In my last post, I promised to say a bit more about prediction markets at Google. Google has been running internal prediction markets for a couple of years, and Eric Zitzewitz and I were fortunate enough to team up with Google whiz Bo Cowgill to analyze these markets.
Ask any economist about the “theory of the firm” (what firms do and don’t do), and they will emphasize the importance of information. So we decided to move beyond asking, “Do prediction markets work?” and instead use them as a tool for better understanding how information flows within a (very cool) corporation. Information is terrific to theorize about, but hard to measure. That’s where the prediction market is useful: if you and I trade similarly on a market, then we can infer that you share similar information.
Our research uses this insight to try to understand which employees trade in correlation with which other employees, and, hence, to measure how information flows within Google. We came up with some pretty interesting findings:
Sitting within a few feet of a workmate has a big effect. (Our data includes the exact GPS coordinates of each person’s desk, as well as their previous desks.)
Beyond this, sitting on the same floor as someone barely has any effect.
There is some evidence that organizational proximity (such as working for the same managers) also plays a role.
Professional relationships are quite important, although having been assigned to the same cross-departmental project as another person didn’t have any effect.
Shared interests (such as being on similar e-mail lists) also yield similar trading behavior.
Yet when Googlers were asked who their friends were, the relationships they reported did not explain trading behavior at all.
Demographic similarity was surprisingly unimportant, except where two colleagues shared a native non-English language.
We also have some interesting insights about biases in prediction markets. If there’s interest, I’ll return to this in a future post.
The overwhelming importance of “micro-geography” was quite striking, particularly as this is the sort of organization in which Instant Messaging and e-mail (plus blogs and wikis) might have otherwise suggested the death of distance. Certainly this research changed my mind about the importance of open-plan seating. This isn’t a lesson lost on Google either, as cube-mates are kept in close proximity, and Googlers are asked to move desks approximately once every three months. Interestingly, personal relationships persist once these moves have occurred, and people tend to trade in a way correlated with that of their cube-mate from three months ago; although, reassuringly, they do not trade in a way correlated with their future cube-mate. (I say “reassuringly” because this is a useful way of testing whether our results reflect Google seating people with similar opinions near each other, rather than people near each other influencing the opinions of others.)
I don’t know about your firm, but we academics are too self-important to ever sit in cubicles. Our research suggests that this may be unfortunate, and perhaps many of the best ideas in economics never occur, because the idea is waiting for us at a water cooler conversation at which we never arrive. I would love to see my colleagues brainstorm more often and more freely. If we can’t tear down the physical walls between our offices, how can we all change our workplaces to encourage the free flow of information and ideas? Comments are open.
Related links: click here for the full research paper; a companion post at the Google blog; a recent write-up in the Times. Other commentary: Marginal Revolution, Andrew Gelman, Zubin Jelveh at Portfolio, Justin Lahart at the Wall Street Journal, BloggingStocks.
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Very interesting study. I’d definitely be interested in hearing more about your findings on biases in prediction markets.
At a conference I spoke to last fall I heard a talk by Mark Lentczner, director of Studio Icehouse at Linden Lab (the creators of Second Life) in which he addressed that same issue of how to best “pack in” knowledge workers.
As he explained it, Second Life grew very fast from a few dozen to a few hundred on staff, and in the process, as people became more specialized, the free-wheeling exchange of ideas was lost. People started to relate more and more to just those in their project team.
Second Life used a very different strategy than Google’s to re-inject serendipity in the exchange of ideas. Recognizing that you exchange the most information with your office mates, Second Life decided to physically separate team members, so that everyone would be sharing offices with people not on their own team. At the same time, they used Second Life itself to create virtual shared office space for members of the same team. So, each person physically sits in an office with other people assigned to unrelated projects, but also sits virtually in an SL virtual office frequented by just their team members.
Best of both worlds, literally.
Brief aside: ‘Googler’ is the in-house appellation for a Google employee? It’s reasonable enough, but it clashes with the (my?) more generic “Googler as one who searches with Google” (or even more generally, “one who uses search engines” or just “one who digs into things”).
Advantage goes to Google’s internal culture, ultimately, but it does jangle in the ear a bit.
Reading from the posts describing the markets, it seems there is no cost for being wrong / no huge incentive to be correct (a synthetic currency with top heavy payouts, isnt exactly a balanced surrogate for money). Eliminating the actual ‘market’ from these essentially moves them from being predictive markets, to dynamic polls (with ‘prizes’), which as seen from NH primary is prone to large margins of errors.
I think a good way to encourage open flow of information might be for a group of employees (especially a group of professors/grad student research assistants) to set up an online chat room. I’ve always thought that it would be helpful if I could just send everybody an IM with a question or suggestion… since it’s less intrusive than a phone call and more low-key than an email, it would be a great mode of communication.
For instance, I work in academic research (I actually work at a lab, but that’s probably irrelevant here) and I am always pondering ideas that I’m sure somebody else has already answered. If I could just send an IM to one of my fellow researchers, it would be much more efficient than looking at previously-published papers. For some reason, it seems that I’d be “bothering” my colleagues if I were to send them an email or call them on the phone (not to mention that I’d have to do it individually for each of them), but it’s much less invasive if I just send an IM.
Somebody should do a study… if I were a professor, this is how I’d set up my lab. Unfortunatetly, I’m just a lowly student and my boss would just laugh at an idea like that.
As someone who works on a trade floor where everyone simply has a bank of monitors and filing cabinet at their workspace and there are not even cube walls between desks, this is hardly surprising. The information flow between those 8-12 people within easy talking distance is rapid and non-stop. Sit more than a row and a half away, though, and I’m lucky to see you, much less share ideas.
I think seating proximity also affects the quality of relationships. If people sit next to each other they get along better. If there is someone in another building they must work with, via phone or email, they are more likely to express frustration with that person, even making up insulting nicknames for the person, and also having genuine work related problems. But if the company has that person move so all now sit together, don’t be surprised if within a short time the former enemies are spending a lot of time talking about the work related things they have in common, even quickly becoming fast friends.
I’d love to hear more on biases. And it is interesting eavesdropping via their respective blogs on the watercooler/lunch talk of the George Mason mafia.