Chemistry 100

Lab Report

Junaid Hassan
Reg # 2017173

Lecturer
Dr. Umar Farooq
Contents
What is Prediction Market?.............................................................................................................3
Prediction Markets...................................................................................................................................3
Corporate Prediction Markets..................................................................................................................3
Forecasting Methods and Prediction Markets..........................................................................................3
Why Ford is using Prediction Markets in their organization?.........................................................4
Sales Forecast of Ford by CNN...............................................................................................................5
Features’ Predictions...............................................................................................................................5
Cloud-Based Prediction Markets.............................................................................................................5
How does prediction Market in Ford works?..................................................................................6
Ford and their strategy regarding prediction markets...............................................................................6
How prediction markets work..................................................................................................................6
Comparison of Employees’ Prediction Markets and Sales Forecast........................................................6
References........................................................................................................................................7
What is Prediction Market?
Prediction Markets
Prediction markets is a collection of people speculating on different type of events occurring that
are to be occurred. They are used for future analysis of events. Prediction markets are used to bet
on variety of occasions and occurrences. The main dependency of prediction markets is on the
spectrum of participants in the collection of data. More the individuals, more effective data there
will be.[ CITATION CLA19 \l 1033 ]
Corporate Prediction Markets
Forecasts and prediction markets are a key skill in almost every type of business market. All
business corporations perform their activities on decision making. All these corporate decisions
are based on the formal and informal forecasts about the dynamics of markets, developing
environment of the market and how to perceive these markets. [ CITATION Fri10 \l 1033 ] Every
prediction analysis is different regarding their target of the prediction, scope of markets, tools
and technologies they are using for the prediction, the experienced team for carrying out
predictive analysis on markets, etc.
Forecasting Methods and Prediction Markets
Forecasting Methods are of different types. First Approach is using forecasting and statistical
methods to carry out analysis and obtain predictions from existent data. E.g., Time Series
Econometrics.
Second Approach is using of different ways to procure primary data through various data
collection techniques such as surveys, questionnaires, consumer and experts’ opinion, etc.)
[CITATION Arm01 \l 1033 ]

Both these approaches have certain flaws and setbacks ranging from lacking individual-based
information to aggregating the answers. This is where technology breaks in. Prediction markets
are forecasting tools that employs digital network technology in order to aggregate diverse
personal beliefs (forecasts) about the future into forecasts that tend to be better than forecasts by
individual experts or by statistical forecasting methods. [ CITATION Fri10 \l 1033 ]
These are the markets that are designed and run for the primary purpose of mining and
aggregating information scattered among traders and subsequently using this information in the
form of market values in order to make predictions about specific future events. [ CITATION
Tzi07 \l 1033 ]
Why Ford is using Prediction Markets in their organization?
Large corporations are using in-house built software, commercial software and cloud-based tools
to avoid risks using prediction markets. Prediction markets operate in almost same way as stock
markets. These markets are used for extensive range of purposes, including who is going to be
the president, how well a film is going to break box office, what products are going to be
breakthrough and what are going to be flopped. [CITATION Nic11 \l 1033 ]
Prediction Markets are spaces where a focused group of individuals speculate on future outcome
of an event. These events can be of various type ranging from presidential elections to sales
forecast of a company etc.
The Rise of Prediction Markets’ Analytics
The purpose of these prediction markets is to foresee and assess the probability of future
outcomes of a venture or product or overall path of a company. These prediction statements and
statistics can be used for important decision making for a business. Many companies are using
them to objectively verify their steps towards a better outcome, one of the examples is Ford.
They’re using these prediction statements to foresee and predict their future sales. [ CITATION
Hiv19 \l 1033 ]

Predication Markets are a Great Way to Manage Internal Expertise

In large corporations like Ford, knowledge and expertise are scattered around the whole
organization. Using markets, these same people are given incentives to provide forecasts. For
example. In Ford, in sales forecasting meeting people from different areas of the organization
would have their different views on the forecast. Sales lead would have their own insight and
market lead may have different opinions on the estimates.
Ford’s prediction markets are focused on two topics that are given high importance; [ CITATION
BoC13 \l 1033 ]

 Forecasting weekly sales volume

 Predictions regarding which specific car features would be more popular and perceived
positively by consumers.
Sales Forecasting
Sales forecasting is one of the essential activities in any automobile manufacturing corporation.
The reason is these sales forecast is critical in determining the processes of planning future
endeavors, procurement of different variety of parts from different channels, and production of
vehicles to minimize the stocks of parts and produced units in inventories. Various studies show
that Ford has an extensive history of employing experts for market predictions regarding their
sales forecast of units and other macroeconomic variables. Since, forecasting of sales is an
important indicator in prediction markets, experts at Ford compare the time to time forecast of
the market sales for more accuracy in predictions. In the Ford sales forecasting markets, a single
security was traded with a payoff that was a linear function of the weekly sales for a particular
model. [ CITATION BoC13 \l 1033 ]
Sales Forecast of Ford by CNN
CNN used 14 experienced individuals from different fields to give sales forecast on Ford. Given
report is of Dec, 2018.

