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Predictive Markets & the Wisdom of Crowds Experiments A Market Research Project by BrainJuicer ® Produced December 2005 The Mind Reading Agency
Extraordinary delusions   and the Madness of Crowds,  Charles MacKay (1841)
The Wisdom of Crowds   – How the Many Can Be Smarter than the Few, James Surowiecki (2004)
Diversity Independence Faithful aggregation Enables a crowd to be wise
Galton’s surprise findings. Collective Guess  = 1197 lbs Actual Weight  = 1198 lbs
How did the market know? Rockwell – Down 3% Lockheed – Down 3%  Martin Marietta – Down 3% Morton Thiokol – Down 12%
Qu.   Is there a more efficient alternative?
IEM -   The original decision market X 596 Polls (1988 - 2000)    ¾
French   – Referendum Non 53.6%  Oui  46.4% Non 54.9%  Oui 45.1% 29 th  May – Betting BetFair 30 th  May - Result (70% turn out) Non 51.0%  Oui 49.0% 28 th  May – Polls IPSOS
 
A random collection of 500 individuals will be as accurate as a targeted sample Predictive Markets will be as accurate as monadics  The ‘crowd’ answering for the market will be as accurate as people answering for themselves 3 hypotheses  to test on… Predictive Markets’ &  Wisdom of Crowds
The  Experiments Monadic Tests of 3, 10, 15 & 20 ideas, with matched targeted samples of 100 Predictive Markets of 3, 10, 15 & 20 ideas, with diverse ‘crowds’ of 500
Predictive Market 1 - UK    A diverse crowd will be as accurate as a targeted sample     A ‘Predictive Market’ will be as accurate as a monadic test     Answering for the market as accurate as answering for oneself Respondent Base Sizes: Monadic = 100 per cell / Predictive Market *No Betting = 507 *** 16 43 J 45 49 I *** 35 54 H *** 28 64 G *** 28 64 F 67 67 UK Norms (top 2 box) 70 74 E 86 78 D 80 81 C + 76 83 B 85 85 A Significant Differences Predictive Market 2* With diverse group of 500 people - *no betting (Top 2 Box Purchase Intent) Monadic Test with matched samples of 100 in the target market (Top 2 Box Purchase Intent) New Product Concepts Top Two Box Purchase Intention Results – Predictive Market 2* Respondent Base Sizes: Monadic = 100 per cell / Predictive Market *No Betting = 507 *** 16 43 J 45 49 I *** 35 54 H *** 28 64 G *** 28 64 F 67 67 UK Norms (top 2 box) 70 74 E 86 78 D 80 81 C + 76 83 B 85 85 A Significant Differences Predictive Market 2* With diverse group of 500 people - *no betting (Top 2 Box Purchase Intent) Monadic Test with matched samples of 100 in the target market (Top 2 Box Purchase Intent) New Product Concepts Top Two Box Purchase Intention Results – Predictive Market 2*
Predictive Market Experiment 2 - USA   *** 7 21 28 Snow Drapery 21 ** 18 20 40 Plug-in Lighting 20 * 27 19 45 Revitalight 19 + 62 11 45 Rise & Gently Shine 18   56 14 45 Sleep-ease 17   63 10 48 Bath & Spa Candle 16   45 16 50 Sky Scaper 15 * 32 17 52 Color Creator 14   64 9 52 Atmosphere Creator 13   48 15 54 Energizing Light 12 * 71 6 54 Permanent Outdoor Lighting System 11 ** 31 18 58 Light Stems 10   60 12 58 Cleaning Light 9   69 7 68 Voice Light 8   74 4 69 Solar Powered Holiday Lights 7   56 13 70 Two in One 6   71 5 72 Nightglow 5   76 3 74 Exit Alert 4   67 8 74 Garden Lights 3   78 2 76 Odor Eliminator 2   87 1 83 Fade Out 1 Monadic vs. Research Mkt Sig. Difference Predictive Market Def + Prob Buy Crowd of 500 Rank R.Mkt Monadic Def + Prob Buy 100 tgt per concept Concept Rank Mon.  R.Market; 7/7 top, + 1 with sig. difference  The same no. of av. ideas but much clearer on which ideas are weaker Juicy  Bits
