Collective Intelligence in Market-Based Social Decision Making

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Gimpel, Henner; Teschner, Florian
article description
Public and private organizations increasingly engage in social decision making. Modern information systems facilitate participatory processes that harness the collective intelligence of crowds: Institutions open up for grassroots democracy and shift decisions towards a crowd of citizens, employees, or customers. Prediction markets are common tools in such social decision making. They have repeatedly proven their potency for aggregating information from a crowd of experts. However, their contemporary use in social decision making typically involves experts with a vested interest in the decision. They have incentives to manipulate the market and the decision. Simply carrying over prediction market knowledge to the design of social decision making might be premature. To back this hypothesis, we present findings from a lab experiment. Data suggests that people with stakes in the decision manipulate the market, corrupt information aggregation, and lessen decision quality. Common practice is better than random but worse than alternative designs.