An Introduction To Using Prediction Markets For Market Research

An Introduction To Using Prediction Markets For Market Research

Prediction markets, a.k.a. predictive markets, collect and aggregate the knowledge and judgment of a random, diverse group around a specific event or concept for the purpose of making predictions. Prediction markets are most commonly associated with political elections or the stock market. In recent years, prediction markets are becoming more prevalent in the market research industry. Let’s look at some of the fundamental questions surrounding this exciting methodology.

How are prediction markets being used in market research?

Well-known companies like Hewlett-Packard, Motorola, Intel, Best Buy and Microsoft, use prediction markets to predict sales figures and identify best-selling products.

Prediction markets have typically been used during the discovery stage, when market researchers are determining which ideas should continue on with research and development. Instead of investing large amounts of money on a target audience using traditional monadic testing for each and every idea on the table, researchers are now using prediction markets to quickly and efficiently identify the winning concept.

How are prediction markets different from traditional research?

Traditional market research asks a respondent what he or she would do. Prediction markets flip the script by asking respondents to predict what the market will do.

In other words, instead of asking respondents, “Would you buy this concept?” they are asked “Would others buy this concept?”

How accurate is this method compared to other traditional methods?

Extensive research published in Quirk’s Magazine in 2013 showed that results from prediction markets, compared to traditional quantitative methods, are almost identical.

Are prediction markets expensive and long?

Prediction Market research can be done in as few as two days and generally cost less than other quantitative methods. Costs are significantly reduced because sample requirements are less restrictive – meaning that respondents don’t need to be in your target market.

Why do respondents not need to be in my target market?

A traditional concept test usually targets respondents within a specific market. However this level of targeting isn’t usually necessary for prediction markets since respondents have an incentive to “self-select” for only markets (questions) they feel they have the best chance to win (increase the value of their holdings). This leads respondents to only participate in studies involving product categories they are familiar with.

To see screen shots and learn more about Huunu™, our prediction market platform, view the most recent Huunu™ brochure.

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