Deliberating Groups Versus Prediction Markets (Or Hayek's Challenge to Habermas)
Cass R. Sunstein
Harvard Law School; Harvard University - Harvard Kennedy School (HKS)
University of Chicago Law & Economics, Olin Working Paper No. 321
University of Chicago, Public Law Working Paper No. 146
For multiple reasons, deliberating groups often converge on falsehood rather than truth. Individual errors may be amplified rather than cured. Group members may fall victim to a bad cascade, either informational or reputational. Deliberators may emphasize shared information at the expense of uniquely held information. Finally, group polarization may lead even rational people to unjustified extremism. By contrast, prediction markets often produce accurate results, because they create strong incentives for revelation of privately held knowledge and succeed in aggregating widely dispersed information. The success of prediction markets offers a set of lessons for increasing the likelihood that groups can obtain the information that their members have.
Number of Pages in PDF File: 31
Date posted: January 11, 2007