Use Example

To understand how a prediction market could be used for demand planning, imagine you want to forecast sales on product A for Q2. Your initial rough estimate is 85,000 units. You select a diverse group of employees and fund their accounts with $10,000 of play money. You then invite them to bet on this forecast using the prediction market.

Molly the Marketer has just observed a focus group on product A where the feedback was very positive - she thinks this is going to be a hit! She logs into the prediction market and bets $1,000 (play money) that sales will be higher than 85,000 units. The more confident she is, the more she bets. Due to her bet the forecast increases to 86,000 units.

Over time, as buzz builds, the forecast increases until it reaches 100,000 units. Now, some participants bet that it will be lower. When "higher" bets balance "lower" bets, the forecast reaches equilibrium. This balanced forecast represents the best available forecast for this product. As new information is discovered by the group, it will be rapidly included in the forecast. At the end of Q2, the actual sales results are calculated to be 97,000 units. Molly the Marketer's bet (higher than 85,000) is now cashed out and she shows a healthy profit on her bet.

Molly's balance increases over time due to her accurate forecasts. She can place larger bets and have more influence on the forecasts. At the end of the year, she achieves Top Forecaster, she is recognized by Senior Management and given a prize (and a raise!).