what is a prediction market?

In our opinion, prediction markets are part of the future of market research, only they are happening now in Canada at rsgCrowdIntelligence.

The simplest way to think about a prediction market is to turn most of the things you believe about how to do market research upside down. Gen pop rather than specific target audience sampling (yes you can still do targeted sampling), small sample sizes (300 -400), and we don’t want to know what you would do but rather what you think the market would do. The article below provides information on prediction markets as used by enterprise organizations.

rsgCrowdIntelligence

Most people think of a market as providing a platform for the exchange, through trading, of something of value — a good or a service. This is indeed the primary function of markets at the industry level. A prediction market is based on a market mechanism and is an efficient way to aggregate opinions about value of what investments an organization should make or whether an outcome will happen in the future. Additional benefits of prediction markets are improved decision-making and improved employee morale.

Prediction markets are an effective way to eliminate a bias in information through tapping diverse minds. According to our Professor Robin Hanson, the “father of prediction markets”, “The trouble with humans, it seems, is that even when we’re smart, we have access to imperfect information and follow the groupthink of our peers. Because we often disagree with other groups, we band together and end up agreeing too much with our own teams. No single leader can overcome such biases and data gaps to predict with certainty whether an action will succeed or fail.” But Hanson suggests markets can do just that.

Prediction markets produce forecasts that are, on average based on experience, more accurate than those produced from traditional forecasting approaches, largely because markets incorporate more information, run continuously, and aggregate employees’ opinions in an anonymous way. With the prediction market functioning continuously, markets will disclose the impacts of new information far faster than any alternative approach. Because the common disincentives for employees to reveal bad news to managers have been eliminated in a prediction market, this system gathers opinions from minds that are sometimes silent. In some instances, a prediction market can serve as an effective early business indicator for leaders— by providing signals that a variance of say 10% related to a critical business initiative has been indicated by the market, allowing business leaders to assess and potentially take action.

the value of a prediction market

Prediction markets offer a unique ability to incorporate information-aggregation and the predictive power of markets within traditional corporate structures. A prediction market is established within the company to generate predictions on issues of interest in a manner that directly addresses the foundational communication constraints. Incorporating this type of approach in a geographically distributed and virtually managed organization can provide significant benefits by promoting a smart forum with a goal to drive final analysis of influence and intelligence in a particular area. Additionally, a collaborative approach can increase employee engagement, raise energy levels and offer a unified platform for employees to be heard, while leveraging the ability for leaders to receive input from all minds in the company.

how prediction markets work

A prediction market works similarly to a stock exchange. A “stock” is defined to reflect an issue of interest to your organization such as the product’s readiness to launch, sales forecasts of the company’s products, viable new products or services, and other in-depth insights of employees. These dynamic insights from your employees can be identified by geographic region, business unit or through other demographics.

Your organization’s employees will participate as traders on the basis of their perceived understanding of future changes and prospects. With the protection of anonymity (eliminating the fear of reprisals for offering unpopular opinions) and a well-defined incentive structure, employees are motivated to acquire relevant information and contribute their best assessments. Traders buy and sell shares of the stock based on beliefs about future occurrences and their desire to increase the value of their portfolio. When an employee, for example, observes that the price of the stock is less (or more) than his/her expectation related to the topic, he/she will buy (or sell) the stock, thereby driving its price up (or down).

As a result of this dynamic, the prediction market stock price serves as an ongoing real-time forecast of future results associated with the question being asked. It also continuously reflects traders’ aggregated assessment of future results in the same way that the trading of a company’s stock on a stock exchange continuously reflects the trading community’s collective assessment of the market value of the company.

ideation and concept analysis

quickly and easily identify the best ideas and concepts:

  • increase the speed with which your organization selects ideas and determine which concepts are most desired by the market
  • significantly reduce your concept and ideation research costs
  • test more concepts with clearer differentiation among ideas
  • obtain more accurate answers with less effort
  • offer a more engaging tool for respondents than traditional research methods

Our solution is proven to accelerate your time to market and to lower your total cost of research. Our prediction market enables companies to quickly arrive at a “consensus” and determine which ideas and concepts are going to be winners in the market. Get the answers in a few days as opposed to a few weeks at a fraction of the cost of traditional research. Our proprietary technology enables corporations and research organizations to create and manage private prediction markets.

