From Stonehenge and ancient goat guts to the Cold War's Delphi Method to today's election stock markets, policy gurus have always tried to divine the future. Now, they've started playing online games. Modern "prediction markets" - Hollywood Stock Exchange (HSX), the Yahoo/O'Reilly Tech Buzz Game and many others - turn their player base from customers into products. These games tap collective expectations of the player base - their buzz - and the publisher analyzes or sells the results. Customers for this data include the entertainment industry, big media, advertisers and marketers, and anyone who wants to get out in front of public taste without sacrificing a goat.
We never discuss it in such frivolous terms, but the stock market, not to mention the world economy itself, is a gigantic game - not (just) in the symbolic or existential sense, but literally. Participants take specified actions, narrowly constrained by rules meant to protect the system and discourage abuse. The money they gain or lose is their score. The Federal Reserve and equivalent international institutions are the referees. The outcome of the investors' actions, though unpredictable, is totally determined. Theoretically, if you had complete knowledge of all actions, you could predict stock movements with absolute accuracy. Of course, innumerable players and deeply obfuscated data make the process unknowable in advance. Yet together, investors arrive at a financial judgment of every company on the market.
Buzz games take their game designs straight from the New York Stock Exchange. Using play currency or sometimes real money, players buy "shares" or "contracts" in a property offered by the publisher, such as an upcoming movie, a political candidate or a hypothetical news event. ("Gasoline will reach $3.50 a gallon in the U.S. by June 30.") The changing price of a share in that property reflects the market's evolving judgment of the movie or candidate's success, or the likelihood of the event. At some defined point, such as after the movie's release or the candidate's election, the property is "cashed out" and investors receive profits based on the shares they bought.
Prediction markets assume that a large population of diverse individuals, if each acts independently with access to good information, will collectively arrive at a sensible conclusion. In fact, these games do seem to reliably outperform standard opinion polls, at least by a percentage point or two. They can boast high-profile successes, like the venerable Iowa Electronic Markets' predictions of presidential elections; the 2004 and 2006 election blowouts, when TradeSports correctly picked every Senate and Congressional race; and the Hollywood Stock Exchange's excellent record of Oscar picks: In the last three years, its success rate in the top eight categories was 92 percent.
Who buys this data, and why? The HSX About page says, "HSX syndicates the data collected from the Exchange as market research to entertainment, consumer product and financial institutions, and as original content to radio, television and print media." The HSX client list includes Warner Bros., MGM and Black Entertainment Television. A prediction market bibliography offers many technical research reports analyzing their benefits. And they never once mention sacrificing a goat.
The doctrine of common wisdom underlies the jury system, democracy, academic peer review and, indeed, language itself. Section I.LVIII of Machiavelli's Discourses on Livy (written circa 1513-17) is titled "The Multitude is Wiser and More Constant Than a Prince":
[A]s for prudence and stability of purpose, I affirm that a people is more prudent, more stable, and of better judgment than a prince. Nor is it without reason that the voice of the people has been likened to the voice of God; for we see that widespread beliefs fulfill themselves, and bring about marvelous results, so as to have the appearance of presaging by some occult quality either weal or woe. (Tr. Ninian Hill Thomson, 1883)
With recent web successes like Wikipedia, the idea of common wisdom has gained new popularity. New Yorker Financial Page columnist James Surowiecki published The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations (Little, Brown, 2004). (Surowiecki wrote about prediction markets in his March 24, 2003 New Yorker column.) Dr. David Pennock, architect of the Yahoo Tech Buzz Game, blogs about prediction markets at Oddhead. "Prediction Market Central," an eccentric "vortal" ("vertical portal") run by Chris F. Masse, is worth a look.