugman’s prescient, relentless and ultimately successful battle against Bush’s plan to privatize Social Security, as well as his repeated warnings that U.S. growth these last few years was an illusion built on top of a soon-to-implode housing boom.

I had the pleasure of meeting this brilliant, generous man two years ago when he came over for dinner in my brother David’s home accompanied by his wonderful wife Robin Wells, also an economist at Princeton. Over a delicious anticancer menu, we discussed health care, politics and the economy. But when talk turned to prediction markets, he was… skeptical. So it’s gratifying to see that, nowadays, he seems to be keeping a rather careful eye on the political markets!

Paul Krugman and wife Robin Wells with the Servan-Schreiber brothers (from left to right: Franklin, Edouard, Emile of NewsFutures, and David), September 2006.

No prediction market, or any other betting pool (including this one from Harvard) nailed the Nobel committee’s choice. This failure is expected, since the decision is made in secret by a closed group, and typically for work done decades ago, out of the scope of current events which might give the rest of us some inkling about the outcome.  Market predictions are known to be pretty useless in such situations, for there’s no information to aggregate: it’s garbage in, garbage out. The same doesn’t apply to, say, TIME’s Person of the Year, which, although decided also in secret by a closed group, very much takes into account recent observable history. Here’s, for instance, NewsFutures’ prediction for Barack Obama to be Person of the Year 2008:

Probability that Barack Obama will be TIME Person of the Year 2008

We’re excited to announce the first Wisdom of Crowds Consulting Workshop, to be held in New York City on October 27th, 2008. It is designed especially for small and medium-size business consultancies who would like to acquire a working knowledge of how to put collective intelligence to work for their clients.

Over the years, we’ve had the chance to partner with some leading consultancies (eg, SAIC, Rand, BAH, Accenture, New England Consulting Group, Market Tools), and a host of smaller ones, to deliver creative wisdom-of-crowds solutions to their clients. Such partnerships are always rewarding and efficient because they combine our expertise in prediction markets with a consultant’s deep knowledge of the client’s business processes.

The workshop will focus practical implementation issues and hands-on experience with various software tools, so that, by the end of the workshop, the participants can be certified as NewsFutures Preferred Consulting Partners.

The one-day program will cover:

• Foundations. Prediction Markets and Wisdom of Crowds 101: principles, mechanisms, evidence, and applications
• Applications. Case studies in strategy, forecasting, innovation, and project management
• Tools. Hands-on experience with various software tools: Prediction Markets, Competitive Forecasting, Idea Pageant, and Impact Matrix
• Practice. Keys to a successful implementation: information, integration, inclusion, interface, and incentives
• Collaboration. Nuts and bolts of collaboration with NewsFutures

Please visit these links for more information, or to register for the workshop.

Bambi Francisco left CNBC’s MarketWatch last year to start Vator.tv, a highly entertaining video-based website dedicated to vetting pitches from innovator. This week, her show took a deep look at NewsFutures’ public prediction exchange (not our enterprise solutions business). Paul Martino, whose company Aggregate Knowledge is about predicting behavioral outcomes based on the aggregate actions of crowds, brought his expert point of view. All told, Bambi, Paul, and Ezra Roizen (a Vator.tv regular) “liked the company.” Check out the show by clicking the video below:

Over the weekend, the Financial Times published a great article about America’s favorite charity-driven prediction market: our very own Bet2Give. Exploring the intersection between philanthropy and online betting requires dedication and persistence, which is another way of saying that the value proposition isn’t immediately obvious to everyone, but the FT’s article highlights an exciting new trend: Some charities are now linking to Bet2Give from their home pages, encouraging their members/donors to use our prediction market as a fund-raising tool. Cool! That’s exactly what we built it for.

There is a discordant note at the end of the article, where respected philanthropy consultant Lucy Bernholz questions whether Bet2Give’s donations aren’t just a gimmick to draw eyeballs. Well, we obviously want to grow traffic, because that translates into impact. But Lucy should realize that 95% of the money that is put into Bet2Give by its traders is eventually given to their chosen non-profits. That’s hardly a gimmick. Few non-profits, in fact, have such low overhead fees.

The article also discusses Longbets.org, another great site well worth visiting.