[Running title: SECURITIES TRADING OF CONCEPTS (STOC)]

and The Whitaker Foundation. The authors also wish to thank Rob Hardy and Leonard Lee of MIT, and Limor Weisberg for their efforts in programming and designing many of the web sites that comprise this research. We thank Professors Hyun Shin, Robert Zeithammer, and Andrew Ainslie for their helpful modeling insights and Jeremy Dann and Craig Boreth for their editorial suggestions. Abstract Identifying winning new product concepts requires insight into consumer preferences, which represent private information held by each consumer. Market prices are well known to efficiently collect and aggregate private information regarding the economic value of goods, services, and firms, particularly when trading financial securities. We apply the price discovery mechanism in pseudo-securities markets to measure consumer preferences for new product concepts. This is the first application of such markets to test potential new product concepts and to compare such an approach against stated-choice, conjoint and longitudinal revealed preference data. We address the challenge of validating simulated market results in which actual outcomes cannot be observed. A securities-trading approach may yield significant advantages over traditional methods-such as surveys, focus groups, concept tests, and conjoint analysis studies-for measuring consumer preferences. These traditional methodologies can be more costly to implement, more time-consuming, and susceptible to potential bias. Our approach differs from prior research on prediction markets and experimental economics in that we do not require any exogenous, objective " truth " such as election outcomes or movie box office receipts on which to base our securities market. We also differ by demonstrating that in this context, metrics summarizing all prior trades are more informative than closing prices alone. In fact, STOC markets are shown to resemble traditional market research more than they resemble prediction markets. We show that STOC trading reveals heterogeneous preferences at the individual level. As a measure of internal validity, four product categories are tested in eleven independent STOC markets. In the context of new product development, exogenous truth may not be available as the majority of potential new product concepts are never launched, and actual demand may never be revealed for discarded concepts. To address the need for external validity we compare STOC trading results against preferences measured through: (1) virtual concept testing (of bicycle pumps and crossover vehicles), (2) stated-choices (of actual crossover vehicles and Wii video game concepts) and (3) actual sales of the subset of product concepts that are launched in a simulated store …