Social Media Marketing For Dummies, 2nd Edition

Using Prediction Markets to Pick Winners

We’ve seen some people define prediction markets as speculative markets created for the purposes of making predictions. Sounds simple, doesn’t it? Assets are created with financial values, and the current market prices can be interpreted as a prediction of the probability of the event or the expected value of the parameter.

Here’s what that really means: You can use your employees or your customers — and business partners, too, for that matter — to help you make better decisions. And the way you do it is by setting up a fake stock market–type environment using prediction market software where each participant is given a set amount to invest in different options (whatever you’re trying to decide on). How much people invest in an option drives up its price or keeps it low. When you have hundreds and thousands of people participating and placing their bets, you get a clear sense of what the community believes to be the strongest option. Think of it as calculated social influence where the influencers are asked to put their money where their mouth is.

Companies around the world use prediction markets to make decisions. These can be strategic business decisions, such as where to locate a manufacturing plant, or simpler decisions, such as which television advertisement to run. The social influence of the community is automatically factored into the price of each option, providing very tangible guidance on what the community thinks has the greatest ...