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Open Innovation: New Product Development Essentials from the PDMA by Serdar Durmusoglu, Charles Noble, Abbie Griffin

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4 PREDICTION, PREFERENCE, AND IDEA MARKETS: HOW CORPORATIONS CAN USE THE WISDOM OF THEIR EMPLOYEES

Peter Koen

Stevens Institute of Technology

4.1 Introduction

British scientist Francis Galton, in 1906, came upon a weight judging competition at an exhibition in Plymouth (Galton, 1908). For sixpence you could wager a bet on the weight of an ox and receive an award if your guess was closest to the actual weight. A total of 787 guesses were received from butchers and farmers, who presumably were experts, as well as clerks and others who had no expert knowledge. Galton ran a series of statistical tests and found that, on average, the crowd guessed that the weight of the ox was 1197 pounds. The actual weight was 1198 pounds. The crowds' judgment was just about perfect. Francis Galton found that under the right conditions, groups are smarter overall than the smartest individuals in the group.

The first public virtual stock market, which is known as the Iowa Electronic Market (IEM), a not-for-profit organization run by the University of Iowa, predicts the outcome of presidential elections. Berg and colleagues (2008), based on an extensive analysis, found that IEM election predictions more than 100 days from the actual presidential election in 1988, 1992, 1996, 2000, and 2004, were more accurate 76 percent of the time than popular opinion poll organizations such as ABC, CBS, CNN, Gallup, Harris, or NBC. The traders were not even a representative sample of the voters, as they were

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