Prediction markets at Google

According to the report, “Using Prediction Markets to Track Information Flows: Evidence From Google,” which was presented Friday at the American Economic Association meeting in New Orleans, the strongest correlation in betting was found among people who sat very close to one another, trumping even friendship or other close social ties.

This is tangible evidence, the authors argue, that information is shared most easily and effectively among office neighbors, even at an Internet company where instant messaging and e-mail are generally preferred to face-to-face discussion.

It is an argument, the authors say, for giving greater importance to “microgeography,” or how people interact in the workplace. The finding that information moved fastest among people who were the closest together is also an endorsement of the company’s “third rule for managing knowledge workers: Pack Them In,” the authors say.

And Adam Smith is validated once again:

The other crucial finding of the report was that there was a detectible “optimism bias” among Google employees. That is, results that were good for the company tended to be overpriced, particularly for “subjects under the control of Google employees, such as, would a project be completed on time or would a particular office be opened.”

This optimism was most evident among new employees, the report found, and it was bound to show up on days when Google stock had climbed.

Here is the story.  Of course this is very important work.  Thanks to Chris Masse for the pointer.  Elsewhere in prediction markets land, InTrade has now started conditional prediction markets, which consider oil prices, interest rates, and U.S. troops in Iraq, conditional on who becomes President.