Google is using prediction markets within the firm

by on September 22, 2005 at 7:11 am in Web/Tech | Permalink

The markets were designed to forecast product launch dates, new office openings, and many other things of strategic importance to Google. So far, more than a thousand Googlers have bid on 146 events in 43 different subject areas (no payment is required to play).

We designed the market so that the price of an event should, in theory, reflect a consensus probability that the event will occur. To determine accuracy of the market, we looked at the connection between prices of events and the frequency with which they actually occurred. If prices are correct, events priced at 10 cents should occur about 10 percent of the time.

In the graph below, the X-axis indicates the price ranges for the
group. The orange line represents the average price, which is how often
outcomes in that group should actually happen according to market
prices. The purple line is how often they did happen. Ideally these
would be equal, and as you can see they’re pretty close. So our prices
really do represent probabilities – very exciting!

The image

Here is the story, and thanks to several of you who sent in the link.

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