The current issue of the New Yorker has an article, The Science of Success, on prediction markets, in particular, Media Predict, which runs markets for music, books, television, and movies.

“Last month, the publisher Simon & Schuster announced a partnership with a Web site called MediaPredict, which would use the collective judgment of readers to evaluate book proposals. The deal drew scorn from many, who saw it as evidence that publishers, in an era of stagnant sales, had so lost confidence in their own judgment that they were reduced to the methods of “American Idol.” Asking readers to weigh in on a book’s commercial prospects was a recipe for mediocrity, and the experiment was “doomed to fail.” Yet even the idea’s critics recognized that it was a response to a real problem: most books today are not economically successful, which means that much of the time and money that publishers invest in projects is wasted.”

Media Predict’s book market works like this. Aspiring authors submit a short book proposal. If selected, the book proposal goes on the market for a fixed amount of time, allowing market players to buy puts and calls on the the proposal. If the proposal gets a publication deal or makes the Simon & Schuster short list within the time window, the shares are valued at $100 and if not, they are worth nothing.

The music market works the same way — you predict if new bands will get a record deal. The markets for movies and television are a bit different. Media Predict generates predictions, “will ABC’s Geico “Cavemen” sitcom get on the air by October 15th”, that players invest.

Market players get $5,000 when they sign up. It’s not real money. So, what happens if you are good at this? Nothing for now, but they say they may introduce prizes and are also investigating the possibility of a real-money prediction exchange.

I’m selling the Caveman short.

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