Predictive Market Experiment 3 - UK x   = Only tested in the 1 st  screener, so no comparative data available   *** 61 36 150 61 89 52 Marmite Barrel Nuts + 46 52 150 69 93 47 *** Marmite Cheese Bites 45 62 150 69 96 40 *** McCain Marmite Wedges 70 80 150 80 92 62 ** Marmite Mini Toasts 129 84 150 79 89 63 ** Marmite Squeezy ** 49 41 150 64 91 49 *** Marmite Seasoning + 62 50 150 64 x x Marmite Soldiers 48 50 150 64 x x Marmite Mini Rice Snacks *** *** *** + Significance Screener vs. Monadic 11 x 26 9 x x x 63 84 x 95 81 x Marmite R.Market Def + Prob Buy 152 x 82 107 x x x 87 31 x 40 57 x Base Crowd 500 *** *** *** *** Significance Monadic vs. R.Market 150 51 95 22 Marmite Brunch Bar x x 92 28 Marmite Rusk Soldiers 150 55 89 31 McCain Marmite Home Fries 150 59 91 38 Marmite Cream Cheese x x 99 39 Marmite Buttery Spread x x 96 43 Marmite Squeezable Portion Pack x x 93 55 Marmite Quavers 150 64 88 57 Marmite Marbled Cheddar 150 72 97 60 Marmite Crackers x x 90 61 Marmite Hula Hoops 150 73 88 65 Marmite Bites 150 73 87 71 Marmite Spreadable x x 95 72 Marmite Walkers Base Tgt 150 Marmite Monadic Def + Prob Buy Base Tgt 87-95 Marmite Screener Def + Prob Buy R.Market; 5/5 top, only 1 with sig. difference & clearer on weaker ideas Screener; 2/5 top, 3 with sig. diff. / Av. ideas; Mon=7, Screener=5, R.M=3  Juicy  Bits
Predictive Market Experiment 4 - Poland 55.3 53.6 73.3 R.Market (Sell / Buy  most shares ) Def + Prob Buy 235 194 225 Base Crowd 500 *** *** *** Significance Monadic vs. R.Market ( All Shares ) 61.5 58.5 75.7 R.Market (Sell / Buy  any shares ) Def + Prob Buy 366 313 341 Base Crowd 500 ** *** *** Significance Monadic vs. R.Market ( Any shares ) + 65 63.1 158 75 New Plus  91 69.2 150 73 New Sink & Pipe Unblocker 86.7 R.Market (Sell / Buy  All Shares ) Def + Prob Buy 75 Base Crowd 500 Significance Monadic vs. R.Market (All Shares) 151 87 New Cling-Gel  Base Tgt 150-158 Bases: Monadic Def + Prob Buy In this experiment, only three concepts were tested. Therefore, to add a degree of sensitivity having asked which concept they’d buy / sell shares in, we asked how many  shares they’d buy / sell (limited to 1000). The options were: - 250 shares - 500 shares - 750 shares - 1000 shares Respondents who chose to buy / sell all 1,000 of their shares give the most accurate results when compared to the Bases Monadic Test.  Juicy  Bits
Predictive Markets provides a wider spread in PI scores through aggregation of scores between buyers and sellers in a market place. The PM scores rewards strong ideas and punishes weak concepts; making it easier, combined with other quant diagnostics and qualitative insights to identify progressive (highly potent and “on message” ideas). Predictive Market Experiment 5 - Guatemala   99 92 92 92 89     Purchase Intention 22 29 29 38 49 56 65 69 83 Purchase Intention Monadic Predictive Markets 1 2 2 2 5 Rank 9 7 7 6 5 4 3 2 1 Rank *** 101 55 Be Light *** 101 97 7UP H2Oh! *** 100 100 Lipton Ice Tea 219 Pepsi Cappuccino 109 Flavour Splash   76 Juicy Punch *** 100 92 Propel *** 100 90 Tropicana Twister     166 7UP Bite Significant Difference Base Base  
Possibilities  for Market Research?
