Employing the wisdom of the crowds

K.I.T. and Intuity teamed to do research on the question how to generate better prognoses on economic indicators using the “wisdom of the crowds”. The team was led by Dr. Christof Weinhardt at the Institute of Technology (KIT) in Karlsruhe, Germany, and the Institute of Information Systems and Management. The German Handelsblatt newspaper and the Institute of German Economics in Cologne (IW) also took part in this research project.

The saying goes “Predictions are difficult, especially about the future”. This was particularly true for the 2008 crisis when a number of banks experienced great difficulties, resulting in drastic reactions at stock markets around the word. Usually, expert prognoses are based on the knowledge of predictable events and are mostly accurate within the predictable world realm. But how can economic predictions quickly adapt to unforeseeable events, when the process of collecting data, analysis and evaluation can’t keep up with the changing economic situation? According to economic experts, ‘wisdom of the crowds’ may offer the answer to generating faster and more accurate economic indicators in the future. We were asked to find a playful interactive solution to motivate a large number of people to trade virtual economic indices in a simulated, yet realistic market environment. The supply and demand of virtual shares would feed collective expectations towards the economic market situation, consequently allowing predictions to be made.

The EIX Economic Indicators eXchange looks and feels like a trading platform. Participants can speculate, buy and sell, whilst tables of exchange and news tickers facilitate decision-making. Contrary to a common stock exchange, no stocks and shares are at stake here. Instead, participants trade virtual economic indices such as the labour market, GDP, export, inflation and gross fixed capital formation. It all sounds rather abstract – and it is. This is why we were challenged to design the user-friendly access to the economic indicator exchange with a simple user platform.

The Handelsblatt Economic Indicators eXchange is open to everyone. Simple tutorials and a clear demonstration of the market situation help participants to get started. Although there is no actual money to be earned, regular and successful ‘traders’ can win a cash prize worth up to 37,000 Euros. Intuity developed the Economic Indicators eXchange in conjunction with the Institute of German Economics in Cologne (IW), the Institute of Technology (KIT) in Karlsruhe, Germany, and the Institute of Information Systems and Management (FZI).

FZI Forschungszentrum on Economic Indicators eXchange

Handelsblatt on Economic Indicators eXchange

Case Studies