Archive for April, 2011

[tweetmeme source= “jsnrss” only_single=false]I recently came across the interesting theory of Prediction Markets, which could have a profound effect on how we apply social networking initiatives in a business context.

Before I go on I’d like to state … that whilst I’d love to stake claim to the concept of Prediction Markets or suggestions for how to apply it, the best I’d be able to do is take claim for bringing this to your attention today! Prediction Market theory is long standing and the idea of applying it come from people far smarter than my humble self. The premise is simple however…

Prediction Markets are speculative markets created for the purpose of making predictions – where people who buy low and sell high are rewarded for improving the market prediction.

It’s when the theory of prediction markets is combined with Web 2.0 mechanisms of today, that  powerful outcomes for business could be unlocked. Indeed, many social initiatives today have allowed large groups to work to a common goal. In the public domain things like the Pepsi Refresh challenge have allowed the public to (together) decide what social initiatives Pepsi will sponsor. This is now nothing new with My Starbucks Idea, Dell Idea Storm, M&S ‘Plan A’ and many other similar initiatives already around for a while.

The quest is on for how these initiatives can evolve and produce better results yet. Introducing Prediction Markets to the above scenarios could create a whole new level of engagement and perhaps more importantly, enable the successful ideas to be predicated with far greater accuracy.

Practical applications are not too difficult to imagine. Consider then for example in a corporate context, if staff could ‘bet’ on the next years R&D spend. And if those ideas were to get selected and subsequently launched into products, that staff who backed the ideas would reap rewards of some sort. Imagine the interest this would evoke in that companies R&D strategy.

The key for this to work would be establishing a reward mechanism, so the people who back successful ideas get rewarded too. The more successful the idea becomes, the greater the reward. Likewise, backing the wrong ideas would result in perceived losses too. In this model, it is not only the original contributor of the idea that get’s rewarded (by having their ideas selected), but all those that ‘invested’ in the idea too.

Needless to say, the concept of introducing Prediction Markets into today’s social initiatives has it’s risks, ranging from accuracy, the ability for some to manipulate the system and perhaps even just the addictiveness of it and time consumed by it (especially in a corporate environment).

But, if the boffins are correct in their assertions that Prediction Markets result in greater accuracy of trend prediction, then businesses may have a good way to evolve their social networking initiatives into something of greater value than the ‘Like’ buttons of today.