Investment and decision ultimately depend on forecast, and its been said ... forecasting, especially of the future, is hard ... Prediction markets have received quite a bit of press of late, since their largely psychological rejection for predicting the next steps of terrorists. They are also covered in James Surowiecki's recent, provocative book: The Wisdom of Crowds. Here is a descriptive review. In particular Surowiecki makes the claim that small decision making groups make more mistakes, but large groups with sufficient critical mass can be quite accurate in their predictions. His evidence is engaging, but circumstantial rather than quantitative.
Now Sam Savage, well known modeling guru at Stanford, has written a nice, readable piece in the June ORMS Today on this. As can be expected Savage is much more quantitative and practical, he even provides some rules of thumb regards what works. Highly recommended.
Prices, Probabilities and Predictions
With prediction markets, participants put their money where their mouths are regarding worldwide events ranging from government elections to the outbreak of war. The question is, are these markets more accurate than polls and politicians? ...
Very early on he mentions the method of subjective probability, which is an old, little mentioned operations research technique that bears looking at again.
Just to be provocative myself ... Here is a challenge for IFTF! Although I know you are not into prediction. You do great work in the area of qualitative futures ... How about introducing this quantitative market approach ... put together a seminar or workshop on this. Invite Savage or others. Is there any other support out there on this? I would be glad to participate.
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