Working virtually may have a down side according to a study just released. 

Google’s Lunchtime Betting Game (NY Times, 7 Jan 08) reports on an economic study of a prediction market run internally at Google. Prediction markets use the wisdom of crowds, via individual bets, to predict outcomes (e.g., of elections, stock price, or where Google will open a new office). In analyzing the correlation of individual bets, the authors (3 economists) found that the

“strongest correlation in betting was found among people who sat very close to one another, trumping even friendship or other close social ties…. This is tangible evidence, the authors argue, that information is shared most easily and effectively among office neighbors, even at an Internet company where instant messaging and e-mail are generally preferred to face-to-face discussion.”

So much for working virtually or formal knowledge management. Maybe it does all come down to proximity! Or perhaps workers waste time in idle chit chat with neighbors. Take away the neighbors and then they have to communicate with actual co-workers. Of course, if you can group workers in close physical proximity, that indeed has value. But given global teams, that often is just not possible.

By the way, I have previously suggested that law firms use prediction markets to tap collective expertise. So, one article and three of my favorite topics in it (working virtually, knowledge management, and predictive markets).