Problem 2 in some cases judges are all biased in the

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Problem 2:
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In some cases, judges are all biased in the same direction. People are often similar in their reliance on systematically flawed decision making processes. Rules of Thumb: When to Average Opinions 1. There is diversity & independence of opinions 2. Errors are random, not systematic 3. The alternative is to rely on a single individual with average expertise Best Method: Average judgments of true, unbiased experts, who have access to diverse information and who rely on diverse methods for solving the problem. Even if the experts are biased, aggregating across experts cannot be worse than relying on a single expert. Prediction markets tend to be extremely accurate in predicting outcomes Reason 1: The RIGHT people have the right incentive to speak up. True experts are more likely to participate – and drive prices – than are less knowledgeable people. Reason 2: Prediction markets can be accurate even if most of the participants are ignorant. Potential Problems with Prediction Markets Problem 1: Prediction markets need publicly dispersed information in order to work. (i.e. Sarah Palin’s nomination) Problem 2: Like other forms of aggregation, prediction markets are susceptible to rumors, fads, and biases. However, they do seem less susceptible to biases than other methods. Problem 3: Prediction markets will not work when the event’s occurrence is affected by the outcome of the market. Prediction markets may not be effective at predicting terrorist activities, because the terrorists may only strike when the market predicts that they won’t. Problem 4: There is still a lot that we DON’T know about the accuracy of prediction markets.
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Takeaways When eliciting information from a group of people, it is important to make sure that: 1. There is diversity. 2. There is independence. 3. There is an incentive for all knowledgeable people to contribute (all information is extracted). 4. The final judgment is reliable (not random). 5. Errors are not systematic. Lecture 13 When people are deciding among unfamiliar options, they ! construct their preferences on the spot.! The construction of preferences is basically a search for ! reasons for choosing one option over others.! ! The goal is to reduce uncertainty, and to choose an option ! that looks rational to us.! Sure Things Principle If you prefer A over B under condition X and condition not-X, then you should prefer A over B when you don’t know whether X or not-X will occur. We want to have reasons for our actions. Thus, we defer or avoid decisions if we don’t know our reasons for acting – even if we would make the same decision regardless of the “reason”. Making [Bad] Reasons Salient (Product + NOTHING) is sometimes preferred to (Product + SOMETHING) People will forego normally-chosen options when presented with bad reasons for choosing them.
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