In discussions with several colleagues and clients recently, I've begun thinking that blogs and prediction markets share enough similarities to make it worth thinking about them together. I.e., looking more holistically at how they're threatening traditional organizations (particularly large ones), and what those organizations can do to put them to good use - either offensively or defensively. This post will only scratch the surface.
I'm not talking about the direct intersection of these phenomena (e.g., Blogshares, which provides a mechanism to 'trade' funny-money on the future number of in-links to particular blogs.) Instead, I'm seeing that both blogs and prediction markets - born of the democratizing power of the web - have demonstrated their power to circumvent traditional information hierarchies to the detriment of established organizations and individuals.
Hugh Hewitt puts it nicely in 'Blog', albeit with an obvious example:
"Thus far [among businesses], only CBS has really felt the impact of a devastating opinion swarm generated by a blog swarm, but the damage done to its brand was immense, and its viewership crashed in the aftermath..."
Similarly, with markets (prediction or otherwise), ask any CEO of a public company how negative Wall Street wisdom - 'fair' or not - can become a self-fulfilling prophecy. Some other similarities include:
- Blogs and prediction markets have been criticized for lacking formal, transparent credentials. I.e., Who's trading? Who's writing? Why should I trust what I see? Yet as time goes on, some blogs and some prediction markets are emerging as utterly trustworthy - even as others sink.
- Both serve as aggregators of opinion and wisdom, abeit in different ways. The output of a prediction market is (usually) a single number that, (depending on whom you listen to, and how a market is constructed and run), provides at least a rough gauge of aggregate opinion about the likelihood of a future event. The 'output' of the blogosphere is more nebulous, but it nonetheless opens a much bigger and more readily accessible window on collective wisdom than previous modes of communication.
- Both accelerate the process of triangulating on a 'right' answer. That's not to say that either one gets the right answer immediately or infallibly. (Traditional forecasting mechanisms and media don't either. ) But blogs and PMs are inherently more liable to rapid correction. Even if one blog writer or one prediction market trader is way off-base on an issue of discernable fact, the entirety of blogs and prediction market traders (on a particular subject) will tend to move towards 'truth' over time, and on average will do so faster than a single expert selected in advance.
- Both make attempts at manipulation (i.e., deliberate diversions from 'truth') more transparent. At the same time, they make manipulation less effective.
- Both have incredibly low barriers to entry, enabling marginal, heretical, previous excluded voices to easily be 'heard'. I won't opine on whether this is a good thing or a bad thing. (It depends!) But if an organization has monomaniacs, gadflies or critics, blogs and prediction markets with embolden and empower them like never before.
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