Internal corporate prediction markets: “From each according to his bet”

Experimental markets (e.g., Iowa Experimental Markets) have been successful at capturing market price predictions of future events, such as who will win the U.S. Presidential election. As a result, prediction markets have been moved to corporations, in the form of internal corporate prediction markets, where participants bet on the occurrence of events of interest to the corporation. Corporations have used prediction markets for a number of different types of applications including project management, investment choice, forecasting sales, and others. Accordingly, prediction markets are an important emerging technology that can find use in these and other areas of applications.This paper examines some of the research issues that have emerged as markets are placed into a corporate setting. As a result, this paper analyzes some strengths and limitations of using internal prediction markets in corporate settings. I also examine the sources of information that get embedded in those markets, including the role of management using the market. In addition, I investigate multiple incentive approaches used in corporate prediction markets, and apparent biases that have been noticed in corporate prediction markets. Finally, this paper also analyzes some of the opportunities to use markets as an approach to investigate other issues, e.g., in accounting and finance.

► Reviews literature associated with internal corporate prediction markets.
► Reviews applications of corporate prediction markets in accounting environments.
► Examines characteristics of corporate prediction markets.
► Analyzes differences between internal markets and open or experimental markets.
► Suggests research issues in the area of corporate prediction markets.