Jellybeans of wisdom from confab.yahoo

Posted December 16th, 2006 at 8:54 pm by Havi Hoffman, Yahoo! Developer Network

Number of Comments One Comment / Filed in: Cool Stuff

James Surowiecki, a staff writer and business columnist for the New Yorker and the best-selling author of “The Wisdom of Crowds,” finds it hard to introduce the topic of prediction markets without talking about jellybeans.

Prediction markets are a growing phenomenon that use a stock market model to predict the future popularity of everything from new movies to news issues to high-tech topics. Based on the “wisdom of crowds,” these markets tend to do better than pollsters and pundits at forecasting all kinds of outcomes — political elections, sporting events, sales trends within companies.

Surowiecki describes an experiment he’s done many times: Ask a roomful of people to guess the number of jellybeans in a jar, add up everyone’s guesses, and take the average. You’ll get a better result almost every time than you would if you asked any single person. (Surowiecki qualifies this slightly — he’s heard about a physicist in Michigan who’s a jellybean-counting genius.)

Something about the folksy American candy maps well to the populist idea that the wisdom of a diverse group of people is more accurate and rigorous than the forecasts of experts. Surowiecki, who speaks to his subject with a “gee whiz” kind of enthusiasm, describes the physical “thrill of fear and doubt” he experiences each time he does the jellybean experiment.

Surowiecki explains: It’s the thrill of disruption. Prediction markets challenge our notions of authority. In the process, they make it easier for companies to access the knowledge that lies untapped within the organization as a whole. Sometimes, what is revealed runs counter to deeply held assumptions about decision making and existing hierarchies of command and control.

These were some of the opening ideas presented by guest moderator James Surowiecki on Wednesday night at confab.yahoo, the first installment of a free conference series organized by Yahoo!’s Technology Development Group. The series aims to share ideas openly across companies, move the Web to the next level, and “talk about important nerd topics.”

Over 250 attendees came to Yahoo!’s Sunnyvale campus for the first TechDev confab. Journalists, developers, designers, entrepreneurs, hackers, students, venture capitalists, economists, and executives listened to leading thinkers in the field. Robin Hanson, economics professor and conceptual father of prediction markets, urged companies to deploy prediction markets internally to tap valuable employee insights for solving the organization’s deepest and most important challenges. Stanford economist Eric Zitzewitz described some strategic uses of betting markets for financial forecasting and modeling within corporations.

Bo Cowgill from Google, Leslie Fine from HP, and Todd Proebsting from Microsoft spoke about their experiences with different types of prediction markets within their organizations and in collaboration with clients. David Pennock of Yahoo! Research spoke about the Tech Buzz Game and the recent evolution of yootles, an experimental currency system.

The evening concluded with presentations from Chris Hibbert, open source developer of Zocalo, a software toolkit for building prediction markets, and Adam Siegel, a co-founder of Inkling, which offers an online service for individuals or organizations who want to run their own markets.

Watch a webcast of the confab and view photos.

Read some of the other coverage:
* Prediction: Predictive markets will be a next big thing
* Yahoo’s Confab on Prediction Markets
* Tech lessons learned from the wisdom of crowds
* Prediction Markets at confab.yahoo
* Prediction Markets at Yahoo! ConFab

We haven’t cooked up our next confab yet, but check back at confab.yahoo.com for our next installment. Hope to see you there.

Havi Hoffman
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