Collective Problem-Solving: The Role of Self-Efficacy, Skill, and Prior Knowledge

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 the manifestation of self-efficacy in prediction markets that are configured as collective problem-solving platforms and whether self-efficacy of traders affects the collective outcome. Prediction markets are collective-intelligence platforms that use a financial markets mechanism to combine knowledge and opinions of a group of people. 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 a controlled experiment, 632 participants in 47 markets traded a solution to a complex problem, a naïve framing of the knapsack problem. Contrary to earlier research, we find that technical and functional self-efficacy perceptions are indistinguishable, probably due to a focus on outcomes rather than on resources. Further, results demonstrate that prediction markets are an effective collective problem-solving platform that correctly aggregates individual knowledge and is resilient to traders’ self-efficacy.