7-Eleven predicts election results with crowdsourcing

The convenience store chain 7-Eleven has started their third political poll in the US yesterday, by letting people buy their coffee in Obama or McCain cups, to show commitment. I think this is an interesting idea, especially since their last two polls have predicted the outcome of the elections with astonishing accuracy, less than a one percent point from the actual results.

This campaign reminds me of a concept called prediction markets, which are investment based forecasting tools. There are numerous examples that prediction markets working, if you can have large enough volumes, and as wide sampling base as 7-Eleven has in the States.

Here’s more on prediction markets from Wikipedia:

“Prediction markets are speculative markets created for the purpose of making predictions. Assets are created whose final cash value is tied to a particular event (e.g., will the next US president be a Republican) or parameter (e.g., total sales next quarter). The current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter. Prediction markets are thus structured as betting exchanges, without any risk for the bookmaker.

Other names for prediction markets include predictive markets, information markets, decision markets, idea futures, event derivatives and virtual markets.

People who buy low and sell high are rewarded for improving the market prediction, while those who buy high and sell low are punished for degrading the market prediction. Evidence so far suggests that prediction markets are at least as accurate as other institutions predicting the same events with a similar pool of participants.

Many prediction markets are open to the public. Betfair is the world’s biggest prediction exchange, with around $28 billion traded in 2007. Intrade is a for-profit company with a large variety of contracts not including sports. The Iowa Electronic Markets is an academic market examining elections where positions are limited to $500. TradeSports are prediction markets for sporting events. The simExchange, Hollywood Stock Exchange,NewsFutures, the Popular Science Predictions Exchange, Hubdub and the Foresight Exchange Prediction Market are virtual prediction markets where purchases are made with virtual money. Bet2Give is a charity prediction market where real money is traded but ultimately all winnings are donated to the charity of the winner’s choice.”