The stock trading metaphor works for a large, liquid stock market, but is unsuitable for enterprise forecasting. The concept of shorting and covered calls is far from intuitive for your average employee, and the stock mechanism makes it hard to ask the simplest of questions relevant for corporate forecasters. For example, buying or selling a collection of virtual stocks representing probabilities of sales falling in particular ranges is an incredibly obtuse way of asking for a single sales forecast. Finally, the stock mechanism relies on copious liquidity to ensure meaningful metrics, which is often not available with the limited crowds available in the enterprise.

However, innovation moves on and we question the assumption that prediction markets have to rely on the stock market analogy. At CrowdCast, we have been working on a new mechanism, that takes into account participant behavior and aptitude as much as market efficiency. The product we are launching in April will deliver easy, engaging, and expressive information exchanges, without the limitations of traditional notions of stock markets.

When you get the questions, incentives, and mechanism right, a prediction market can be an incredibly powerful management tool. Employees share insights anonymously and are measured and rewarded for their intelligence. Widely deployed, this has the potential to fundamentally change the nature of the organizational contract, moving from information flow based on hierarchy and silos, to enterprise-wide direct communication.

A whole new take on prediction markets; available from CrowdCast in April 2009.

Mat Fogarty

CrowdCast CEO

Cross-posted from the Xpree blog

Previously: Are collective intelligence solutions being oversold?

Open Innovation Markets combines crowd based innovation, voting and prediction markets. The idea is to brainstorm as a community, vote on the ideas to rank them, then forecast key metrics using a market (cost to develop etc). Prediction markets work well for the estimations of unbiased key metrics, combining this with voting allows the crowd to bet on only the top ranked ideas.

In an effort to make truly Usable Markets, we changed from a “stock trading” metaphor to a “betting” metaphor. In research, we found that players found shorting stock to be a lot less intuitive than going long. With betting, “I bet $100 that X is lower than 3,000″ is as easy as saying “I bet $100 that X is higher than 3,000″, and is a whole lot easier than “I sell short 10 stock units at an average price of $X, and cover this with $Y” etc. We have some demos on our site for you to try out. For the prediction market purists out there, we still allow the player to see the underlying prediction market dynamics – no black boxes at Xpree.

Feedback welcome.