A large, multinational cooperation wants to enable it's executives to get more creative in pursuing the companies goals. So an internal prediction market is established:

  • starting at lower management, part of the salary is not paid directly but in form of tokens for a company-internal prediction market
  • managers bet on real world events and outcomes of the companies projects, if and when they happen (will x win this election? will the second quarter be beter or worse then the first? will department y finish project z on time and on budget?)
  • payouts are paid in real money
  • only participants can see the bets, each bet is anonymous (the betting office is it's own legal entity, though of course once the payouts reach the winner of a bet banks, law enforcmeent or management high enough up the food chain could break the anonymity)
  • the overt motivation is that it forces managers to think hard, with skin in the game, about the outcomes of actions, including their own
  • the thing is - ostensibly - anonymous so a junior executive can bet against their managers project if they think it will fail, without fear of reprisal
  • the actual goals is a sort of assassination market - Bob bets on a certain sale happening within a specific week, then goes on to bribe the procurement person on the clients side with his own money to make it happen
  • to make this work, senior executives and major stakeholders also "play" in the prediction market, betting against outcomes they want (like Bob making the sale) to ensure that initiative shown is rewarded
  • If Bob gets caught, he's immediately thrown under the bus - clear breach of the compliance handbook, how is it the companies fault what he does with the money earned in the prediction market etc.

A law against such a prediction market can surely be written, or has been written. That's not what this question is about. The question is, how could someone game this system (possibly using the contradiction between the overt function where everyone bets on what they think will happen and the covert function where everyone bets against outcomes they want) to get rich in a way that is not in the shareholders interest?

  • 4
    $\begingroup$ This already has a glaring conflict with the shareholder's interests - which is the same reason sports betting by participants in the game is particularly frowned on. If a junior can bet against a project anonymously AND has the power to submarine the project, a predictable result is exactly that. And the failure of projects is of course against the shareholders' interests. $\endgroup$
    – Jedediah
    Aug 12 '20 at 13:14
  • $\begingroup$ and how it's anything different from IRL thing? You can bet on merges, on them happening and when. You can bet on anything. And if you're frisky you go big on Wall Street and try not to get caught by bribing and spilling beans. $\endgroup$ Aug 12 '20 at 13:26
  • $\begingroup$ If real-life betting restrictions aren't enforced, then the company will go bust (just like real life bookmakers). A player would make a very long odds bet, and then manipulate behind the scenes to win this bet. Or make a lot of normal odds bets knowing that the outcome is already fixed. $\endgroup$
    – Alexander
    Aug 12 '20 at 19:08

There is a lot that could be said regarding game theory, but the TL;DR is that people are ♥♥♥♥'s, people in positions of power specially so, and doubly so if you are in a capitalist society and money is in dispute.

How does a manager make sure that they get the most money from their job in such a scenario? Compare the possible rewards from:

  1. Completing your project
  2. Betting against your own project and then sabotaging it from the inside

After all, bets are anonymous, right?

If you can earn more by sabotaging your own project, then people will do just that. By the way, you've just discovered one way in which government corruption can happen (intentionally never make any effort to deliver upon your promises, earn huge amounts of cash anyway).

If sabotaging your project does not provide enough compensation for it to be worthy, then life proceeds as normal. What you earn for betting on the project you completed yourself is what normal companies call a bonus.

About this:

If Bob gets caught, he's immediately thrown under the bus - clear breach of the compliance handbook, how is it the companies fault what he does with the money earned in the prediction market etc.

You may be thinking that failing to deliver a sequence of projects would get a manager fired. Think again. If that were true, there would be no market for Scott Adam's master creation. Also, in the words of a certain demon lord from a certain recent TV show:

I took the form of a 45 year old white man for a reason, I can only fail up.

Sure, sabotaging the company decreases its profitability. Over time the company might tend to disappear, if it does not have a monopoly or if it is not the biggest company in its field worldwide. But if it's a nationalized company, there are no limits to how far this could go.

  • $\begingroup$ Hmm. The moment a project manager sees someone is betting against their project they are warned - not about sabotage specifically, but about something beeing off (someone knows more than them?), the moment PMs boss sees the be hey will start asking questions. This doesnt directly stop sabotage but makes for a paranoid feeling ... $\endgroup$
    – mart
    Aug 12 '20 at 13:59
  • 2
    $\begingroup$ @mart But how does the manager knowing about it solve anything? Anyone they might get to help save the project can also bet against it and sabotage their efforts, since they already know or can suspect someone else is doing the same. (Why compete and spend all that effort on the chance of a reward when you can cooperate, spend no effort, and get the same reward?) And that's not taking into consideration that those people could be deliberately colluding. $\endgroup$
    – Cadence
    Aug 12 '20 at 15:35

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.