How can companies harness hidden knowledge located throughout the enterprise? Supporters of prediction markets claim they offer a way. Prediction markets resemble financial trading sites, but instead of buying and selling stocks, traders buy and sell predictions. A company that wants to operate a prediction market can provide their employees virtual cash to trade and give those who do well over time small prizes.

So how do prediction markets work? Let’s say a shoe company with an active prediction market is rolling out a new style of boots. Employees at the shoe company could buy a prediction that the boots will hit stores on time. If the project succeeds and meets its schedule, the prediction pays $1. If there are delays, the prediction will pay nothing. Conversely, skeptical employees could bet against the boots arriving on time. They would receive $1 only if the boots fail to arrive on time. The price of the prediction signals how likely the entire market thinks the event will happen. If everyone believes the boots are on schedule, the price of predicting the project will be on time might be high — 80 cents or so. However, if fears grow that the boots will be late — perhaps a key supplier is having production problems — the price of the on-time prediction will start falling. The falling price is a sign that all is not well on the project.

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A prominent example of a political prediction market is the Iowa Electronic Market run by the University of Iowa, which allows participant to predict the outcomes of various elections. You can check it out at www.biz.uiowa.edu/iem/.

The advantage of prediction markets is that they add up the opinions and estimates of a wide range of employees. Thus, they are more likely to pick up on potential problems that management may not be aware of. Furthermore, the betting component forces people to “put their (virtual) money where their mouth is.”

If this sounds farfetched, it is not. Corporations like GE, Best Buy, and Hewlett-Packard are already using prediction markets to increase innovation and improve forecasting and decision making. Many more are testing the feasibility of this idea in pilot projects.

The Postal Service has a large, widely dispersed workforce that knows a lot about how things are going on the ground. A prediction market might help uncover this hidden knowledge. For example, if the Postal Service wanted to find out more about whether bulk mail volume would pick up, it could run a prediction market for BMEU employees who might know about customers’ plans. Or if the Postal Service were rolling out a new piece of equipment, it could run a prediction market on how successful the equipment would be. There is one thing, however, that could limit the use of prediction markets at the Postal Service: many employees do not have access to the Internet at work.

What do you think? Could prediction markets be a potentially useful tool for the Postal Service? Would lack of Internet access limit its use? If the Postal Service did implement prediction markets, what sorts of questions should it ask?

This topic is hosted by the OIG's Risk Analysis Research Center (RARC).

Comments (19)

  • anon

    Right on!

    Dec 25, 2011
  • anon

    I am not too sure if these prediction markets will work. It's interesting though... the comparison between quasi governmental organizations and fortune 100 companies. I hope things don't continue in this fashion. Matthew

    Nov 30, 2011
  • anon

    I thought it was important for me to re-visit this subject based on a recent experience involving coupons & predictive markets. I RX'D a groupon "ext" (etext) yesterday for a 1/2 off ticket to a local bourbon event. I hesitated on the ticket because I wanted to confirm the availability of a friend to accompany me. Bad for me... The tics were sold out at 0030 last night. A demonstration of the intensity of competition for discounts, and the predictive marketing behind financial and consumer trending. It's called the "moving peg". And if the USPS maintains this pace, the speed of the global market will simply leave them in the wake of a tsunami called competition....... Fair warning to those who believe "six bells and all's well"... Oh yeah interestingly enough, a also heard on a national radio channel yesterday, a piece on the trend of spirits has recently enjoyed unprecidented increase in consumer popularity. Get it......

    Sep 16, 2011
  • anon

    Postal Services should probably focus on mail?

    May 12, 2011
  • anon

    oh wonderful blog.

