Scientists Show Prediction Polls Can Outdo Prediction Markets

Ask economists whether prediction markets or prediction polls fare better, and they’ll likely favor the former.

In prediction markets, people bet against each other to predict an outcome, say the chance of someone winning an election. The market represents the crowd’s best guess. In a prediction poll, the guesser isn’t concerned with what anyone else thinks, essentially betting against himself.

“According to the theory, prediction markets should ‘always win’ because markets are the most efficient mechanisms for aggregating the wisdom of a crowd. That process should converge on a true prediction,” says Philip Tetlock, Annenberg University Professor and a Penn Integrates Knowledge (PIK) professor. “But our findings published in Management Science suggest that you can actually get just as much out of a forecasting tournament using prediction surveys.”

Tetlock co-authored the paper with Barbara Mellers, I. George Heyman University Professor and PIK professor, and Pavel Atanasov, who completed his Ph.D. from Penn in 2012 and a postdoc from Penn in 2015. The study found that team polls, in which groups of up to 15 people collaborated to make forecasts, produced the most accurate predictions when combined with a statistical algorithm.

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