Monday, June 30, 2008

Prediction Markets

I was in the audience for this presentation at the nGenera Enterprise 2.0 Conference. Going into this presentation I had very little background knowledge on prediction markets.  Hagai Fleiman and Jeff DeChambeau put on a great presentation with lots of audience participation.

The basic premise of prediction markets in an enterprise is that there exists lots of employee insight and knowledge.  Managers should look for ways to tap into that audience to help with business processes and decision-making. 

Prediction markets can be a way to engage employees ("your opinion matters") and engage customers ("your opinion matters").

One distinction is to build the prediction market as a futures trading and not merely as a poll.  By structuring it as futures trading, the market is more organic and responsive. It also allows people to make bigger bets if they feel more confident in their decision. 

The session spent some time on the experience of a retail store chain. They used a prediction market to figure out how many gift cards would be sold during the holiday season and another prediction market to figure out how those gift cards would be spent.  The spending market was used to help decide staffing during the post-holiday period. A representative of the retailer was in the audience. Of course the markets are not 100% accurate. But they are generally more accurate than the individual managers.

One issue was how to get people to participate in the predictions market.  One method is relying on the competitive nature of the enterprise. You can instill a sense of pride on those who accumulate the most "wealth" in the prediction market.  Many seemed to agree that you could not just ignore the information from the information market or people would not bother participating.  Employees want to feel engaged and feel that they have the ability to have some say in management of the enterprise.

The session moved onto the use of prediction markets at Google.  More detail on this can be found at the GoogleBlog post: The Flow of Information at the Googleplex.  It was very interesting to see the physical proximity within the Googleplex of the "winners" in the prediction markets. 

nGenera has some great research and information on the use prediction markets within the enterprise.

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