Betting to Improve the Odds

The New York Times has a nice writeup on some of the ways companies are using prediction markets. One of the examples given is Best Buy’s use of an internal prediction market to forecast potential delays in products or services, and to catch these delays in time to prevent further slips. I tend to agree that prediction markets have a lot of potential for the aggregation both public and private information, and their accuracy in some instances is remarkable. This use of forecasting delays, though, does raise a couple questions.

As I think about the Best Buy example or similar uses, it seems plausible that there is also a bit of a self-fulfilling prophecy effect. If my work is on schedule, but the prediction market indicates that a project I’m assigned to is going to be late by a month, I may slow down to match the forecast delay. In the example in the article, the claim is that the expected delay had the opposite effect — it directed attention to the problem so further delays could be avoided — but the self-fulfilling prophecy effect still seems like a plausible outcome in many situations.

A second question I found myself thinking about (and this one is a bit more of a stretch) is how much companies will need to make prediction market information public. If a company has announced a planned release date or expected sales, and management’s forecast shows them on target, but the company’s prediction market shows them under performing, how much do they have to tell shareholders? Might there be situations in which the management wouldn’t want to have this information, for fear of shareholder lawsuits or other consequences if they do not disclose it?