Our friend at Google, Bo Cowgill, is making headlines with a paper he authored with Justin Wolfers at Penn and Eric W. Zitzewitz at Dartmouth. The paper, instead of focusing on the accuracy of the markets run at Google, discusses what factors influenced trading patterns over time. Perhaps one of the most interesting findings was about an optimism bias in traders:
"The most interesting of these was an optimism bias, which was more pronounced for subjects under the control of Google employees, such as would a project be completed on time or would a particular office be opened. Optimism was more present in the trading of newly hired employees, and was significantly more pronounced on and immediately following the days with Google stock price appreciation. Our optimism results are interesting given the role that optimism is often thought to play in motivation and the success of entrepreneurial firms..."
This mirrors what most of us experience when working at any large organization. Google hires lots of young, bright people out of college, and they surely come in wide-eyed and excited. Even if you're coming in with some experience, walking on to that campus you quickly realize: this is unlike any company...or place...you've ever visited, and I'm not just talking about the free food. It would seem to make sense those people would exhibit a high level of optimism expressed in their trading behavior. And despite the undeniable buzz of the Google campus, I don't think this is true just about Google. There is a certain aura to any large company. They got large for a reason - by being incredibly successful - and one can't help being a little in awe, full of pride, and optimistic when reporting for work.
Then life happens for awhile and you quickly see the contrast between the newbies and grizzly veterans who have had projects cancelled, seen delays, experienced a stab or two in the back, suffered through needless red tape, and lived the trials and tribulations of projects and the politics of large organizations.
The paper's findings seem to not only support the need for a diverse trading pool, but perhaps for more outside participation in a second, external marketplace. A group of trusted people who know you from the outside vs. the inside. One of our clients, for example, a financial services firm, invited all their vendors to trade in markets about the company. Who better to ask about yourself than the people who have to sell to you. They know where you're efficient, they know where it's hard to work with you. They get paid to know your business, but they look at you in a different light and would have no qualms expressing what they think of you (especially if they can be assured anonymity.) Capturing their perspective would likely be very valuable and an interesting contrast to data captured internally.
Bo assured us his paper would be a great read and it is. View it here: http://bocowgill.com/GooglePredictionMarketPaper.pdf