[CITATION CNN \l 1033 ]

Features’ Predictions
The approach ford used here was using feature markets that would decide the outcomes of
markets by predicting what features can reach a certain interest level of threshold in specially
focused groups within a certain price spectrum. According to Ford, choosing feedbacks form
focus groups is a more immediate outcome measure in prediction markets. Since each feature is
represented by a binary security that pays off if the criteria of threshold were met.
Focus groups are relatively way more costly to run in contrast to data obtained from employees
that can be very cheap and easier to synthesize. But there’s a high potential that reviews and
feedbacks from employees can be biased. But Ford didn’t completely zone out employees from
the prediction market analysis. Ford engages their employees taking their feedback on
predictions resulted from focused groups. This not only eliminates the biasness factor of
employees but also strengthens the results regarding prediction markets. [ CITATION BoC13 \l
1033 ]

Another approach that ford turned to is Cloud-Based Prediction Markets. [ CITATION Dav11 \l 1033
]

Cloud-Based Prediction Markets

Ford hired cloud-based solutions form a company named Inkling. In addition of their own
prediction analytic solutions, Ford turned to this Chicago based company of cloud-based
prediction markets to improve the effectiveness and efficiency of decisions that would be
beneficial for both stocks of company and interest of customers. [ CITATION Nic11 \l 1033 ]
As Needle mentioned, Ford used around 1300 employees in US and Europe region to comment
on wide range of topics regarding value creation, features and issues through stock market-look
alike trading. Ford moved their resource-heavy prediction market solutions to Inkling cloud in
2009. [ CITATION Dav11 \l 1033 ] Servers, computing, analytics technologies and software is
Inkling’s but Ford license their own brand on the resulting interface. This analytics software
proved much more efficient and productive meanwhile saving extra costs affiliated with
encumbrance processes. Thus, prediction markets are indeed proving very effective to get a
better handle on which new ideas to pursue.

How does prediction Market in Ford works?

Ford and their strategy regarding prediction markets
Ford is one of the largest automobile manufacturers the in world. Their units of sales were
almost 6 million according to a report from 2018. [ CITATION Mar19 \l 1033 ].
How prediction markets work
The organization creating the prediction market first adds a set of predefined possible outcomes
as predicted by detailed market research by officials with in-depth knowledge of the field. Then
individuals from focused groups, employees, specialized knowledge personnel, etc. are invited to
give their predictions. Prediction market tools are utilized by listing the individuals closest to the
actual forecast and rewarding them. Whereas, participants can always update their forecast
profile whilst the markets are still open considering they become aware of some unforeseen
information. [ CITATION Hiv19 \l 1033 ]
Ford Prediction Market consists of six different aspects and structured questions from the
company; [ CITATION Tho19 \l 1033 ]
1. Rating and pricing potential new vehicle features
2. Macroeconomic trends such as future average gas price
3. Global feature strategies
4. Adoption rates of advanced technologies
5. Employee incentives
Ideal prediction market questions used by Ford are;
Useful, Forward-looking, Knowable, Unambiguous, Complete and Verifiable. [ CITATION Tho19 \l
1033 ]

Comparison of Employees’ Prediction Markets and Sales Forecast

Although Ford Prediction Market is extremely accurate but this doesn’t mean Ford has stopped
using their own market research and just rely on prediction markets. Because the individuals
from the company with specialized knowledge from the field cannot be neglected as well.
[ CITATION Tho19 \l 1033 ] Therefore, both prediction markets and forecasting techniques are
amalgamated in such a way that complements the overall forecast and helps the company to
successfully strategize their upcoming proceedings.
References
Armstrong. (2001). Principles of forecasting. a handbook for researchers and practitioners, 0-79237-930-
6.

Bo Cowgill, E. Z. (2013). Corporate Prediction Markets: Evidence from Google, Ford, and Firm X1.
Columbia : Columbia.Edu.

CNN. (2018). Ford Motor Co. Atlanta: CNN.

Friedrich Hedtrich, J.-P. L. (2010). Prediction Markets – A New Tool for Managing Supply Chains. Supply
Chain Management - New Perspectives, 10.5772/21450.

HALTON, C. (2019, July 19). Prediction Market. Retrieved from Investopedia:

https://www.investopedia.com/terms/p/prediction-market.asp

Hemsoth, N. (2011, Feb 22). Ford Motor Company Turns to Cloud-Based Prediction Market Software.
Retrieved from Hpcwire:
https://www.hpcwire.com/2011/02/22/ford_motor_company_turns_to_cloud-
based_prediction_market_software/

HiveMind. (2019). About Prediction Markets. Retrieved from HIVEMIND: https://hvmd.io/agora/about-

prediction-markets

Needle, D. (2011, Feb 21). Ford Taps Cloud-Based Prediction Market. Retrieved from InternetNews:
http://www.internetnews.com/bus-
news/article.php/3925571/Ford+Taps+CloudBased+Prediction+Market.htm

Thomas A. Montgomery, P. M. (2019). Experience from Hosting a Corporate Prediction Market:.

Michigan: Ford.

Toljagic, M. (2019, August 20). These are the 10 Biggest Automakers in the World. Retrieved from
Wheels.ca: https://www.wheels.ca/top-ten/these-are-ten-biggest-automakers-in-the-world/

Tziralis, T. (2007). Prediction Markets: An Extended Literature Review. The Journal of Prediction Markets,
1175910175-0676x.