The Size   of the Prize Monadic Test of 10 ideas Difficult to differentiate Difficult to compare samples Costly targeted samples Costly monadic approach Very time consuming process Predictive Markets Clarity on strong & weak ideas All results are comparable Cheap convenience sample Cheaper ‘markets’ approach Incredibly quick results

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Predictive Markets & Experimental Results

  • 1. Predictive Markets & the Wisdom of Crowds Experiments A Market Research Project by BrainJuicer ® Produced December 2005 The Mind Reading Agency
  • 2. Extraordinary delusions and the Madness of Crowds, Charles MacKay (1841)
  • 3. The Wisdom of Crowds – How the Many Can Be Smarter than the Few, James Surowiecki (2004)
  • 4. Diversity Independence Faithful aggregation Enables a crowd to be wise
  • 5. Galton’s surprise findings. Collective Guess = 1197 lbs Actual Weight = 1198 lbs
  • 6. How did the market know? Rockwell – Down 3% Lockheed – Down 3% Martin Marietta – Down 3% Morton Thiokol – Down 12%
  • 7. Qu. Is there a more efficient alternative?
  • 8. IEM - The original decision market X 596 Polls (1988 - 2000)  ¾
  • 9. French – Referendum Non 53.6% Oui 46.4% Non 54.9% Oui 45.1% 29 th May – Betting BetFair 30 th May - Result (70% turn out) Non 51.0% Oui 49.0% 28 th May – Polls IPSOS
  • 10.  
  • 11. A random collection of 500 individuals will be as accurate as a targeted sample Predictive Markets will be as accurate as monadics The ‘crowd’ answering for the market will be as accurate as people answering for themselves 3 hypotheses to test on… Predictive Markets’ & Wisdom of Crowds
  • 12. The Experiments Monadic Tests of 3, 10, 15 & 20 ideas, with matched targeted samples of 100 Predictive Markets of 3, 10, 15 & 20 ideas, with diverse ‘crowds’ of 500
  • 13. Predictive Market 1 - UK  A diverse crowd will be as accurate as a targeted sample  A ‘Predictive Market’ will be as accurate as a monadic test  Answering for the market as accurate as answering for oneself Respondent Base Sizes: Monadic = 100 per cell / Predictive Market *No Betting = 507 *** 16 43 J 45 49 I *** 35 54 H *** 28 64 G *** 28 64 F 67 67 UK Norms (top 2 box) 70 74 E 86 78 D 80 81 C + 76 83 B 85 85 A Significant Differences Predictive Market 2* With diverse group of 500 people - *no betting (Top 2 Box Purchase Intent) Monadic Test with matched samples of 100 in the target market (Top 2 Box Purchase Intent) New Product Concepts Top Two Box Purchase Intention Results – Predictive Market 2* Respondent Base Sizes: Monadic = 100 per cell / Predictive Market *No Betting = 507 *** 16 43 J 45 49 I *** 35 54 H *** 28 64 G *** 28 64 F 67 67 UK Norms (top 2 box) 70 74 E 86 78 D 80 81 C + 76 83 B 85 85 A Significant Differences Predictive Market 2* With diverse group of 500 people - *no betting (Top 2 Box Purchase Intent) Monadic Test with matched samples of 100 in the target market (Top 2 Box Purchase Intent) New Product Concepts Top Two Box Purchase Intention Results – Predictive Market 2*
  • 14. Predictive Market Experiment 2 - USA   *** 7 21 28 Snow Drapery 21 ** 18 20 40 Plug-in Lighting 20 * 27 19 45 Revitalight 19 + 62 11 45 Rise & Gently Shine 18   56 14 45 Sleep-ease 17   63 10 48 Bath & Spa Candle 16   45 16 50 Sky Scaper 15 * 32 17 52 Color Creator 14   64 9 52 Atmosphere Creator 13   48 15 54 Energizing Light 12 * 71 6 54 Permanent Outdoor Lighting System 11 ** 31 18 58 Light Stems 10   60 12 58 Cleaning Light 9   69 7 68 Voice Light 8   74 4 69 Solar Powered Holiday Lights 7   56 13 70 Two in One 6   71 5 72 Nightglow 5   76 3 74 Exit Alert 4   67 8 74 Garden Lights 3   78 2 76 Odor Eliminator 2   87 1 83 Fade Out 1 Monadic vs. Research Mkt Sig. Difference Predictive Market Def + Prob Buy Crowd of 500 Rank R.Mkt Monadic Def + Prob Buy 100 tgt per concept Concept Rank Mon. R.Market; 7/7 top, + 1 with sig. difference The same no. of av. ideas but much clearer on which ideas are weaker Juicy Bits
