Mercury’s Blog

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I’ve previously discussed in my post “Developing a business case for Prediction Markets” that the costs of forecasting error should be relatively straightforward. I wanted to expand on that a little more, and today I added a page to this blog that helps you calculate a forecasting error.

By navigating over to my new page “Forecasting Error Calculator,” (also on the top right under “Pages” if you’re not reading this in an RSS reader) you’ll see an embedded spreadsheet. The example demonstrates that for one particular company with 800 million in sales, each percentage point of forecasting error costs between 3.03 and 3.65 million.

It’s not unusual for a company to have a forecasting error of several percentage points, thus potentially costing them tens of millions in sales. But this shows the opportunity for a prediction market! If by reducing a forecasting error by just one percent, it could save this particular company between 3.03 and 3.65 million. It’s also not unusual for a prediction market to reduce error by much more than 1-2%, thus saving much more.

When you check out this new page, you will also see that I’ve provided a link for you to download the original spreadsheet yourself so you can experiment with it.  (No payment or registration needed!)  Different industries have significantly different cost structures, so results may vary.

I would appreciate your feedback if this is helpful for you, particularly as you think about building a business case for prediction markets. Would having the calculator in a different format (such as Flash or a web-based form) be more helpful? Please get in touch.

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I’m happy to announce a new look for the Mercury Research & Consulting website. If any of you tried to go to the homepage in the last few days, you will have received an error as I was shifting servers. It’s all up and running again, and I invite you to take a look. If there’s a project that you’d like to discuss, please get in touch.

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People who are reading this post on the website (instead of an RSS reader) will see a widget in my sidebar: my “Shared Items” from Google Reader. These are blog posts that I’ve read that really impacted me and that I wanted to share with you. Feel free to click on this link to see them all. If you read blogs in an RSS reader, click here to subscribe to the feed.

I think that you’ll find some thought-provoking and inspirational posts for your reading pleasure.

This entry was posted on Tuesday, August 7th, 2007 at 12:01 pm and is filed under General.