What Are Predictive Markets?

Quantifying the potential success of a name, product, creative material, and packaging has always been challenging. A new method called Predictive Markets has shown promising results as a way to achieve accurate insights into the future of a concept, at a fraction of the time it takes to examine through other research methods.

When New Yorker financial columnist James Surowiecki wrote the book The Wisdom of the Crowds, he shattered the conventional wisdom that a small group of experts is smarter than the masses. Using a variety of secondary sources, he argued that the aggregate wisdom of a crowd is more accurate than polling a trusted expert few.

Insightrix has utilized predictive markets to help clients predict the success of their concepts. The predictive market simulates a stock market as it allows respondents to buy and sell shares in different concepts. The study typically includes the following steps:

  • Insightrix designs an online predictive market tool where respondents can log in and participate in the market.
  • Participants are provided with virtual cash and are able to invest as much or as little as they want into the concepts they feel would be most liked by other participants.
  • Based on these investments, stock prices for the concepts dynamically adjust upward or downward. Price adjustments encourage participants to invest more, hold onto strong investments,      reinvest based on changing prices, or sell the investment in less popular concepts.
  • At the conclusion of the market, the total value of participants’ portfolios determines a market winner.

Insightrix can provide a detailed report clearly outlining which concept would perform the best in the market. Each concept’s share price reveals how well-liked the concept is compared with the others. The demonstrated advantages of the predictive market include providing a clearly quantified differential between the different concepts as opposed to traditional ranking questions on surveys.

In many cases, Insightrix uses a predictive market to identify quickly those concepts with the most promise and then other methods (such as focus groups or in-depth interviews) to get a “deep dive” into what makes them great and how to improve them.