Information Markets as a Platform for Improved Corporate Communications

  

Steven OstroverEcon One Research, Inc.

DIMACS Workshop on Markets as Predictive Devices February 3, 2005

THE BASIC ARGUMENT FOR EMPLOYING INFORMATION MARKETS WITHIN FIRMS ….

…. comes from Ronald Coase:

the distinguishing characteristic of firms is that they

“supersede the price system”

human limitations in expressing and interpreting complex thoughts

systematic biases in group decision-making processes

self-interested behavior (i.e., various forms of “politics” motivating individuals to conceal information or spread disinformation)

structural boundaries (i.e., lines of authority distinguishing business units and other groups)

lack of systematic procedures for consolidating massive amounts of (often qualitative) information within clear, quantitative metrics

CONSTRAINTS ON THE FLOW AND PROCESSING OF INFORMATION WITHIN ORGANIZATIONS

participation

motivation

anonymity

coordination through a conversational dynamic

computation

WHY DO INFORMATION MARKETS WORK SO WELL WITHIN FIRMS?

Eli Lilly manager:

“We already have a rigorous process. So what do you do if you use a market and get different data? Throw it out? Or say the market was smarter, impugning the tried and true system?”

The End of Management?

WHAT DO YOU DO WITH THE RESULTS OF AN INFORMATION MARKET?

The informational content of the market is not limited to security prices.

Every bid is a form of communication.

Look for the disagreements:

“ Price dispersion is a manifestation – and, indeed, it is the measure – of ignorance in the [trading community].”

”Honest disagreement is often a good sign of progress.”

Look for opportunities for expanded forms of communication.

Caveat: must establish controls so as not to compromise anonymity protection.

FOR MANAGERS WHO GENUINELY VALUE INFORMATION

risk management

improved decision-making on personnel issues

improved employee morale

better managers

ADDITIONAL ORGANIZATIONAL BENEFITS

ARE THERE “REAL” CONCERNS ASSOCIATED WITH CORPORATE IMPLEMENTATION?

broader dissemination of projections  insider trading (i.e., fairness)

Your firm (or government agency), driven by a general mission to utilize resources as efficiently as possible within a commercial environment placing ever-increasing values on intellectual capital, contains substantial knowledge not being communicated to planners and decision-makers.

WHERE’S MY PAIN?