Another interesting experiment from Google: Using Prediction Markets to Track Information Flows: Evidence from Google
In Google’s terminology, a market asks a question (e.g., “how many users will Gmail have?”) that has 2”5 possible mutually exclusive and completely exhaustive answers (e.g., “Fewer than X users”, “Between X and Y”, and “More than Y”). Each answer corresponds to a security that is worth a unit of currency (called a “Gooble”) if the answer turns out to be correct (and zero otherwise). Trade is conducted via a continuous double auction in each security.
Google’s prediction markets are reasonably efficient, but did exhibit four specific biases: an
overpricing of favorites, short aversion, optimism, and an underpricing of extreme outcomes.
Interesting paper. I would guess most readers of this blog won’t be able to apply prediction markets to there workplace in the short term but never-the-less I find the paper interesting.
Related: Management is Prediction – Google Experiments Quickly and Often – Secrets of the World’s Best Companies