Prediction Markets Discussion Question

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 certainly is important to encourage all employees to trade in prediction markets. Prediction markets are speculative markets created for making predictions. Prediction market is a tool companies are increasingly using to make better decisions by allowing employees to trade in a mock stock market based on information they have about the business. The advantage of having an open prediction trading system gives employees an incentive to share information they have that may be valuable. Several large companies have started using this tool to help make assessments about all kinds of projections including how customer numbers will grow, assess demand for their products, what changes needs to be made and so forth. Therefore, this tool benefits the company in making informed decisions. So, the higher the number of employees that use prediction markets the better it is for the organization.

Although insiders or highly uninformed people may not have all the information to trade, however they will increase the number of participants. As mentioned earlier, the higher the number the better it is for the company to get an aggregate view. Due to the increased number of uninformed traders and insiders the ‘Law of Large Numbers’ come into play resulting in aggregated views and will work to the benefits of the organization. Sometimes, the social and cultural issues which may have prevented an employee from sharing information are also, kept aside, because all trades are anonymous. Therefore, all employees must be allowed to trade in prediction markets because they actually help the company and the market.

Information about Google from additional research
Source: http://www.consensuspoint.com
Google, the search giant, has been using such markets since 2005 to estimate - among other things - traffic volumes, and when its international offices will open. About 1,500 employees will trade at any one time, and each has 10,000 ‘Goobles’ - a mock currency - to play with per quarter. The markets run for anywhere between two weeks and three months. When they close, successful traders are given cash prizes and specially branded T-shirts which end up being a greater incentive than the money.