The Surprising Role of Self-Efficacy in Collective Problem Solving

Self-efficacy is essential to learning but what happens when learning is done as a result of a collective process? What is the role of individual self-efficacy in collective problem solving? This research examines whether self-efficacy of traders in prediction markets, when configured as collective problemsolving platforms, affects market performance. Prediction markets are collective-intelligence platforms that use a financial markets mechanism to combine knowledge and opinions of a group of people. In these markets, traders express their opinions or knowledge by buying and selling "stocks" related to questions or events. The collective outcome is derived from the final price of the stocks. Self-efficacy, one’s belief in his or her ability to act in a manner that leads to success, is known to affect personal performance in many domains. To date, its manifestation in computer-mediated collaborative environments and its effect on the collective outcome has not been studied. In controlled experiments, 632 participants in 47 markets traded a solution to a complex problem, a naïve framing of the knapsack problem. The findings demonstrate that prediction markets form an effective collective problemsolving platform. They correctly aggregate individual knowledge and are resilient to traders' self-efficacy. (Abstract)