Prediction Market Outputs: Odds & Ends

If you survey the prediction market landscape, you’ll notice that the outputs that PM’s provide fall into one of two categories:  odds & ends.

By “odds” I’m referring to the probability of a certain future outcome occurring.  For example, “The probability of Obama winning the 2012 presidential election is ___%” or “The probability of the New York Yankees winning the World Series this year is ___%.”  Empirical studies of PM’s have found that these assigned probabilities tend to be highly accurate.  In other words, if a prediction market says the probability of a certain series of outcomes occurring is 80%, you’ll observe that (nearly) exactly 80% of those outcomes actually occur in the real world.

By “ends” I’m referring I’m to an end number — a certain numerical result.  For example, “The movie Shrek 3 will sell $___M at the box office in its first 4 weeks” or “President Obama will collect ____ electoral votes in the 2012 presidential election.”  Studies have also found PM’s to be highly predictive of these end numbers, typically much more so than surveys, polls, or individual experts.

When we developed iCE, a prediction market for market research concept testing, we designed it to output the probability of success for competing new product or marketing concepts.  So the output of an iCE prediction market might be:

  • Concept A has a 60% chance of selling the most out of the 3 concepts tested
  • Concept B has a 30% chance of selling the most out of the 3 concepts tested
  • Concept C has a 10% chance of selling the most out of the 3 concepts tested

This is great information for a product developer or marketer to have at her disposal, but we found that our clients wanted more.  They wanted to know not just the relative probability of success of their various concepts, but exactly how much each would sell in terms of unit sales or dollar volume.

Theoretically we knew this is possible, as other prediction markets like the Hollywood Stock Exchange have been accurately predicting sales volumes for years.  In fact, the correlation between HSX predictions and actual sales volumes for movies has been calculated at 0.93.  That’s quite impressive.

So, we began development of a new iCE product, unpoetically named iCE Volumetric.  For competitive reasons we’re keeping hush on the details of how iCE Volumetric will work, but our clients can rest assured that it will be based on the same well-tested framework as our current patent-pending iCE technology.

Once iCE Volumetric is fully developed and validated, we think it could revolutionize new product research by applying “the wisdom of crowds” to product sales volume projections for the first time in history.  Stay tuned for details…

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