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Friday
May292009

Ancillary benefits of corporate prediction markets

Adam Siegel, CEO of Inkling Markets, made an interesting comment today during our phone conversation: the ancillary benefits of prediction markets can often be more important that the predictions themselves.

Inkling, a prediction markets platform for companies, promises to help you gain "business intelligence from your human network" and they agree with a lot of the commonly cited benefits such as increasing collaboration across boundaries, gaining the "wisdom of crowds" etc., but Adam mentioned a few additional benefits. He cited a common challenge in talking about prediction markets (that I have faced as well) which is that the primary driver for many people is "did the prediction market get it right?" Did Intrade get the 2008 election right? Did the HP market accurately predict printer sales? The truth is that prediction markets offer probabilities, not absolutes, so even if Intrade got a certain event "right" with 52% of the vote, it could have done just as well with a coin toss.

So, while numbers are very important, the right/wrong dichotomy isn't necessarily. Here are some of the ancilliary non-forecasting benefits that came out of our conversation:

  • Building in social aspects into prediction markets, such as discussion threads, can lead the market framers (i.e., the management) to begin to ask the right questions
  • The purely quantitative results can drive increased emphasis placed on the value of transparent metrics in an organization
  • Market results can be an "eyebrow raising exercise" or gut-check to the expectations of management
  • When markets are on-going, they can constantly adjust to changing events, rather than providing just a snapshot in time

I was also intrigued by Adam's observation that Inkling's clients are overwhelmingly the"hell raisers within the company" i.e., managers who sense the real disconnect between their bosses and the employees that report to them and want to shake things up. He cited an example at Proctor & Gamble where the company market results proved that executives were consistently over-optimistic in their forecasts across the spectrum of future events from product roll-outs to competitor behaviors. The hard proof of this behavior helped them to stop killing their employees and bring some balance between their expectations and the realistic expectations of the folks on the ground.

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