    Jul 15, 2010
  • anon

    Dear Anna, I'm sorry for you're awful experience. However, blaming the poor incompentent postal clerk is simply not right. Every postal employee is required to pass a competency examination to qualify for each respective position in the organization. So, by virtue of this information, it is unfair to assert that the employee's mistake was a result of their apptitude and skill level. However, you might look into the shenanigans, ahem... er.. I mean work.. of The Department of State as to why it was necessary for you to abruptly decide to obtain a passport on July 13 2010. I would suggest you subscribe to the US Department of State News feed as I do. Or you can obtain similar information from the "Federal Register" like the rest of us informed citizens. Regular folks like us have to keep an eye on some of the administration's cabinet folk. Just so things stay on the, you know... up & up. By the way, I'd probably listen to the weather forecasts once in a while too. You can find them at NOAA.GOV, or simply tune into any commercial radio channel. http://www.state.gov/r/pa/prs/ps/2010/06/143724.htm Instead of complaining to the poor incompentent post office, try directing you're complaints to the Congressional member representing you're home district. Have a Nice Day

    Jul 14, 2010
  • anon

    I'd like to warn unsuspecting customers of something that happened to me at my local post office. I took my 16 yr old daughter there for a passport. We waited in line for THREE HOURS yesterday, only to be told by a totally incompetent postal worker when it was finally our turn, that because my daughter did not have a state ID, that she couldn't get a passport. Not knowing otherwise, I went home. Then, I read the fine print on the passport application when we got home, and learned that because I am her mother, all I needed to do was show MY state ID, and sign an affidavit. I was enraged. I called the post office manager, and he agreed that what she told me was incorrect. I then went back to the P.O. this morning, in TORRENTIAL RAIN, to be sure I was the first in line. Once there, I learned that the passport rates GO UP TODAY, and the post office refused to give me her passport for yesterday's rate, EVEN THOUGH I HAD ALL MY PAPERS IN ORDER AND I WAS NOT THE ONE IN THE WRONG. To make matters worse, I tried filing a complaint against the incompetent postal worker, only to be told by the person at 800-ASK USPS that because she doesn't have anything in front of her showing that I could have simply shown my ID and filled out a form attesting I have known my own daughter for 2 years, that she cannot take the complaint! AND YOU WONDER WHY PEOPLE HATE THE FREAKING POST OFFICE?!

    Jul 13, 2010
  • anon
    BMEU CLERK

    DPMG Donahoe talks about how important it is to scan. I have nothing but horror stories about my own pieces of mail not being scanned. I was not able to track my items over several different occurences, whether it was delivery confirmation or certified. I had to call the places I sent them to to find out if they received it or not. What is the use of having these things if we are not going to use them? Yes it raises revenue and business, but if more people have stories like mine, we will just loose more business to our competitors. Come on people wake up and do your job! UPS and FED EX have it all over us with delivery and scanning. These incidents have me thinking about using our competitors.

    Dec 16, 2009
  • anon

    End the USPS. It is an obsolete entity, gives terrible service, provides no customer support (except blaming the customer) and is not competitive. It is time to mercifully put it to sleep permanently. Absolutely NO Tax money should be handed out to the US Postal Service.

    Dec 07, 2009
  • anon

    How's this for some prediction knowledge Hommes! Hot off the Wire!!!!!!!!!!!!!!!!!!!!!!! However, I've edited the content to protect the integrity of this blog, and any copyright issues. 11/17/9 Understanding why consumers use coupons and where they are using them most helps marketers better align offers and increase revenue. To ring in strong sales during the upcoming holiday season and into the new year, it is important that marketers take advantage of the trends found in both reports and execute strategic best practices. "For marketers, the data behind our coupon study further validates how email coupons can and should be used to engage customers and drive traffic and sales to other channels. Understanding the purchase drivers and triggers along with the channel preferences of unique customers is an essential element in building loyalty and engagement. Today's consumers are multi-channel and marketers that acknowledge this will see greater return on their marketing spend," said XXXXXXX, president of XXXXXXXXX Marketing Services' Platforms division. Key findings from the studies include: -- Two-thirds of American households use coupons, with the vast majority of them (87 percent) used to save money and 30 percent used to try a new product or service. -- Seventy percent of coupon-using households obtain their coupons from newspapers. However, the Internet is a growing coupon source. Over the last three years, the number of households that get their coupons online has increased by 46 percent. -- Nearly half of all American households use coupons to buy food/grocery products, making them the most common items purchased with coupons, followed by cleaning products and beauty/grooming products. -- More households are now using coupons at restaurants/fast food chains. Compared to 2006, there are now 9 percent more households redeeming coupons at restaurants. -- Click rates trended higher for coupon emails, with average lifts of 17 percent for coupons redeemable online and 24 percent for coupons redeemable in-store. -- Eighty percent of online coupon mailings garnered higher transaction-to-click rates and transaction rates than the non-coupon campaigns. Of this group, 78 percent also had higher revenue per email.

