In the summer of 2003, members of the United States Congress went apoplectic when news broke of the Defense Advanced Research Projects Agency’s (DARPA) program to help predict terrorist attacks and assassinations by allowing people to bet money on the likelihood of such events. (DARPA is the central research and development organization for the Department of Defense.) There is, of course, something unseemly about wagering on a tragedy, but what is ironic is that such systems have proven remarkably successful at predicting a variety of outcomes because people’s financial interests are appropriately aligned with accurately assessing the odds of the event occurring. Thus, properly used, the system could help prevent the very thing that Congress wanted to stop from happening.
The program was terminated, but a number of companies, including Google, Pfizer, and Microsoft, now regularly make use of such systems to allow employees to make bets on the outcome of everything from when a product might launch or assessing the prospects that a particular department will meets it quarterly sales goals to determining whether a new TV commercial will be a hit.
What is unique about such systems is that managers receive a different type of information than they might ordinarily receive from their subordinates. For example, a few years ago a Microsoft business manager kept telling her boss that a product was on schedule to launch on time. When the boss inquired why so many of the manager’s own employees were betting that the product wouldn’t launch until the following year, the manager was forced to admit that the program had run into hurdles. As a result, additional resources were committed to the project and, while the project was still late, Microsoft was at least able to get it to the market faster than otherwise would have been the case because of the unique insight that the market-based system afforded company managers.
Exponential Insight
Managers are, of course, encouraged to always listen to their employees’ words, but frequently what employees are saying is vastly differently than what their money is saying. By creating a system that aligns their financial interests with the company’s, managers can glean some useful information.
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