Google's Prediction Market

Googling Yourself writes "Employees at Google are encouraged to place bets on Google's prediction market — an exchange that tries to forecast events based on the money wagered on a particular outcome. Employees have made wagers with play money (Goobles, as in rubles) on questions like: will Google open a Russia office? will Apple release an Intel-based Mac? how many users will Gmail have at the end of the quarter? One tangible benefit to the company is that the market allows Google to track how information disseminates in the company. A paper called "Using Prediction Markets to Track Information Flows: Evidence From Google" discusses information flows in the company based on the prediction market data and contains many other interesting observations of Google culture. (pdf)"

Comments

Employee Games the system

[ryanguill]

Google, however, is no ordinary company. As detailed in a footnote, one Google employee, looking to be a profitable trader, wrote the code for an extremely prolific trading robot. As a result, he "was participating in about half of all trades" and made a profit (in Goobles).

I wonder if he got fired or got a raise?

Re:Information, not crystal ball

[UbuntuDupe]

Prediction markets reflect information that is known; they are not perfect crystal balls. They also fall victim to groupthink. Very true, but the question is, compared to what? Prediction markets force people to be honest -- there's real money at stake, and a cost to your arrogance. (Well, not at Google, but at other markets.) It's harder to be a know-it-all when you have to back up your claims with your own money.

The best example is that the prediction markets predicted Hillary would win the Democratic nomination by a wide margin. Now the consensus is that it will be Obama by a wide margin. I'd classify that as a feature rather than a flaw. Changes in odds are useful information too and allow us to avoid hindsight bias. It keeps us from saying, "Well everyone knew Obama would win." You can look at the history of the bets and say, "No, they didn't -- the general consensus was that he had no chance." Furthermore, "Hey, if you really knew it all along, why weren't you swiping up those underpriced Obama bets?"

One thing I'm interested in seeing is how Candidate/Party X's chance of winning correlates with critical financial metrics like long-term interest rates and oil prices. That is, do traders revise their estimates as a party's chance of winning goes up? Intrade recently started "shock future" bets where you can bet on the changes in such variables on election day (although I think to avoid the noise you should instead look at the long-term correlation rather than one day, which has noise from other factors).

For all their flaws, prediction markets truly fascinate me.