    Nov 19, 2009
  • anon

    Have to agree with comments 1 and 7 in particular.....Postal mismgt. is the last group who should be in this field for any reason.

    Nov 18, 2009
  • anon

    I could make a fortune betting that the post office will deliver mail late. :^( I work for a small fulfillment house in Van Nuys, California. For the last 6 months or so about half of the first class parcels (6x9 padded envelopes, couple of ounces) take over 2 weeks to deliver. Some take 3 or 4 weeks. We've complained to the postmaster repeatedly but no one can figure out why it takes so long. I just checked the status of the mail we sent on the 2nd and 3rd of November (2 weeks ago) and about half of it still hasn't been delivered including one about 50 miles from here.

    Nov 18, 2009
  • anon

    Why use a PM when you have the best resource for predicting the future-Postal Employees? We have known for years what the future holds, but management won't listen. You don't think we didn't see the invasion of online bill pay coming? Maybe the PM can be used to predict how many new reports and logs we will have to fill out everyday in the future? or how many new barcodes we will have to scan? or what new number crunching program will come out? Or how many times that the word COMPLIANCE will be used in threatening emails next year? More programs like these are the last thing we need. All they are going to do is create another number that we have to meet.

    Nov 17, 2009
  • anon
    Its Obvious

    Rod....you hit the nail on the head. Any projects the USPS has undertaken resulted in failure.

    Nov 17, 2009
  • anon
    bstyr2

    PO management can teleconference all morning and still not predict how much mail is going to arrive at a given plant. Would they use prediction marketing any better?

    Nov 17, 2009
  • anon

    As someone who has worked on several corporate and Federal prediction market projects, I can say that the USPS would absolutely benefit from the knowledge gained via a prediction market. The above post alludes to are a number of areas where PMs could be effectively applied within the USPS. For instance, wouldn't it be valuable to know how the holiday volume will impact service quality? How will a Nor'easter storm impact mail delivery in New England? If a new capability is implemented, will it yield the desired ROI? Are we adequately prepared for a terrorist attack? What will revenues be in the years ahead? As you can see, the list goes on and on. The bottom line: prediction markets reveal accurate information about future events so that decision makers have the insight they need to make critical decisions, before it's too late. The fact that most people at the USPS don't have access to the Internet while they're working is not a limiting factor. For example, many Best Buy retail employees access the prediction market securely from home. Using the proper incentives, the prediction market can be made available for employees to access whenever and wherever it's convenient for them. To the previous comment made by Richard, the evidence has shown that when a prediction market is used, it helps the organization become more nimble and able to take proactive steps to reduce costs and more effectively allocate scarce resources. Prediction markets don't use real money, so it's not to be confused with gambling. An effectively run prediction market collects opinions from a group of people, not unlike a survey or a poll. However, it's more effective that those methods since it rewards people for providing accurate and valuable information that the organization can use to make significant improvements.

    Nov 17, 2009
  • anon
    Jim Kitzmiller

    I would be concerned that the negative voters would try to influence the outcome. As why betting is illegal if you are an athlete. If there is monetary gain to be made, would not those who have an influence over the results, throw the game, if you will? Jim Kitzmiller www.ampc.org/blog www.twitter.com/ampctoday

    Nov 17, 2009
  • anon

    what a worthless idea by worthless workers! you are aiding the death of the usps.

    Nov 17, 2009
  • anon

    How much you wanna bet some goverment employee making 100k a year with nothing better to do, came up with this idea.

    Nov 16, 2009

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