Can Prediction Markets Work?

Gary Hamel advocates prediction markets as a way to make spending and investment decisions, and so is Google, according to the New York Times. But Tom Davenport, who likes the concept, expresses doubts in his blog that these will ever become a broad business trend.

"I think the barriers to adoption of prediction markets are primarily cultural, and I don't see them changing anytime soon. Let's say that your company runs a prediction market on first-year sales of a new product, and the results come out not so positively. Let's say that the employees who participate predict much lower sales than, say, the product manager for the new product, the division president, and the CEO. The fact that the crowd may be more accurate is not the point, or at least not the only point. The crowd has made the hierarchy look bad, and the hierarchy doesn't generally like to look bad."

Posted by Allan Alter on January 17, 2008 1:44 PM