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Interesting Talent Management Use of Internal Prediction Markets

Posted by Mark Bennett on January 22, 2008


Thanks to Jake for pointing out this recent post about a different and interesting talent management approach to prediction markets, showing how they can be used to gain a better understanding of the flow of intangibles in your organization. That is key for both getting the most out of your talent as well as helping your talent feel engaged.

Bo Cowgill at Google and two economists, Justin Wolfers (Wharton) and Eric W. Zitzewitz (Dartmouth), have been for the last two and a half years studying Google’s internal prediction markets. As the NY Times article states regarding the markets:

“At Google, they are used, of course, for business. In the last two and a half years, 1,463 employees have made wagers with play money (Goobles, as in rubles) on questions like: will Google open a Russia office? will Apple release an Intel-based Mac? how many users will Gmail have at the end of the quarter?”

People typically look at prediction markets for the most part as a “Wisdom of Crowds” tool (where they are also known as “decision markets”). Internal decision markets can provide value to the company by, for example, getting a jump on the competition by spotting something or some trend sooner to generate new business ideas, saving costs by shutting down projects that sales forecasts predict will do poorly, etc. The prediction market acts as an aggregation mechanism for the collective wisdom of the people participating in the market, and it is most effective in its direct application to making informed decisions when the group members are diverse, independent, and decentralized.

Even when those properties aren’t fully present, like many other things where people are involved (crowds, surveys, etc.), the value in the prediction market isn’t just in the answers to the direct questions you ask of itThere is value from what those answers are telling you about other things regarding the people you are studying. That’s exactly what the paper, “Using Prediction Markets to Track Information Flows: Evidence From Google,” drills into, and it applies very much to ways in which companies can derive more value from their talent. Here’s what the paper’s authors summarized:

“…we illustrate how markets can be used to study how an organization processes informationWe 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 ofrecent work on the importance of geographical and social proximity in explaining information flows in firms and markets.”

These kinds of findings are very useful from a Talent Management perspective. Using internal prediction markets as a way to understand how information flows within your organization is an area to pay attention to, especially in conjunction with tools like social network analysis, which also help you understand the flow of knowledge in your organization. Knowing how intangibles flow within your organization is a key competitive advantage, both in helping to find ways to improve that flow as well as helping to increase employee engagement.

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