NewsFutures - hard evidence about the wisdom of crowds

We've had a lively debate on Vator.tv this week about just how wise the wisdom of crowds is.

You can see the Vator Box show that triggered the debate here, and some of the comments it generated at the bottom of the same page.

One of those comments came from Emile Servan-Schreiber, CEO of NewsFutures.com, a startup that's been in the business of prediction markets for more than seven years. 

Founded in 2000, it's home to prediction traders who've consistently proven to be more accurate prognosticators than polls for everything from political races to Academy Award winners. 

A related development can be seen in the growth of user-generated content,  as  more media companies, spurred by online rivals, give readers a chance to put their thoughts next to those of journalists. And Google has broadened the concept still further by allowing the subjects of stories to have their own say. 

It's easy to argue that when money is at stake, participants in a market tend to gather the most accurate information possible. But some studies have shown that the predictive powers of these markets is high even when it's only play money at stake, which suggests that being right is as powerful a motivator as getting rich.  

Still, as James Surowiecki wrote several years ago in the New Yorker, predictive markets have faced resistance in corporations and other large, hierarchical organizations because they threaten the position of leaders or gatekeepers.

Believers in the wisdom of crowds are attempting to turn several industries on their heads, including product marketing and political polling, by arguing that predictive markets are better than surveys at predicting what consumers will buy or who voters will vote for.

Software development has also been moving in this direction, as the open-source movement uses the collective knowledge of any coder who want to be involved in a particular project. 

Just what the limits of predictive markets and the wisdom of crowds are we don't yet know. But those interested in U.S. presidential politics should know that the traders on NewsFutures are predicting that Barack Obama will win the democratic nomination.