Using Prediction Markets to Track Information Flows: Evidence from Google
The paper analyzes Google's internal prediction markets, highlighting biases such as optimism, correlations in trading among proximate employees, and insights into how organizations process information and communicate.
static.googleusercontent.com“Prediction markets reflect a fundamental principle underlying the value of market-based pricing: Because information is often widely dispersed among economic actors, it is highly desirable to find a mechanism to collect and aggregate that information. Free markets usually manage this process well because almost anyone can participate, and the pote
... See moreExamples include economic and political forecasts. The evidence shows that collectives outperform experts in solving these problems. For instance, economists are extremely poor forecasters of interest rates, often failing to accurately guess the direction of rate moves, much less their correct level.
What’s clear, however, is that we’ll never detect a bubble if we start from the presumption that markets are infallible and the price is always right. Markets cover up some of our warts and balance out some of our flaws. And they certainly aren’t easy to outpredict. But sometimes the price is wrong.
