Forecasting uncertain events with small groups

ABSTRACT

We present a novel methodology for predicting future outcomes that uses small numbers of individuals participating in an imperfect information market. By determining their risk attitudes and performing a nonlinear aggregation of their predictions, we are able to assess the probability of the future outcome of an uncertain event and compare it to both the objective probability of its occurrence and the performance of the market as a whole. Experiments show that this nonlinear aggregation mechanism vastly outperforms both the imperfect market and the best of the participants.

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INDEX TERMS

General Terms:
Design, Economics, Experimentation

Keywords:
Arrow-Debreu Securities, experimental economics, forecasting, information aggregation, markets, prediction