Google Outs Itself: Prediction Markets Used For Strategic Insight

Google announced yesterday on its blog that it is using, benefiting from and advancing the state of the art on prediction markets. (I particularly like the playful image they created to go with it.)

Building on the ideas of Friedrich Hayek and the Iowa Electronic Markets, a few Googlers... set up a predictive market system inside the company. 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... our prices really do represent probabilities - very exciting! We also found that the market prices gave decisive, informative predictions in the sense that their predictive power increased as time passed and uncertainty was resolved.

Google joins over a dozen other prominent companies that have made similar announcements over the last few years. As the 'darling' company of the moment (many are watching and attempting to emulate their roaring success), this will have out-sized (positive) influence on the already rising credibility of prediction markets for mainstream business planning applications. The obvious next step - Google offering prediction markets as a service - could be massive. Watch this space. Either way, as I noted in July and then declared in August: "it seems warranted to declare this summer an inflection point for the phenomenon."

Hat tip to several on-the-ball readers.