How do the predictive markets work? And how to make them success factors?

Author(s): Donald N. Thompson

Publisher: Harvard Business Review Press

Date of publication: 2012

Manageris opinion

Predictive markets have become commonplace decision-making tools in every industry, as they help to collect and aggregate the wisdom of crowds to formulate highly reliable forecasts.

For companies, the benefits are twofold. First, they can help to make surprisingly reliable predictions. But they also encourage employees to become more actively involved in company strategy and thus are completely in line with collaborative management methods and the “2.0” era.
It should be noted that most of the companies that use predictive markets— except for Google and the Rite Solutions software firm—communicate very little to the outside world on these tools, as if it were shameful to base decisions on employee forecasts. Perhaps cultural prejudices are the main obstacle preventing their more widespread use?

This book is very well documented and sometimes quite technical, but statistics are an inevitable part of the subject matter. However, the author attempts to use layman’s terms to explain how these markets work, highlight the points to watch, and delineate the key success factors for those who want to try them out. The many examples will shake the natural scepticism that often arises with regard to the concept of the wisdom of crowds, and readers will close this book fully convinced!