The value of collective wisdom in predictive markets & other fields
The "Wisdom of the crowd". This concept refers to the idea that although individually we may not be able to solve a problem, that there is power in the consensus of a group. A great example of this concept was an experiment done by Sir Francis Galton in 1907. He challenged a group of villagers to guess the weight of an ox. 787 people participated, but no one got the answer right! However, when he averaged the "guesses" of the group the number was nearly perfect. He published his work in a letter to Nature (Nature March 28 1907, NO. 1952, VOL. 75). This experiment has been repeated in various forms. The wisdom of the crowd or so-called collective analytics is also why individuals can have vastly different estimates of the number of gum balls in a jar, but when their guesses are averaged they tend to get the number within a few.
The value of "collective intelligence" is even used in the medical field. Articles submitted are sent out for review and the decision to publish is based on the "crowd sourced" feedback of the reviewers. This process is called peer review. An article in the AMA Journal Ethics entitled, Maximizing Collective Intelligence via Inclusive Collaboration and Open Communication discusses the power of the wisdom of the crowd.
What is Augur (REP)
Augur (REP coin) is a decentralized prediction market protocol based on the Ethereum blockchain. It allows users of the system to "place bets" on the outcome of a future event. Participants are rewarded for accurate predictions. Based on the distribution of bets, the probability of a particular outcome may be evident via the "wisdom of the crowd". The smart contracts, embedded in the REP coins allows for "trustless" interactions. However, this assumes that the programming of the smart contracts is done correctly, and that the "bet" is structured in a way that the result, or outcome, can be determined. The system won't work if the bet does not anticipate an ambiguous outcome. The short video below nicely describes how this system works.
The video below nicely explains what Augur cryptocurrency is an how it is being used to power predictive marketplaces online (i.e. futures market, etc...)
So depending on your risk tolerance, you can test it out. However, this is still a work in progress and there are a lot of unknowns. Regardless of how the Augur (REP) experiment turns our blockchain based tools with embedded smart contracts will likely play a role in predictive marketplaces in the future. This includes futures markets like crops and currency, gambling on sporting events and even political races.
The impact on online gambling, sports betting, futures markets and potentially even medical decision making will likely be great. Blockchain is a transformational technology that will disintermediate whole industries in the next 10 years like the Internet did in the 90s.
Be Crypto Smart™
Follow us on Twitter @BitsofKoin