BET THE FUTURE WILL BE CLEARER

Now executives say they are harnessing a new web tool, called prediction markets, to transform the idea pipelines inside their companies. Companies like the InterContinental Hotels Group, General Electric and Hewlett-Packard are using prediction markets to try to improve forecasting, reduce risk and accelerate innovation by tapping into the collective wisdom of the work force.

Like blogs and wikis, prediction markets can spur communication and collaboration within a company. Yet they add rigorous measurement to business forecasts, like estimating the sales of a new product or the chances that a project will be finished on time.

Corporate prediction markets work like this: Employees, and potentially outsiders, make their wagers over the Internet using virtual currency, betting anonymously. They bet on what they think will actually happen, not what they hope will happen or what the boss wants. The payoff for the most accurate players is typically a modest prize, cash or an iPod.

The store chain has experimented with prediction markets on everything from demand for digital set-top boxes to store-opening dates. For example, Severts said that in the fall of 2006, the prices in a prediction market on whether a new store in Shanghai would open on time—in December 2006—dropped sharply from $80 a share into the $40-50 range. Players made yes-no bets, and the virtual dollar drop reflected increasing doubt that the store would open on time.

Indeed, Best Buy’s first store in China opened late, in January 2007, but the warning signs from the prediction market helped prevent further slippage.

Best Buy plans to move beyond pilot projects in prediction markets to involve more workers throughout the company, starting next month. “It helps on two fronts, the speed and accuracy of information, so that management can move faster to deal with problems or exploit opportunities,” Severts said.

For years, public prediction markets have been used for politics, like the Iowa Electronic Markets and Intrade, where buyers and sellers bet on which candidate will win a particular race. And there are prediction markets where people place bets on news events (Hubdub, among others), video game sales (simExchange) or movie box-office receipts (Hollywood Stock Exchange).

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