Basic idea

The application of Internet-based virtual stock markets (VSM) is a new approach that can be used to predict short- and medium-term market developments. Its basic idea is to bring a group of participants together via the Internet and let them trade shares of virtual stocks. These stocks represent a bet on the outcome of future market situations and their value depends on the realization of these market situations. Once the outcome of a specific market situation is known, each share of virtual stock receives a cash dividend (payoff) according to that specific market outcome (e.g., $1 for each unit sold). In this process, a virtual stock market elicits and aggregates the assessments of its participants concerning future market developments.

Previous research

Such types of VSMs were first applied in the form of a political stock market to predict the outcome of the Bush vs. Dukakis US presidential election in 1988 at the University of Iowa community (Forsythe et al. 1992). The results of these studies are encouraging, as they demonstrate that the predictions derived from political stock markets outperform opinion polls in terms of forecast accuracy. Since then several political stock markets were provided for US-presidental elections, as well as for more than 25 elections in Canada, Germany, the Netherlands and Austria.

Furthermore, the results of political stock markets show that VSMs can perform well even if their participants are not a representative sample of the consumers on the market to be predicted. The reason is that a VSM elicits the participants' assessments of the market outcome and a rational participant should not trade according to his/her very individual preferences, but according to his/her prediction of the market outcome due to the overall preferences of all market participants).

New Product Development with VSMs

Successful new product development is essential for company's profitability and competitive advantage. New product introductions still face very high failure rates even though new sophisticated product development and forecasting methods have been introduced. Integration of consumers in the product development process has been identified as one of the most critical success factors.

Primary research objective is the analysis of application of VSMs for new product development at every stage of the process.

At the stage of idea generation, product ideas have to be evaluated for their attractiveness. We want to use VSM methodology for the "idea screening" process.

VSMs are a different approach for evaluating product concepts. Instead of collecting preferences toward product concepts on the individual level, VSMs collect aggregated assessments of the participants on the future market developments.
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    * Idea generation with VSMs
    * Product concept evaluation with VSMs
    * Pre-sale forecasting
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Project goals
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    * Development of a flexible, expandable VSM-Plattform using Microsoft .NET Technology
    * Application for business forecasting
    * Evaluation of different stock market designs
    * Comparison with traditional methods in marketing research
    * Empirical testing of forecast accuracy in different VSM-designs and settings
    * Information revelation and incentive structure

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Source: http://www.virtualstockmarkets.com/