Gameworld: Virtual market for predicting videogame sales

By Scott Hillis

SAN FRANCISCO (Reuters Life!) - Prediction markets have been used to forecast election outcomes, football games and even the capture of Osama bin Laden.

Brian Shiau built one to forecast videogame sales.

The 25-year-old Princeton economics graduate is founder of the simExchange, a Web site to trade virtual securities whose prices are tied to a game's sales or critical reviews.

"I'm a big believer in the market, that it is the best way of aggregating information. Due to the law of supply and demand and profit-seeking, it has a better idea of what a price should be than any other way of determining prices," Shiau said.

Inspired by James Surowiecki's 2004 book "The Wisdom of Crowds", the simExchange launched in November 2006 and now claims 8,600 registered users.

Small, perhaps, but that's a third more than it had three months ago. Moreover, the exchange is gradually carving out a reputation as a source of intriguing data for an industry that is becoming increasingly difficult to predict.

Not only is the industry hitting a growth spurt -- U.S. sales jumped 43 percent last year, to $18 billion -- but the success of Nintendo's Wii and games like "Guitar Hero" took many by surprise and illustrate how quickly games are going mainstream.

The simExchange caught people's attention last August when it correctly predicted the emergence of Take-Two's "BioShock" as a sleeper hit.