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Interesting Use of Market Forecasting in Google

Tyler Cowen writes about Google's internal use of market forecasting to create a predictive tool for launch dates and other decisions. Market forecasting uses competitive bidding to determine the likelihood that an event will occur, and on a specific date.

Says Google: "We designed the market so that the price of an event should, in theory, reflect a consensus probability that the event will occur. To determine accuracy of the market, we looked at the connection between prices of events and the frequency with which they actually occurred. If prices are correct, events priced at 10 cents should occur about 10 percent of the time."

Market tools like this have been getting some attention in the media lately as they continue to be applied in new and interesting ways. It's an intriguing model to say the least, though I'm not sure if there are limits to their accuracy when, as in the Google case, no actual money is at stake on the part of the bidders themselves.

Posted on September 22, 2005 | Permalink | Tag this post with del.icio.us | This Post Now Lives Here


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There was a negative motivator, too. I think there will be an academic paper out at some point that you can check out.

Posted by: Bob | Sep 22, 2005 6:04:14 PM

That's a distinction I missed. Thanks for pointing it out! Does this mean that there were prizes at stake? While a positive motivator would certainly be good for accuracy, perhaps a corresponding loss motivator could also have an effect. On the other hand, it would raise a barrier to entry that might discourage participation and end up being bad for accuracy.

I definitely need to do more investigation into this subject. A few months ago when some open source projects were getting some buzz, I began looking into markets but at the time didn't see any convincing research.

Posted by: fuzzyfreaky | Sep 22, 2005 4:07:25 PM

"in the Google case, no actual money is at stake on the part of the bidders themselves."

The post doesn't say that. It says that no payment was required to play. I can assure you that there was money at stake (I participated).

Posted by: Bob | Sep 22, 2005 2:06:57 PM

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