Thursday, April 23, 2009

Google's Prediction Markets

Is it a good idea to encourage ALL employees to trade in these markets? Should insiders and/or highly uninformed people be allowed to trade? Do they help or hurt the market?

Yes, it is. These markets rely on network effects. More users lead to greater accuracy and will also provide more liquidity in the market. At worst, the outliers in the user base (uninformed and insiders) will cancel each other out. That is assuming that it is still an anonymous system. However, there might be problems in an open, more social system. People would ignore the outsiders and would all follow the lead of the insiders, which would definitely skew the results.

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