Securities Trading of Concepts (STOC) (Running title: SECURITIES TRADING OF CONCEPTS (STOC))

Market prices are well known to efficiently collect and aggregate diverse information regarding the economic value of goods and services, particularly for financial securities. We propose a novel application of the price discovery mechanism in the context of marketing research: to use pseudo-securities markets to measure consumer preferences over new product concepts. A securities-trading approach may yield significant advantages over traditional methods for measuring consumer preferences such as surveys, focus groups, concept tests, and conjoint studies, which are costly to implement, time-consuming, and often biased. Our approach differs from prior research on simulated markets and experimental economics in that we do not require any exogenous, objective “truth” such as election outcomes or box office receipts on which to base our securities market. Our trading experiments show that the market prices of securities designed to represent product attributes and features are remarkably efficient and accurate measures of preferences, even with relatively few traders in the market. The STOC method may offer a particularly efficient screening mechanism for firms developing new products and services, and deciding where to invest additional product-development dollars.

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