September 27, 2005 ☼ Aside ☼ Economy
This is an archived blog post from The Acorn.
Consider this. Someone promises to pay you 100 bucks on 1st Jan 2006 if Saurav Ganguly is replaced as India’s cricket captain by 31st Dec 2005 (or pay you nothing if Ganguly stays on). To avail of this opportunity, you must first pay him some amount between 0 and 100 bucks now. How much would you pay?
Now, if you are reasonably sure that he’ll be asked to step down by the end of the year, you’ll realise that you can make a profit as long as you purchase this promise at any price less than a 100 dollars. On the other hand, if you are not at all sure, you’ll try to purchase it at an extremely low price. In other words, you will try to buy it at a price that reflects how probable, in your personal opinion, the eventuality is of Ganguly being replaced as skipper.
An exciting branch of economic theory suggests that when the individual opinions of a large number of people is put together — in the form of a ‘futures’ market for predictions — the collective opinion can be rather accurate in predicting actual outcomes. The most famous case, of course, is that of the University of Iowa’s Electronic Markets (IEM), that has consistently outperformed opinion polls in predicting the outcome of US presidential elections.
But what happens when the predictive potential of free-markets is combined with the vibrancy and the opinionatedness of the blogosphere? The answer is PublicGyan - The Public Knowledge Exchange.
Will India secure a seat on the UN Security Council? Will the BJP and its allies come to power in this month’s elections in Bihar? Will Rahul Gandhi become prime minister (god forbid) by 2010? Will an Indian set foot on the moon by 2020? And of course, will India’s most successful cricket captain lose his captaincy by end-2006? Not only can you help find out the answers to these questions (and many more) on PublicGyan, you can actually help the community improve its estimate.
Anyone can join and become a trader on PublicGyan (you’ll need an invite, but more of that later). The Exchange gives you some funds to start off with. And if you are a blogger, you can convert your ‘blog karma’ into more funds. PublicGyan does not use real money. The moolah you use to trade on the PublicGyan exchange are not dollars, but ‘moolers’.
You can use your moolers to buy shares in various predictions. “Saurav Ganguly resigns” (SGANGULY-28) is selling at 90 moolers right now. If you buy one share of SGANGULY-28 at 90 moolers today, you will receive 100 moolers if he resigns; and lose 90 moolers if he does not. Guess why it is selling at 90 moolers today?
So how do you sign-up? For the time being, PublicGyan is open to new users on an invite-only basis. If you’d like an invitation, ask around — many of the Indian blogosphere’s best bloggers may be able fix you up with one. Or you could request for one by leaving a comment below and if you are using your real email address (in the email field below), Mr Turing Bluespan can decide to give you one.
PublicGyan was conceived after a reading of James Surowiecki’s excellent book - The Wisdom of Crowds, published in 2004. And Srijith weaved some magic with his code.
Robin Hanson covers the concept in some detail, while Chris Masse has one of the best collections of links. Wikipedia’s article on prediction markets is very helpful. But Mr Anand Bakshi showed considerable foresight when he wrote, in 1974: “Yeh Public Hai, Yeh Sab Jaanti Hai…” (trans. the public knows everything).
The PublicGyan blog is an excellent way to keep in touch with the latest news, discussions and prediction IPOs on the PublicGyan Exchange.
If you would like to share or comment on this, please discuss it on my GitHub
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