  • 15. Predictive Market Experiment 3 - UK x = Only tested in the 1 st screener, so no comparative data available   *** 61 36 150 61 89 52 Marmite Barrel Nuts + 46 52 150 69 93 47 *** Marmite Cheese Bites 45 62 150 69 96 40 *** McCain Marmite Wedges 70 80 150 80 92 62 ** Marmite Mini Toasts 129 84 150 79 89 63 ** Marmite Squeezy ** 49 41 150 64 91 49 *** Marmite Seasoning + 62 50 150 64 x x Marmite Soldiers 48 50 150 64 x x Marmite Mini Rice Snacks *** *** *** + Significance Screener vs. Monadic 11 x 26 9 x x x 63 84 x 95 81 x Marmite R.Market Def + Prob Buy 152 x 82 107 x x x 87 31 x 40 57 x Base Crowd 500 *** *** *** *** Significance Monadic vs. R.Market 150 51 95 22 Marmite Brunch Bar x x 92 28 Marmite Rusk Soldiers 150 55 89 31 McCain Marmite Home Fries 150 59 91 38 Marmite Cream Cheese x x 99 39 Marmite Buttery Spread x x 96 43 Marmite Squeezable Portion Pack x x 93 55 Marmite Quavers 150 64 88 57 Marmite Marbled Cheddar 150 72 97 60 Marmite Crackers x x 90 61 Marmite Hula Hoops 150 73 88 65 Marmite Bites 150 73 87 71 Marmite Spreadable x x 95 72 Marmite Walkers Base Tgt 150 Marmite Monadic Def + Prob Buy Base Tgt 87-95 Marmite Screener Def + Prob Buy R.Market; 5/5 top, only 1 with sig. difference & clearer on weaker ideas Screener; 2/5 top, 3 with sig. diff. / Av. ideas; Mon=7, Screener=5, R.M=3 Juicy Bits
  • 16. Predictive Market Experiment 4 - Poland 55.3 53.6 73.3 R.Market (Sell / Buy most shares ) Def + Prob Buy 235 194 225 Base Crowd 500 *** *** *** Significance Monadic vs. R.Market ( All Shares ) 61.5 58.5 75.7 R.Market (Sell / Buy any shares ) Def + Prob Buy 366 313 341 Base Crowd 500 ** *** *** Significance Monadic vs. R.Market ( Any shares ) + 65 63.1 158 75 New Plus 91 69.2 150 73 New Sink & Pipe Unblocker 86.7 R.Market (Sell / Buy All Shares ) Def + Prob Buy 75 Base Crowd 500 Significance Monadic vs. R.Market (All Shares) 151 87 New Cling-Gel Base Tgt 150-158 Bases: Monadic Def + Prob Buy In this experiment, only three concepts were tested. Therefore, to add a degree of sensitivity having asked which concept they’d buy / sell shares in, we asked how many shares they’d buy / sell (limited to 1000). The options were: - 250 shares - 500 shares - 750 shares - 1000 shares Respondents who chose to buy / sell all 1,000 of their shares give the most accurate results when compared to the Bases Monadic Test. Juicy Bits
  • 17. Predictive Markets provides a wider spread in PI scores through aggregation of scores between buyers and sellers in a market place. The PM scores rewards strong ideas and punishes weak concepts; making it easier, combined with other quant diagnostics and qualitative insights to identify progressive (highly potent and “on message” ideas). Predictive Market Experiment 5 - Guatemala   99 92 92 92 89     Purchase Intention 22 29 29 38 49 56 65 69 83 Purchase Intention Monadic Predictive Markets 1 2 2 2 5 Rank 9 7 7 6 5 4 3 2 1 Rank *** 101 55 Be Light *** 101 97 7UP H2Oh! *** 100 100 Lipton Ice Tea 219 Pepsi Cappuccino 109 Flavour Splash   76 Juicy Punch *** 100 92 Propel *** 100 90 Tropicana Twister     166 7UP Bite Significant Difference Base Base  
  • 18. Possibilities for Market Research?
  • 19. The Size of the Prize Monadic Test of 10 ideas Difficult to differentiate Difficult to compare samples Costly targeted samples Costly monadic approach Very time consuming process Predictive Markets Clarity on strong & weak ideas All results are comparable Cheap convenience sample Cheaper ‘markets’ approach Incredibly quick results