Mercury's Blog

Trying out new software, new tools and new processes is critical for long-term success.  A trial will provide you with very important feedback about features, and help you figure out how exactly you can best use the software/tool/process in your organisation.

Doing a trial is just as important when implementing a prediction market in your company.  Luckily, most of the prediction market software vendors are able to do fairly inexpensive (to free) trials of their software to help get you started.  Prediction markets clearly fill forecasting gaps in organisations, because from my discussions with the various software vendors, it is quite rare for a company to do a trial and not purchase the full-fledged solution.

What are some of the key things you need to accomplish in a trial?

• Solve a problem (even if it’s a small one)
• Start with a small, diverse group
• Keep your head down

Solve a problem (even if it’s a small one)

This is important because prediction markets in a company should not be seen as entertainment only.  A large manufacturing firm shouldn’t be focusing their prediction markets on the 2008 presidential election or the winner of the baseball World Series, at least at first.  Instead, start a market to see if people can predict data like number of quality defects in the month, number of workplace accidents, etc.; provided that the final number is known and published by the company.  The key is that prediction markets should show they can forecast data, even if that data is seemingly inconsequential.

Solving real problems will show that prediction markets are a tool, and not a time-wasting device.  It will also provide for small successes that will lead to increased willingness for prediction markets on more strategic data.  All you need to prove in a trial is that it works on a small level; the rest will happen naturally.

Start with a small, diverse group

For a trial to succeed, the entire company doesn’t need to be invited to trade.  Instead, get a small group of people that you know are interested in the idea.  What’s more important is that the initial group of traders is diverse.  It’s no good for the market if the twenty people you ask to participate all work in the same group of desks, in the same division.  Get people from sales, from finance, from production, from administration, from whatever divisions your company has.  You will find that a small handful of people from each division will be quite accurate in their predictions, and will certainly have better quality than one division alone.

Keep your head down

This may not apply to all trials, but I would recommend it if your trial isn’t sponsored by a top executive.  There are a lot of managers who are threatened by prediction markets.  Middle managers in particular don’t like their employees being able to essentially go around them and provide information to executives, particularly if a project or product isn’t going well.  If they find out about your prediction markets project before you have a track record of success, they will probably try and kill it outright.  So keep your head down, and don’t try and attract too much attention until you’ve had successes that you can build on.

Trials are critical in order to find out if prediction markets are right for your company, and if they’re valuable for your company.  I believe that most organisations will find quite a number of uses for prediction markets, and that a trial is the best way to discover these uses.  The points above should help you ensure that your trial is a success.

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If you’re interested in what other readers have liked, here are links to some of my most popular posts.  (ClickComments are available for archived posts, too.)

- Structuring your market
- Developing a business case for Prediction Markets
- Designing markets for real-life use

This entry was posted on Friday, June 8th, 2007 at 12:40 pm and is filed under General.