Twitter, Prediction Markets and Profits

May 26, 2009

According to Wikipedia, Prediction Markets are “speculative markets created for the purpose of making predictions. Assets are created whose final cash value is tied to a particular event (e.g. will the next US president be a Republican) or parameter (e.g. total sales next quarter). The current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter.”

The Wisdom Of Crowds tells us that – through Jack Treynor’s Jellybeans experiment, for example – the aggregate average guess of the masses is more accurate than the guesswork of any individual; in fact, often incredibly accurate.

Twitter represents the constant, real-time thoughts, guesses, actions and predictions of the masses. Imagine if – due to scalability reasons – the Twitter search was time-lagged by 30 minutes, or an hour. In those precious extra minutes, the team at Twitter have access to a huge statistical gold-mine that is yet to reach the public, but crucially WILL reach the public soon.

If Twitter can take advantage of this prior knowledge of the masses, it may be able to massively profit from our combined inaccuracies – by aggregating them into an accuracy before anyone else.

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