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Google bets on value of prediction markets
- — 06 March, 2008 08:13
Prediction markets are known to forecast the outcome of elections more accurately than polls. Now Google is using an internal prediction market to improve business decisions and learn how employees exchange information.
Basically operating like a stock market, Google's prediction system was designed by its own software engineers and lets employees bet on probable outcomes. Will a project be finished on time? How many users will Gmail have? Who will win the World Series?
With about 1,500 employees making 80,000 "trades" over the past two and a half years, Google officials say it's the largest corporate experiment with prediction markets they are aware of.
Google employees bet "Goobles" instead of real currency, but at the end of each quarter the most successful bettors can win US$1,000 cash prizes or T-shirts.
More importantly, said Google economic analyst Bo Cowgill, the trading system lets the Google hierarchy discover its employees' uncensored opinions.
"If you let people bet on things anonymously, they will tell you what they really believe because they have money at stake," Cowgill said. "This is a conversation that's happening without politics. Nobody knows who each other is, and nobody has any incentive to kiss up."
Cowgill described the prediction market Tuesday at the O'Reilly ETech conference on emerging technology in San Diego. Cowgill and economists from Dartmouth College and the University of Pennsylvania also published a paper on Google's experiment in January.
From a practical standpoint, the Google prediction market gives managers insights that might impact business decisions and which they might not have obtained in any other way. In one example, "the market was predicting that [a project] was behind," Cowgill said. "A manager says what's going on here, . . . starts investigating and finds some glitches."