Prediction markets are a powerful way to collect, manage and leverage the wisdom of the crowd. Many organizations are taking advantage of this technology to gain an understanding of a future outcome before it occurs. But where exactly did this notion of the “wisdom of the crowd” emanate?
Many believe it begins with the famous Sir Francis Galton example.
Crowd behaviour is often associated with irrationality. Crowds form mobs and cults. They panic and the herd instinct is often wrong and easily swayed. At least that is the common perception. But scientist and polymath Francis Galton discovered that not all crowd behaviour was negative. Indeed he found that if you asked enough people the same question, they might come up with better answers than even the experts
It was in 1906 that Galton made his discovery of what is known as the wisdom of crowds. He attended a farmers’ fair in Plymouth where he was intrigued by a weight guessing contest. The goal was to guess the weight of an ox when it was butchered and dressed. Around 800 people entered the contest and wrote their guesses on tickets. The person who guessed closest to the butchered weight of the ox won a prize.
After the contest Galton took the tickets and ran a statistical analysis on them. He discovered that the average guess of all the entrants was remarkably close to the actual weight of the butchered ox. In fact it was under by only 1lb for an ox that weighed 1,198 lbs. This collective guess was not only better than the actual winner of the contest but also better than the guesses made by cattle experts at the fair.
From there, Galton wrote his famous paper, Vox Pupuli. It’s a fascinating read about what needs to happen to ensure crowd predictions are as pure and unbiased as possible to receive the best answers. We have built this into our Predictful solution as well so that each prediction has little to no dependencies on other predictions.