All of us are smarter than any of us

"The Wisdom of the Corporate Crowd" in September's Business 2.0 is about prediction markets--mock stock exchanges where participants wager on ideas, scenarios, prototypes, etc., which have surprisingly accurate results. (Short review on Ideoblog). Yahoo! has a public prediction market: Buzz Game.

Most experts are poor at predictions (Money magazine) , and I wonder if there is indeed wisdom in crowds. This argues in favor of the digg model (let the crowd decide) over the slashdot model (let the editors decide).

Interestingly, we probably won't stop asking for expert opinions because (a) there's so much info to wade through that we welcome an editor/concierge/consultant, and (b) we seem to crave authority. Philip Tetlock (the authority on prediction) says it well in his new book Expert Political Judgment:

"We--the consumers of expert pronouncements--are in thrall to experts for the same reasons that our ancestors submitted to shamans and oracles: our uncontrollable need to believe in a controllable world and our flawed understanding of the laws of chance. We lack the willpower and good sense to resist the snake oil products on offer."

Maybe not surprisingly, prediction markets do best at predicting what crowds will do: stocks, elections, complex software engineering projects. The easy logic in this is that the predicting crowd probably isn't radically different (in opinion or behavior) than the predicted crowd. So the folks predicting the election, on the whole, are similar enough to the voters that they get it right.

Where I'm guessing it breaks down is in predicting idiosyncratic events, like when Barry Bonds will hit his 700th homer. The wisdom of the crowds, I'm guessing, will fall short.