The effect of electronic markets on forecasts of new product success

Abstract

In this paper, we extend field experiments of real money prediction markets to the problem of forecasting the success of a new product. We collect forecasts using a traditional survey mechanism and a market mechanism. Our results suggest that market prices summarize the information contained in survey forecasts and improve those forecasts by reducing the variability of the forecast. However, we find no evidence of a “crystal ball” equilibrium. Our markets have considerable variability and predict only as well as the public signal provided by the HSX movie market game.