By tapping the predictive powers of collective wisdom and gathering information on market desires — you can achieve a higher level of business performance and a competitive advantage. Develop the best ideas with the right features more quickly and more cheaply.

forecasting and demand planning

With access to the rsgCrowdIntelligence powerful solution, you’ll discover answers to questions such as:

  • Will next quarter’s sales meet targets?
  • Is distribution channel A as effective as B?
  • Will promotion A yield measurable results?

Whether you’re trying to predict next quarter’s sales growth, gauge types of channels for a new product, or identify effective promotions, the Foresight Prediction Market Solution is a viable answer, and often more accurate than alternative methods.

Specifically, a market gathers forecasts from the people who are interacting with customers and partners on a day-to-day basis— your employees. With timely information, these forecasts can enable you to allocate resources to the highest priorities, leading to a higher return on investment. In addition, you can determine gaps in demand planning processes. On average, our customers have found the prediction market to be as accurate or more accurate than traditional methods, 6–8 weeks out from the event.

Learn more about the business value from customers’ success:

Best Buy: produced more accurate media stocks, 5% more accurate than traditional methods

General Mills: as accurate as traditional forecasts, comparison of prediction market accuracy across multiple departments, market insights on when organizational information is available— leading to better strategic decisions

innovation and idea management

What if you could tap the minds of your most valuable asset, your people, in an efficient way? Want to test large quantities of ideas to find the best ones? Is your traditional innovation process taking too much time?

With access to the rsgCrowdIntelligence powerful solution, you’ll discover answers to questions such as:

  • Which investment opportunity deserves to be funded?
  • Which product features should we include in the next version?
  • How much should we charge for this new service?
  • Which potential partner will help us achieve our business goals?

The Foresight Prediction Market platform represents the most efficient process to identify and prioritize innovation concepts and ideas from your employees. While some companies have tools to capture ideas, a prediction market enables employees to suggest new ideas and expand on existing ideas — turning a good idea into a great idea, all in real-time. Prediction markets enable employees to prioritize these ideas based on criteria for success, enabling leaders to receive a ranked list of the best investments the company should consider. As a result, some companies have reduced a quarter of time off the traditional “committee” process, while gathering new ideas and innovations for product development. Markets are a fun and engaging way to elicit valuable ideas and business innovations. Using markets in the innovation process, you can engage all employees equally across distributed areas, in a low cost way.

Learn more about the business value from our customers’ success:

GE Imagination Markets: gathered and prioritized 100’s of ideas from 150+ countries in three weeks, effectively prioritized investments during GE Energy’s annual planning cycle

Motorola: reduced duplicate ideas by 40% and pursued 40% more ideas than before, decreased disposition time by 55%, increased social collaboration

risk management and initiative tracking

sample risk management outcomes

  • Improves Confidence in the Initiative or Project Process: produces accurate and reliable probabilities. As risks materialize, the tool updates in real-time to provide management time to remediate/mitigate and prevent schedule/cost impact
  • Quantifies Unknown Risk: functioning as an early warning system, efficiently identifies issues before they become high risk and expensive, enabling proactive issue management and better allocation of resources
  • Collects unbiased opinions to strengthen the accuracy and fidelity of management reporting

Do want to improve your track record for completing projects on time, on budget and within acceptable quality ranges? Prediction markets are a unique and successful way to gather early warning indicators of whether your projects are “getting derailed” or “off track”. Since prediction markets are dynamic and information is aggregated across multiple participants, markets break through social barriers of complex projects across functional and geographic boundaries. Participants can share knowledge in real-time and in an anonymous way. When leaders receive early indicators that a project schedule has slipped or a product component is not ready as planned, immediate and proactive decisions can be made to reallocate resources or secure alternative sourcing in real time— reducing risks, shortening delays and saving costs in the long term.

By tapping the predictive powers of collective wisdom and gathering information on what’s going to happen — in the short-term and in the long-term, you can achieve a higher level of business performance and competitive advantage. With the Foresight Prediction Market platform, you can effectively capture and aggregate team confidence about key events to reduce cost, quality, and time risks.

Learn more about the business value from our customers’ success:

Best Buy: accurately predicted delays in new service launch, enabling leaders to push out public launch until all components of new services could meet customer expectations

Ingenix: accurately predicted utilization of service delivery resources, allowing for re-allocation of resources and meeting customer expectations