Prediction Markets here to stay?

Web2.0 is all about contributions from end-users aka. The wisdom of the Crowds. Prediction Markets are a very efficient way to consolidate that wisdom which can be found in various nooks and crannies. If this concept is new to you, read Wikipedia for a primer. If not, read on.

Prediction Markets always receive a huge surge around election time because studies have shown that with enough activity they are more accurate predictors than polls. This year InTrade.com went very mainstream getting mentions on numerous news reports and getting link outs from Yahoo and other mainstream online information providers.

There was a move by DARPA in 2003 to use a prediction market to predict terrorist activity. While ideally that was a good approach to help understand the threat at any given moment, someone forgot to consider that most Americans don’t currently understand the concept of a prediction market and so just heard, “We are going to be betting on terrorist attacks”. You can imagine that program was shut down quickly.

So, will Prediction Markets maintain their momentum post-election this time around? I certainly hope so. We have learned from the worldwide financial crisis that we need people who make decision to have more information at their disposal rather than less. BI, Balanced Scorecards, and, yes, prediction markets should be getting attention/funding from those who feel that their organization is being led too much from “the gut”.

A friend and colleague from IBM just shared with me that IBM has established a Prediction Market pilot using the Spigit software. It is currently open for all to view and/or register. Concensus Point has launched a Prediction Market within BestBuy called TagTrade. Mercury Research has provided a solid list of Prediction Market software providers in their blog.

In my experience the key to adoption for all these tools is going to be:

  1. Simplicity – the vendors are going to need to make this so easy that anyone can understand it and use it within a moment. Volume is critical to success in order that you are not skewing your results with due to a non-representative sample of users. So, it has to be easy enough for the masses. Vendors have made some excellent strides here, but they can certainly do more. Liberal use of UI experts should be employed
  2. Integration – as with so many KM activities, most people will not take dedicated time out of their regular workday to go and explore something new unless it is directly relevant to getting their job done. Vendors need to think about use cases that will get the market information to the consumers in the right places at the right times.
  3. Put people first – We have learned from social networking sites that people are more apt to share when the sharing becomes part of their online persona.  These tools should not only have leaderboards with links to market profiles, but they should also allow people to “follow” the decisions of people whom they trust and to find people with similar positions.  Also, per point #2, the profiles should be linked in with the larger organizational profile rather than completely separate.

I look forward to seeing Prediction Markets generate some really excellent success stories in the years to come. We have great tools at our disposal, now we just need to help businesses understand how to use them.

2 responses to “Prediction Markets here to stay?

  1. I had two quick comments:

    1. Salesforce.com has an idea module that someone can add to their account package. This allows people share ideas on how to fix problems in the company/group take advantage of an emerging opportunity. This seems like a fertile proving ground for prediction markets if the company size is large enough.

    2. Don’t you think that a good PM application would best work as something that could sit on top of an SOA ?

  2. @Joel, thx so much for your comments.

    re: #1) yes, Starbucks is one of the most referenced idea sites and they made use of The SalesForce idea platform. There are many other tools. One limitation to salesforce.com’s is that you have to be a salesforce.com customer, but if you are; I imagine that integrating the idea “market” with your CRM or other SF tech that you are using is helpful. To my knowledge this is not really a prediction market though. It is more about idea generation/rating. In fact, using a tool like that might be a great way to take a lot of ideas and boil them down to the top 5 which can be fed into a prediction market.

    re #2) I’m not sure that I understand exactly what you are saying. I think that in a SOA environment where applications are much more componentized, there is greater opportunity to inject info from prediction markets and great opp to retrieve info from users. eg. a mashup showing actual sales data could also show prediction market data/functionality about future sales predictions on the same screen.

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