Learning From Internal Prediction Markets

I thought this was pretty fascinating. Justin Wolfers talks about some interesting observations from analyzing the data at Google's internal prediction market. Turns out stuff like proximity to one's work neighbor is a big predictor of how you'll trade:

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.

The whole thing is definitely worth a read. It's particularly interesting, as Wolfers notes, that such patterns would emerge in a workplace that relies heavily on electronic communications.

More: (Undercover) economist Tim Harford has a worthwhile piece up at Wired on the significance of physical proximity in an electronic world. Definitely some interesting insights on why business travel isn't going away (yet, at least), why rents aren't converging in New York and White Fish Bay, WI and a worker' closeness to cubicle mates:

One day, perhaps, virtual communication will become so good we'll no longer feel the need to shake hands with a new collaborator or brainstorm in the same room. But for now, the world seems to be changing in a way that actually demands more meetings. Business is more innovative, and its processes more complex. That demands tacit knowledge, collaboration, and trust — all things that seem to follow best from person-to-person meetings. "Ideas are more important than ever," Glaeser says, "and the most important ideas are communicated face-to-face."

Which explains why the highest-tech industries are the most dependent on geography. In a study published in the American Economic Review, researchers examined 4,000 US-based commercial innovations and found that more than half came from just three areas: California, New York/New Jersey, and Massachusetts. Almost half of all US pharmaceutical innovations were invented in New Jersey, a state with less than 3 percent of the nation's population.