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)"

I predict...

a beta version hitting the Intarweb tubes soon...

Worldwide for free: inkling

This exists for everyone with funny money called inkles at Inkling Markets [inklingmarkets.com]

Re:Worldwide for free: inkling

And with non-funny money at: https://www.intrade.com/ [intrade.com]

Re:I'm suddenly skeptical

You might be trying to ferret out the wisdom of crowds. Lots of other people are just gambling, and another entity is interested in collecting transaction fees...

I'm surprised

That they use "Goobles" to wager with; I'd have expected Quatloos.

My Bet

will Apple release an Intel-based Mac?

I'm betting yes. So when do my stock options arrive?

Like Popular Science

I wonder what you would learn from the PopSci Prediction Exchange (PPX) [popsci.com]? I've been playing around with it a little bit, but it seems to act more like a commodities market than an actual stock exchange.

Employee Games the system

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:Employee Games the system

I wonder if he got fired or got a raise?

Maybe he just got a commendation for original thinking.

steveha

I wonder

Will this post be moderated +5, Funny?

Information, not crystal ball

Prediction markets reflect information that is known; they are not perfect crystal balls. They also fall victim to groupthink.

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.

Re:Information, not crystal ball

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.

Re:Information, not crystal ball

Did you notice the stock market dropped after Obama did well in Iowa? He's running on a more populist campaign, it happens most election years.

Did you notice the day after Obama did well in Iowa, there was a sudden storm front that hit the west coast?

He's running a Godless campaign, it happens most election years.

[hint: The market tanks because of a jobs report that came out from the labor dept]

Re:Information, not crystal ball

Prediction markets force people to be honest -- there's real money at stake, and a cost to your arrogance.

They don't "force people to be honest". Prediction markets — if they are positioned to influence the events they are used to "predict", like political futures markets are — are simply a form of advertising (or, viewed another way, campaign donations). Sure, they cost real money, so does buying TV ads. But, (1) they aren't regulated, the way political advertising and donations are, and (2) they are also negative cost if they succeed, unlike regular ads or campaign donations.

People expend real money on campaign donations and political advertising all the time without any concern for "honesty". To think that political futures markets would somehow, by using "real money", force people to be honest is absurd. Any system where action can influence the perception of political reality will be gamed by those interested in influencing that perception—especially since the perception influences the reality here—and if you make it so that the limiting factor on the degree of influence is the ability to spend money then, like most aspects of the political system, the results will be skewed by the interests of those most able to burn money to acheive their political ends.

Someone at Google has been reading John Brunner...

..who had this as a significant plot element in his novel, The Shockwave Rider
--Gene

If that's all they can predict...

Then I'm not very worried for the great data mine of google.

Wikipedia article on prediction markets

Wikipedia has a pretty good article [wikipedia.org] on the topic that I read a few months ago. Be forewarned Websense views some of these prediction market sites as gambling. So, I wouldn't view them at work. Specifically Intrade.

High Definition

What does it say about the outcome of the HD-DVD/Blu-Ray battle? I want to buy my player now!

Take your lips away from G's rear

Another day, another story about G wackiness...
I only feel sorry that /. was not around when MS was the rising star, I would love to read the "old" stories about how great and wonderful was MS at the time.
What will be the next one - someone there changes their underwear?

prediction markets or gambling ?

if we're trying to *predict* a future event without any prior data to forecast upon, then it's merely a form of legalized gambling.

and seriously......"Goobles"? They have to chose a name that sounds like one coming from a semi-dictator regime (Putin)? Whatever happened to "Googo" (like euro) or "Ginar" (like dinar) or "Ganc" (like franc) or even "Grona" (like krona) ?

Ummm....

Given the smartestest people in the world, the revolutionary free lunch policy and the room of rubber balls, shouldn't they be producing something exciting by now? Experimenting with libertarian enthusiasms from 2003 while their lawyers acquire and rebrand other people's Web 2.0 startups seems a bit of a letdown after the hype.

Prediction markets in Earthweb

Earthweb [amazon.com] is a novel by Marc Stiegler [skyhunter.com].

In Earthweb [amazon.com] prediction markets have a major role in the plot. Prediction markets are used to harness the wisdom of the crowds over the whole planet; this is what the title references. The book also speculates on some of the problems that might happen with prediction markets, such as people who just try to figure out an expert's prediction and just bet the same as that expert. (This expert-following skews the results; the followers are not adding any more insight to the market, and they might be lending their support to someone who might be wrong.)

