Bo Cowgill

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Abstract: In the last 2.5 years, Google has conducted the largest corporate experiment with prediction markets we are aware of. In this paper, we illustrate how markets can be used to study how an organization processes information. We document a modest optimistic bias in Google's markets. Newly hired employees are on the optimistic side of these markets, and optimistic biases are significantly more pronounced on days when Google stock is appreciating. We find strong correlations in trading for those who sit within a few feet of one another; social networks and work relationships also play a secondary explanatory role. The results are interesting in light of recent research on the role of optimism in entrepreneurial firms, as well as recent work on the importance of geographical and social proximity in explaining information flows in firms and markets.

Mood Swings at Work: Stock Price Movements, Effort, and Decision Making. with Eric Zitzewitz. Forthcoming.

We show that daily stock price movements affect the mood, effort level, and decision making of employees. Positive current-day stock returns are accompanied by greater reported economic confidence and job satisfaction, shorter working hours, more optimistically biased beliefs about firm performance, tougher grading of innovative ideas, and tougher evaluation of interviewees. These effects are very short lived, lasting one or two business days. The effects on mood and some types of behavior are larger for employees with larger prior stock and option grants. We show that the short-term effects of the (plausibly exogenous) shock to moods are generally opposite in sign to the cross-sectional correlations of mood and behavior. Whereas happier employees perform better and are more lenient evaluators, shocks that increase happiness are accompanied by lower work effort and tougher evaluation.

Incentive Effects of Equity Compensation: Employee-Level Evidence from Google with Eric Zitzewitz.

We examine whether differences in stock exposure motivate differences in performance using data from Google. Employees with more initial exposure to Google stock than peers hired at the same time and job grade perform slightly better across a variety of measures. To attempt to determine the direction of causality in this relationship, we use the fact that Google assigns option strike prices based on the stock price during an employee's first week to identify variation in initial stock exposure caused by luck rather than negotiation. We find that employees who begin work when the Google stock price is lower than surrounding weeks (and thus receive more initial stock exposure) do not perform better than their peers. In contrast, we find evidence that employees do respond to incentives tied to individual performance, such as those created by the promotion cycle. We also find that unvested equity compensation may indirectly affect performance by encouraging retention, since employees appear to make retention and performance decisions jointly.

Popular Writing

The Promise of Prediction Markets. In McKinsey Quarterly. With Renee Dye, Todd Henderson, Jeff Severts and James Surowiecki.

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