Are prediction markets the way to attract social investments?

Prediction markets have been a popular theme on this blog (see for example here and here). We also talked about the lack of reliable performance data as a factor that deters potential investors into social innovation.

A short piece in the Harvard Business Review now suggests that prediction markets could be a way to mobilise the wisdom of the crowds to predict which projects will have the highest social return on investment. This would have the effect of providing guidance to potential investors, on the one hand, and creating incentives to non-profits to report on their performance, on the other.

How would one go about launching such a market? This, the author suggests, could be done in stages:

[F]irst, controlled private experiments with sophisticated investors and social entrepreneurs could demonstrate proof of concept. Second, planners could launch scaled-up controlled pilot projects in the field. Finally, the market could be rolled out to the public with nonfinancial incentives for participation. If collective intelligence could index nonprofits’ effectiveness, social enterprises would have an incentive to collect and report performance data to improve their rankings.

One can easily see how the same concept could be applied to the development sector at large, including - why not? - international finance institutions.