In the last 2.5 years, Google has conducted the largest corporate experiment with prediction markets we are aware of. Here, we illustrate how markets can be used to study how an organization processes information. We document a number of biases in Google’s markets, most notably an optimistic bias.
Newly hired employees are on the optimistic side of these markets, and optimistic biases are significantly more pronounced on days when Google stock is appreciating. We find strong correlations in trading for those who sit within a few feet of one another; social networks and work relationships also play a secondary explanatory role. The results are interesting in light of recent research on the role of optimism in entrepreneurial firms, as well as recent work on the importance of geographical and social proximity in explaining information flows in firms and markets.
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