!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Strict//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-strict.dtd"> Streamline Training & Documentation: The Value of Prediction Markets

Thursday, August 31, 2006

The Value of Prediction Markets

As a follow-on to this earlier post on prediction markets, I'd mention a Business Week online report that provides several examples of how companies are using prediction markets to help with decision-making. By aggregating knowledge from a broad base of individuals, a prediction market can often yield highly accurate indications of future outcomes. They also help top management get a clearer picture of employees' thinking.

Writer Rachael King explains that
[t]he markets are particularly useful in areas such as consumer goods or technology, where change is rapid and companies need to adapt quickly or get left behind.
Specific types of decisions prediction markets can help with include:
  • sales forecasts

  • product launch dates

  • new products most likely to succeeed

  • resource allocation for new product development

  • when a project milestone will be reached

  • how a movie will fare
The last item is particularly interesting to me because I've read so often about the unreliability of conventional methods of predicting a movie's box office. You can get an idea of how movie-oriented prediction markets work by visiting the Hollywood Stock Exchange website.

The Business Week report provides a handy list of Do's and Don'ts for setting up a prediction market. One Do is investing in education for participants, so they understand how the market works and are not discouraged by complexity in placing their bets. Also, middle managers will be more willing to reduce their role as information gatekeepers if they are given a persuasive explanation of the value of the prediction market.