I always get asked to gaze into the future. As I review the top searches on Yahoo! day after day, week after week, year after year, people think I’ve developed some magic soothsaying powers. Sadly, it just isn’t so.

When people ask about using search as a predictor, I have to tell them past search behavior isn’t always indicative of future performance. Although it makes me sound like a mutual fund manager, it helps to illustrate that search behavior is often reactive. Reactions to scandal, shock, and surprise fuel scads of searches. To wit — if searches were the only gauge, Antonella Barba would be your next “American Idol.” Raw searches illustrate, but they can’t connect all the dots.

That’s where the Bix team fills in the picture. They’ve created a dream tool for all Idol fans — a true prediction market for Idol contestants.

In talking to Mike Speiser and John Hayes from Bix, it’s obvious they love Idol’s premise. Hey, the voting process is what makes Bix so awesome. The entire team is curious about what happens when we come to decisions collectively. With that concept firmly in mind, the Idol market was born.

Mike calls it a “really cool research experiment,” but the usefulness of the Idol contestant market is immediately apparent to fans of the show. Who wouldn’t want to buy 10 shares of Lakisha or Melinda right now? However, the key to success is buying low and selling high. So if you think Stephanie Edwards is an undervalued asset, put up the virtual dough and dive in. I’ve signed up as erikg and although I can’t share my investment strategy with you, I doubt you’ll find me on the leaderboard… yet.

The more Idol players we get, the more efficiently the market operates. And if the Idol market works, just imagine other concepts you can extend it to. I can assure you the smart folks at Bix are already letting their imaginations run wild…

BTW: For the geeks out there, this isn’t Yahoo!’s first foray into prediction markets or automated market makers. Our own research scientist Dave Pennock launched the Tech Buzz Game in 2005 and is organizing an academic workshop on these markets in June. In fact, Dave lent sage advice and theory to the Bix team in developing their game.

Erik Gunther
Senior Editor|Writer, Yahoo! Buzz