A Product Concept Evaluation System Utilizing Preference Markets

Recently, prediction markets are also used for estimating preferences, whose correct answer will not be revealed even after the market is closed, and, when used for the purpose, they are called preference markets. In order to utilize a preference market for estimating the attractiveness of product concepts expressed as combinations of various attributes, two technical questions remain to be answered. Firstly, how to estimate the preference on every possible combination of the attributes under consideration based on the results from a preference market comparing only a limited number of concepts? Secondly, how to incentivize the participants in the preference market to provide their estimation truthfully? This paper, therefore, develops a new product concept evaluation system by combining preference markets with conjoint analysis, and proposes three guidelines for how to determine the payoff for prediction securities. They are (1) to determine the payoff not directly from the security prices but indirectly through a model; (2) to run multiple markets in parallel if possible and use the results from all of them when determining the payoff; and (3) to use smoothed values instead of the final values as the security prices for determining the payoff. Moreover, the proposed system is tested with a simple evolutionary game simulation.