Harnessing the wisdom of crowds: Decision spaces for prediction markets

The increased metabolism of business in the modern world has served to heighten both the frequency and the difficulty of organizational decision making. Practitioners and academics are constantly looking for decision-making mechanisms that can be used to address these challenges. One recently emerged mechanism is prediction markets: a group decision-making tool that uses a market mechanism to rapidly aggregate information held by large, diverse groups of participants. Prediction markets have a number of benefits and have been demonstrably successful in a number of contexts; however, it is important to recognize that they are suited to some types of decisions and contexts but not to others. This article examines the benefits of prediction markets and develops a framework that can be used to identify in which situations prediction markets can be profitably deployed within organizations. It also provides a roadmap for practitioners to use to guide their own organizational deployment of prediction markets.