The book is really a bunch of cool future Information Age ideas, with just enough plot to stitch them together. The action sequences are as energetic and implausible as a Tomb Raider game. It's not Shakespeare but I enjoyed it.

P.S. The book also tells, as part of its backstory, about a bunch of inexpensive computing devices with networking built in being air-dropped over the poorest parts of the world, to give poor children some sort of an education. He wrote this years before OLPC.

steveha

Predictions helped find a nuke, and a missing sub

I find prediction markets very fascinating and a powerful prediction system, when manned by experts of the field. Indeed, such a system was used to find a H-bomb that had been lost at see back in the 60s, as well as the missing submarine Scorpion. Read "The Blind Man's Bluff" for details, but there are excerpts online. Also see Bayes subjective probability.

Great idea, just don't tell Congress

Pentagon tried just this in 2003 — use the method [gmu.edu] to predict terror attacks. The Congressional outcry about "trading in blood" was such, that the program was scrapped shortly after being announced...

Quoting from MSNBC report [msn.com]:

The Pentagon Tuesday agreed to abandon the plan, the Senate Armed Services Committee chairman said, after Senate Democrats Monday blasted the plan as nothing more than state-sponsored "gambling on terrorism."

K-129

I've read that the CIA used a similar approach to predict the location of a soviet Gulf II sub which was lost in the Pacific. I guess the resulting predictions were pretty darn close.

Prediction Markets are absolutely useless

Look at the political markets which didn't price Mike Huckabee in until a month ago, never minding the best bet is always the governor of a southern state (and there is only one this election cycle!!!).

Look at football gambling. Every week some group of people actually bets the road favorites heavily even though it is a fact that a home team underdog stands a consistently better chance. In football, homefield advantage is overwhelming, so much so that if you consistently bet on the home team underdogs throughout the season you will turn a profit.

That piece of information never makes it into the numbers.

How Prediction Truly Works:

The best predictions are made by an aggregate of opinions. You need look no further than "Who wants to be a Millionaire". When they poll the audience, the audience has a very high success rate (over 90%, though I forget the precise figure). The reason for this is that people that don't know for the answer account for random choices, which allows for those that do know the answer to make the correct answer rise to the top.

There's a fascinating book that addresses all these points called "More Than You Know" by Michael J. Mauboussin. I have recently been at one of his lectures at an investment conference (and got an autographed copy of his book). He gave a poignant example about prediction quality of a group vs the individual:

He put jelly beans in a jar and made his students guess the amount of beans the jar contained. He offered a small monetery reward as incenctive, to better ensure educated guesses. With the exception of 2 students, the class average came close to guessing the amount of beans in the jar than any one individual. His book offers interesting examinations of psychology and group behavior applied to financial markets.

Google's prediction market at O'Reilly Money:Tech

Bo Cowgill, who wrote the paper on Google's prediction market, will be talking about their project at our Money:Tech conference in New York Feb 6-7. See http://conferences.oreillynet.com/money2008 [oreillynet.com] for details.

I've been spending a lot of time thinking about parallels between Web 2.0 and Wall Street. Because of course, the stock market is one of the largest prediction markets of all.

But it doesn't end there. There are lots of fascinating things to learn by studying the parallels, including why Web 2.0 will turn away from aggregating public content to providing new ways for anonymized aggregation, why Google and other search engines will increasingly compete with the sites they index, and why web 2.0 companies might find new markets by providing insight -- or even new kinds of financial futures (see for example weatherbill.com) to financial markets.

social implications

hi,

john brunner's 1975 novel "shockwave rider" spent some time sketching out the social implications of a prediction market -- he called it a "delphi pool" and made it an integral part of the narrative -- a somewhat prosaic wikiview of the novel is at http://en.wikipedia.org/wiki/The_Shockwave_Rider [wikipedia.org] -- if you are interested in this topic, the novel is worth the read -- it is often labeled as the grand-daddy of cyber-punk and came off the presses ~10 years before neuromancer -- brunner's previous books "stand on zanzibar" and "the sheep look up" at least stylistically touch on some of the same topics as "shockwave rider" but never give these concepts explicit name -- the previous books were hugo/nebula winners/nominees

ciao ciao,
kevin

Delphi?

Sounds like Shockwave Rider concept. Perhaps healthier due to complex social culture of Google culture.