A very interesting and new subject of conversation these days are prediction markets. This new way of predicting the future has shown great potential. In contrast to old prediction systems, which rely on expert’s opinion, this system listens to the crowd. It’s a very promising concept, but nonetheless there are people that have concerns about it.
Those concerns can, for the most part, be narrowed down to two major points. The first one is that they don’t see how a bunch of random persons can predict events better than experts can. The other concern they have is about the reward system of prediction markets. There are prediction markets where you can use actual money to bet, and you can make a profit or a loss this way. There are also prediction markets that operate on game currency. This way you can’t loose any real money but you only play for recognition or for fun. Now there are people who believe that only prediction markets that award real money can offer accurate predictions. If you use online currency you don’t have the right motivation to make accurate predictions.
To illustrate this I’ve chosen two existing prediction markets. The first one is a dutch website called Optieclub. They focus on predicting the most popular stock exchanges, but also the value of gold and silver. The most popular one on Optieclub is the AEX, the stock exchange located in Amsterdam. They have a system that’s called a binary option. This is a system where you can predict if the value of the stock exchange of your choosing will be higher or lower at the hour than what it is right now. If it’s higher you place a call option, if you think it’ll be lower you place a put option. You can see what other users have done in the last hour, what percentage has placed a put option and what percentage has placed a call option. I found that following the advice of other users, so if most of them placed a call option that I’d also place a call option, could actually be profitable. More often were they right than that they were wrong. So hypothetically you could make a profit with this system. In reality it isn’t really reliable, unless you place an option every hour of the day all days of the week.
My second example is PredictWallStreet.com, which is pretty similar to Optieclub. It lets people predict all kinds of companies in the stock exchange and they show the results of the predictions. You can see historical prices and predictions and you can make a prediction for a day, a week, a month and even for a year. The last one is already a bit different from Optieclub, but still basically the same thing. They do differ a lot on one thing though, and that is the reward system.
Where Optieclub is really designed for people to make or lose money on trading stocks, PredictWallStreet is not. Here you can’t put money on your predictions. What you do get though, is points if your prediction is right. The people with the best scores then show up on the top ten predictors list which is placed on the homepage for everyone to see. There are also small contest for players to participate in where they can win money for right predictions. This is a completely different motivator than Optieclub has. Interestingly enough though the predictions don’t seem to be incredibly accurate. Prices and predictions are not really the same line when put into a graph and accuracy is only around 50%-60% most of the time. This might have to do with the amount of predictors. When I tried some predictions I noticed that mostly around 40 people had voted before me already, which doesn’t seem like a lot. It is most definitely an interesting tool to use for stock traders though.